When Deborah Foss, a 66-year-old grandmother in New Bedford, Mass., bought her home in 2015, she expected it would be where she would live the rest of her life in comfort and security. But by February of this year, she had been forced from her home and is now reduced to living in her car.
What went wrong? With chronic health problems and living on a fixed income, Foss fell behind on her property taxes when she hit a rough financial patch. That’s when the city sold a $9,626 tax lien on her home to a private investment company. Under Massachusetts law, the lien gave the company power to take full title to her property when she didn’t pay her debt quickly enough. The company evicted Foss and quickly sold the property. Almost before she could grasp what was happening, she had lost her home and $210,000 in equity.
Foss is just one victim of a form of tax foreclosure that is perhaps best described as government-approved home equity theft. People who fail to pay their property taxes in all states risk losing their homes. But most states will sell the property to the highest bidder, collect what’s owed, and return the remaining proceeds, which at least offers some protection to the property owner. Massachusetts is one of only a dozen states that allow the government to snatch up someone’s entire hard-earned savings to benefit the government or private investors.
In my legal work on this issue, I’ve met many victims of home equity theft. They are usually hard-working people who suffered financial hardship, often stemming from medical problems, or who hadn’t received notice or understood their property was in jeopardy. They never imagined something like this could happen in the United States.
Take Uri Rafaeli, who lost his Michigan rental and all his equity in it when he accidentally underpaid his property taxes by $8. He fought all the way to the Michigan Supreme Court to prove the county had unconstitutionally taken more than he owed. Rafaeli recovered his home after his court win, but most people aren’t so lucky.
Lynette Johnson lost her small commercial property when the city mailed the tax notices to the wrong address. The city sold her property for $101,000 to a private investor when she failed to pay. Although she owed less than $20,000 in taxes, penalties, interest and fees, the city kept every penny. (My firm, Pacific Legal Foundation, is a pro-liberty public interest legal organization that has provided, or continues to provide, free legal support to Foss, Rafaeli and Johnson).
It doesn’t have to be this way, which is why we’re fighting back in court. We’ve filed lawsuits in various states challenging the constitutionality of home equity theft as a violation of property rights protection under the Fifth Amendment. Courts in different jurisdictions disagree about whether it is constitutional, so it may require a Supreme Court decision to settle the question.
Meanwhile, state lawmakers are engaging in a bipartisan fashion to address the problem through the legislative process. Montana, North Dakota and Wisconsin recently fixed their laws to end home equity theft. Bills that would end predatory tax foreclosures are pending in Massachusetts, Minnesota and California.
That may be bad news for companies that have found a profitable niche weaponizing foreclosures against the most vulnerable. It means county and municipal officials who have been sharing in the bounty will have to forego these cozy arrangements that generate windfall revenue for local governments. But these reforms will be a big win for the property owners who are callously targeted in these perverse tax foreclosures.
Not all states are getting it right: a Minnesota case has lost at the Eighth Circuit — with a petition to the Supreme Court on the way — and legislation stalled in Arizona.
Perhaps predatory tax foreclosures have been allowed to continue because most people are unaware that this regularly happens in their state. Right now, that list includes Alabama, Arizona, Colorado, Illinois, Massachusetts, Maine, Minnesota, Nebraska, New Jersey, New York and Oregon. And a few more states will sometimes engage in this kind of predatory foreclosure when the government desires the property to fulfill some other public use.
We all understand that people are required to pay their taxes and that those who don’t will experience consequences, and sometimes foreclosure. But the government should not be allowed to take the life savings built up in these properties. The more Americans learn about how the government targets people such as Deborah Foss, Uri Rafaeli and Lynette Johnson, the less they like it — and the more likely they are to demand the government stop the theft.
We’ve made tremendous progress in pushing back on the unjust practice of home equity theft in recent years — now we need a strong push to make these predatory foreclosures a thing of the past.
Christina Martin is a senior attorney at Pacific Legal Foundation and leads PLF’s initiative to end home equity theft. Follow her on Twitter @CMM123.