‘Home equity theft’
Greenfield took a home for unpaid taxes, sold it for more than was owed, and kept the profits. Is that right?
‘It was the most traumatic event of my life, by far. I’m still trying to recover from it.’ STEPHEN WOODBRIDGE, who now lives in subsidized housing outside Greenfield after his house was seized and sold by the city for unpaid taxes
In 2017, the city of Greenfield targeted Stephen Woodbridge’s property, which totaled almost 20 acres and included a rambling 10room house, for unpaid taxes of a little less than $6,000. Four years later, after making numerous complex and arcane court filings, the city succeeded in gaining legal ownership of a property that had been in the Woodbridge family for 70 years.
Woodbridge was quickly evicted, and the city sold his house and six surrounding acres for $270,000 at auction. The city added Woodbridge’s other 13 wooded acres to a contiguous city-owned park without compensating him.
The city reaped a tidy cash profit of at least $220,000 — the $270,000 sale price at auction minus the $50,000 Woodbridge owed in taxes, interest, and other costs run up while the tax-taking case moved through the system. Woodbridge’s debt had ballooned almost tenfold since 2017 because he was charged fees for the city’s attorneys plus 16 percent interest on his debt — as permitted by law.
The city of Greenfield, which has an annual budget of more than $60 million, enjoyed a tiny improvement in its finances by selling Woodbridge’s property. But for Woodbridge, 62, unemployed and confused by the legal proceedings, it was devastating.
“It was the most traumatic event of my life, by far,” Woodbridge, who currently lives in subsidized housing outside Greenfield, said in an interview. “I’m still trying to recover from it.”
Now, a law firm acting on his behalf has filed a federal lawsuit claiming the city’s confiscation of his equity — the value of his property minus what he owed — violated the US Constitution. The lawsuit doesn’t question the city’s right to sell his property, but it does dispute its right to keep his equity. The lawsuit demands hundreds of thousands of dollars in compensation.
The centerpiece of Woodbridge’s lawsuit is the recent US Supreme Court case known as Tyler v. Hennepin. The court ruled in a rare unanimous decision last
year that municipalities may sell a taxpayer’s home to recover unpaid taxes, but they cannot “use the toehold of the tax debt to confiscate more property than was due.”
The Tyler case was the successful culmination of a long legal battle waged against what critics call “home equity theft.” The Supreme Court ruling is based on the Fifth Amendment’s prohibition against the government taking private property without just compensation.
Opponents of “home equity theft” say municipalities should be in no better position than a bank when it is owed money on a defaulted mortgage. A bank that sells a foreclosed property is entitled only to what’s owed to it, not the entire sale price. Equity in the property goes to the former owner, not the bank.
In most states, the confiscation of equity by municipalities is prohibited, but not in Massachusetts, where there is little guidance in the law about the rights of property owners in such cases. Several bills to address it have languished in the Legislature.
The co-sponsor of one such bill, Senator Jo Comerford of Northampton, pledged to redouble her efforts.
“This is a priority bill for me and my colleagues in the Legislature because taking equity in these kinds of cases is a grave injustice,” she said.
The lawsuit on behalf of Woodbridge is pending before US District Judge Timothy Hillman, who is expected to soon rule whether to dismiss it, as the city’s law firm has demanded in filings. That decision may go a long way in deciding how the recent Supreme Court case should be applied in Massachusetts.
Only a couple dozen municipalities have opted to take equity in tax-taking cases, and most of them, if not all, have at least temporarily stopped doing so in the wake of the Supreme Court ruling. That ruling struck down a Minnesota law on tax foreclosures, but it didn’t apply directly to Massachusetts law.
The Supreme Court case, depending on how it is interpreted by courts in Massachusetts, could eventually force Greenfield and other municipalities to make restitution to former property owners.
Boston, Worcester, and Lawrence are among the municipalities that may be liable for seizing equity in tax takings. Statewide, the total tab for restitution could be in the millions of dollars.
“This case is on everyone’s radar because it’s potentially precedent setting,” said Michael Aleo, who said his firm is representing Woodbridge on a contingency fee basis.
One central question in Woodbridge’s lawsuit is to what extent, if any, does Massachusetts allow property owners in tax-taking cases to demand and get the equity in their property.
Aleo said state laws governing tax takings are mostly silent on the question of equity, and that in the absence of an explicit prohibition, some municipalities have assumed the right to do so with few safeguards for property owners.
“There is no legal mechanism in Massachusetts that spells out a property owner’s rights to challenge the taking of their equity,” he said.
That’s a consideration because the Supreme Court, while striking down the Minnesota law, made favorable reference to a decades-old previous ruling that upheld a New York City foreclosure ordinance because it did not “absolutely preclude” a property owner from obtaining equity.
In his filings, Jesse BelcherTimme, the city of Greenfield’s lawyer, said that the Massachusetts tax-taking law is constitutionally sound because state Land Court judges have discretion to rule against municipal attempts to take equity.
Belcher-Timme declined to comment and the office of Mayor Ginny Desorgher, who took office Jan. 2, did not respond to a request for comment.
The Massachusetts Municipal Association, which lobbies on behalf of cities and towns, has called for the creation of a special commission “to closely examine” how municipalities collect delinquent property taxes.
In a statement, the MMA said it is working with lawmakers to find “a legislative solution that clarifies practices under state law and aligns with the recent Supreme Court decision.”
Patrick Moore, first assistant attorney general, urged quick legislative action in testimony before a legislative committee, saying the current practices of some municipalities constitute “a classic unconstitutional taking.”
“The Massachusetts tax foreclosure process simply cannot be distinguished from the one the Supreme Court struck down,” he said.
The Woodbridge case is the result of city hall research conducted by Al Norman, a retired Beacon Hill lobbyist and Greenfield resident. After the Supreme Court decision, he found the names of a half dozen former property owners who had lost equity in tax-taking cases brought by the city of Greenfield.
Norman and other activists included those names in a letter to the editor published in the Greenfield Recorder asking if anyone knew how to contact those individuals.
Eventually, the activist group located Woodbridge and Roberta Browning, who lost her home after the city began proceedings against her for unpaid taxes of about $1,580. The city sold her property for $34,000 and kept the equity she had in it. Norman introduced Woodbridge and Browning to the lawyers who are now representing them.
If they win in the Woodbridge case, Norman said, other lawsuits may follow against other municipalities or the private companies that sometimes purchase their tax liens.
“I think it’s unconscionable that the city would take the property of the most vulnerable among us,” he said. “We’re hoping for a breakthrough that ends it.”