BOSTON — A federal lawsuit is challenging a Massachusetts tax law that allows local governments and private investors to make a profit on equity from property owners facing foreclosure.
The lawsuit, filed in U.S. District in Boston by a Bolton alpaca farmer, argues that the central Massachusetts town violated his constitutional rights by making a $310,000 profit from the sale of his property to pay a $60,000 delinquent tax bill.
Massachusetts is among a dozen states, plus Washington, D.C., with tax foreclosure laws allowing local governments or investors to take dramatically more than what is owed from homeowners who slip into default.
In court filings, Alan DiPietro’s lawyers said he bought a 34-acre parcel in 2014 to graze his alpacas, but fell behind on his property tax bills. An initial debt of $6,116 grew to $60,000, which he was unable to pay. The town foreclosed on the property and sold it for $370,000, keeping the profits, according to the lawsuit.
But the complaint argues that Bolton’s use of the tax law violates the Fifth and Eighth amendments by allowing the town to keep surplus equity value from the sale of his property. DiPietro is seeking at least $310,000 in damages, not including attorney fees or costs.
While the complaint doesn’t specifically name the state of Massachusetts as a defendant, it asks a federal judge to declare that the state’s tax foreclosure statute is unconstitutional.
DiPietro’s lawyers argue that the because the law “authorizes tax lien-holders to foreclose and take absolute title to tax-indebted properties, even when the property is worth more than the tax debt, Bolton has a financial incentive to foreclose and then keep or sell valuable properties.”
The lawsuit is being backed by the Pacific Legal Foundation, a California-based nonprofit, which claims Massachusetts and other states are allowing local governments and investors to “steal” equity from homeowners who fall behind on their property taxes.
“A home’s equity is just as much property as a home itself and cannot be taken by the government without just compensation,” said Joshua Polk, attorney at the foundation. “We hope that in Massachusetts, home equity theft will soon be a thing of the past.”
The group has filed several petitions with the U.S. Supreme Court on behalf of clients who they claim have suffered from “unjust” home equity theft.
The Boston-based New England Legal Foundation filed a brief in support of the litigation, arguing that if the government seizes home to collect overdue taxes the homeowner should be allowed to collect the surplus revenue from the sale.
Under Massachusetts foreclosure law, cities and towns can sell or keep tax liens on delinquent properties. The lienholder — whether it’s a local government or investor — can file for foreclosure once the debt is six months old.
Once a property is foreclosed on, the lienholder gets a deed and can keep or sell it. A lienholder can keep profits from the sale, under the law.
The foundation issued a report last year showing homeowners in Massachusetts and other states collectively lost more than $777 million in savings on more than 5,600 homes based on their market value, above what they owed in tax debt. On average, homeowners lost 86% of their equity.
Local governments, which often sell properties for a fraction of market value, collected about $26 million more than they were owed on about 1,300 homes, the report noted.
Meanwhile, private investors collected an estimated $250 million more than they were owed on about 2,600 homes, the report’s authors said.
The report identifies about 315 homes in the Bay State — including several in Lawrence — that have been impacted, totaling more than $48 million.
On Beacon Hill, a group of lawmakers filed a bill last year that would abolish the practice of taking equity from homes as part of the tax lien sale process.
But the bill languished in the Legislature’s Revenue Committee before it sent the measure to study in October, spelling its demise for the session.
Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at cwade@cnhinews.com