Did you know that, for failure to pay as little as a few hundred dollars in municipal real property taxes, you could lose your home and all the equity in it? Most people don’t, which makes a new case out of the Land Court that much more important.
The statutory process for the assessment and collection of outstanding municipal taxes is set out in Chapters 59 and 60, respectively, of the General Laws. Although the statutes are somewhat complicated, a very brief overview is provided here (and a complete description and analysis can be found in the Land Court decision).
Unpaid water and sewer taxes are rolled into the “property tax” owed to a municipality. Generally, once taxes are owed a process begins. “An instrument of taking is recorded at the Registry of Deeds and, if against the proper party(ies) and in compliance with the statutory prerequisites, places title [to the property] in the municipality subject to the property owner's right of redemption. Generally speaking, the municipality then proceeds against the property owner itself.” After consideration of the homeowners’ position and circumstances, the municipality has the ability to enter into a payment plan with the homeowner, to seek to reduce the interest rate or the principal debt, and usually forecloses only in the most extreme instances.
However, some municipalities have chosen, in recent years, to auction off their tax titles to private investors. These investors then either enter into an agreement with the property owner to pay off the debt, or seek to foreclose. This latter option triggers an unusual provision – when a tax lien foreclosure takes place, and the right of redemption foreclosed, the tax title holder holds “absolute title” to the property, free of any outstanding liens (such as a mortgage), and the former homeowner is not entitled to any surplus after the sale.
In this manner, a home, theoretically worth several hundreds of thousands of dollars, can be taken for non-payment of a small municipal debt, and the former homeowner is left without their property, without the remainder of the property’s value after the foreclosure sale, but still owing the unpaid portion of the mortgage to their mortgagee, who how holds an unsecured debt.
This is precisely the situation that the Meaneys, defendants in Tallage LLC v. Meaney, Mass. Land Ct. 2015, found themselves in. After a difficult period in their lives replete with health issues, financial concerns, and lawsuits, during which multiple notices of their outstanding municipal debt and corresponding auction thereof slipped through the cracks, the Meaneys found that their property had been conveyed; the City of Worcester auctioned off their $492.51 in unpaid sewer and water assessments for FY 2010 on a property worth $270,000. Tallage LLC was the successful purchaser, paying $1052.84 to obtain the right to seek recovery against the Meaneys and their property. “Tallage then perfected the tax lien by recording the collector's deed, filed this case, received a default judgment foreclosing the Meaneys' right of redemption and then, less than three weeks after securing that judgment and well within the one year period in which this court has discretion to vacate the judgment (see G.L. c. 60, §69A), sold its interest in the property to a third party, HIGCO Corp., for $150,000.” The Meaneys offered to redeem the property by paying the taxes owed and reasonable costs, an offer that Tallage rejected. The Meaneys and their mortgagee, Sovereign Bank, then moved to vacate the judgment of foreclosure and allow them to redeem the property. The Court may grant such a motion if it is brought within one year, and if the court finds that it is necessary to “accomplish justice,” both of which elements the Court found present in this case.
In an extremely thorough decision, the Land Court judge analyzed the history and application of the tax title foreclosure proceedings, raising serious issues which should give those in charge of drafting legislation pause. Interest on the debt accrues at 14% from the time taxes are due until the collector's sale or tax taking occurs, G.L. c. 59, §57, and at 16% thereafter, G.L. c. 60, §62, meaning a small debt can grow quickly.
The Court dismissed an argument by Tallage LLC that the sale of the property to HIGCO Corp. cut off the one year period for the homeowners' motion to vacate foreclosure, relying on a decision out of the Land Court's tax session. The Court found that HIGCO was in no way a bona fide purchaser because it knew of the foreclosure, took the property only by Release Deed, and for an extremely reduced price.
Moreover, due process considerations may be implicated when a private entity takes on the role of a municipality in foreclosing on tax title. As the Court noted, property owners are to pay taxes, and the tax title process was intended to encourage payment. Historically, once a property owner paid any outstanding taxes, the municipality dismissed the action to foreclose the equity of redemption, having received what was due. However, a private entity is likely seeking more than the few hundred dollars outstanding, and will therefore be less willing to accommodate any needs or special circumstances of the property owner. Therefore, the last resort for a property owner is the Court, which has broad discretion to “make a finding allowing the [property owner] to redeem, within a time fixed by the court...” and to “impose such other terms as justice and the circumstances warrant.”
Applying said discretion, the Land Court judge determined that it was necessary under the circumstances to allow the Meaneys’ motion and set aside the judgment foreclosing on the equity of redemption. The Court then considered the amount that the Meaneys must pay to redeem the property. Although Tallage requested $30,612.24, and the Meaneys offered to pay $6,994.44, the Court decided that the proper amount to be paid to Tallage to redeem the property was $4,599.81, which included the outstanding tax, administrative fees, and some legal fees.
This case should serve as a warning – to homeowners, who miss tax payments and fail to pay attention to municipal notices concerning outstanding amounts, and to third parties that seek to make easy money by purchasing and then foreclosing on tax titles on properties that are worth thousands, or hundreds of thousands, of dollars more than the outstanding debt. Where municipalities auction tax titles, and the corresponding purchasers have no incentive to provide relief to the homeowners, the Court will exercise its discretion to ensure that homeowners are dealt with in an equitable manner.