BOSTON – After over a century of Massachusetts law enabling homeowners to lose all equity in their home due to unpaid property taxes, changes to the law effectively ends home equity theft in Massachusetts.
Masasachusetts Governor Maura Healey signed the state’s $57.78 billion fiscal year 2025 budget plan on Monday, July 29. Multiple amendments attached to the budget ends the practice.
How Home Equity Theft Worked
The federal, state, and local governments frequently use a tax lien to collect unpaid taxes. A tax lien is a legal claim on the property of the delinquent taxpayer to collect unpaid taxes. Until the debt is paid, an asset with a tax lien can’t be sold.
Massachusetts law enabled municipalities and private investors with a property tax lein on a residential home to keep the full amount of the sale of a property after a foreclosure, not only the debt owed. This means any equity built by the homeowner is lost.
For example, if a municipality foreclosed on a home for a tax debt of $40,000, then sold that home for $250,000, the law enabled that municipality to keep the full $250,000, not only the $40,000 of tax debt owed. In this scenario, the homeowner would lose $210,000 in equity over a $40,000 tax debt.
In order to recover unpaid property taxes quickly, municipalities often auctioned these tax liens to private investors, who had the same rights as a municipality to foreclose and retain all the funds, not just the debt owed, from the sale.
Previous coverage of Home Equity Theft provides additional details about the practice, and its effect on some local homeowners.
In September 2023, This Week in Worcester published “Worcester Continues Deed Auctions for as Little as $33 in Unpaid Taxes,” which includes the story of a local man with a tax debt he was unaware of, which was sold to a private investor.
In May, This Week in Worcester published “How Mass. May Preserve Home Equity Theft in Worcester,” which covered concerns from several consumer rights groups about H.4624, a bill then in process at within the Massachusetts Legislature.
Fortunately, the amendments now signed into law addressed many of those concerns.
Changes in Massachusetts Law
The principal change ensures that the homeowner of a home lost to a tax foreclosure receives the funds from the sale of the home, minus the tax debt owed. The new law also sets the interest rate on property tax debt to eight percent, down from 16 percent.
The law also reduces the down payment amount required for someone who owes property tax to 10 percent to enter into a repayment plan, down from 25 percent.
In May, This Week in Worcester reported that representatives of the National Consumer Law Center, Greater Boston Legal Services, the Massachusetts Association of Realtors, and Pioneer Public Interest Law Center voiced concerns about both the interest rate and down payment amount in the text of the bill then on Beacon Hill. Both rates saw the adoption of the positions pushed by these consumer protection and housing advocates.
Advocates pushed for lawmakers to fully eliminate unclaimed equity retention. In May, the text being considered by Massachusetts Legislators enabled lien holders to retain excess equity after 18 months of the sale of the foreclosed property, although other unclaimed property in the state is handled by the Unclaimed Property Division of the Massachusetts Treasury.
The Unclaimed Property Division of the Massachusetts Treasury, says it, “connects citizens with their abandoned property such as bank accounts, uncashed checks, stocks or dividends, insurance policies, or the contents of safe deposit boxes. The state holds this reported property until the rightful owner or heir claims it.”
In the language passed along with the budget, unclaimed excess equity over the amount of the owed property tax is handled by the Unclaimed Property Division.
The new law also sets new requirements for notification of those whose tax debt leads to a property lien and other safeguards for homeowners.
Municipalities now also have the flexibility to offer longer tax repayment plans and can eliminate interest charges.
