When Deborah Foss, a 66-year-old grandmother in New Bedford, Mass., bought her home in 2015, she expected it to be where she would live the rest of her life in comfort and security. But by February this year she had been forced out of her home and is now reduced to living in her car.
What went wrong? With chronic health issues and living on a fixed income, Foss fell behind on her property taxes when she went through tough financial times. That’s when the city sold a $9,626 tax lien on his home to a private investment firm. Under Massachusetts law, the lien gave the corporation the power to take full title to its property when it failed to pay its debt quickly enough. The company evicted Foss and quickly sold the property. Almost before she could figure out what was going on, she had lost her home and $210,000 in capital.
Foss is just one victim of a form of tax foreclosure that is perhaps best described as government-sanctioned home equity theft. People who don’t 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, providing at least some protection for the owner. Massachusetts is one of only twelve states that allows the government to claw back 100% of someone’s hard-earned savings for the benefit of the government or private investors.
In my legal work on this issue, I have encountered many victims of home equity theft. They are usually hard working people who have suffered financial hardship, often due to medical issues, or who were not notified or did not realize that their property was at risk. They never imagined that something like this could happen in the United States.
Take Uri Rafaeli, who lost his Michigan rental and all of his net worth when he accidentally underpaid his property taxes by $8. He fought all the way to the Michigan Supreme Court to prove that the county had unconstitutionally taken more than it should. Rafaeli got his house back after his win on the pitch, but most people aren’t so lucky.
Lynette Johnson lost his small business property when the city sent tax notices to the wrong address. The city sold its property for $101,000 to a private investor when it 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 assistance to Foss, Rafaeli, and Johnson).
It doesn’t have to be like that, that’s why we fight back in court. We have filed lawsuits in various states challenging the constitutionality of home equity theft as a violation of the protection of property rights under the Fifth Amendment. Courts in different jurisdictions disagree on its constitutionality, so it may require a Supreme Court ruling to settle the matter.
Meanwhile, state lawmakers are engaging bipartisanly to address the issue through the legislative process. Montana, North Dakota and Wisconsin recently set their laws to end home equity theft. Bills that would end abusive tax foreclosures are pending in Massachusetts, Minnesota and California.
This may be bad news for companies that have found a profitable niche in weaponizing foreclosures against the most vulnerable. This means that county and municipal officials who shared the bounty will have to give up these comfortable arrangements that generate windfall revenue for local governments. But these reforms will be a big win for the landowners who are ruthlessly targeted by these vicious tax foreclosures.
Not all states are getting it right: A Minnesota case lost at the Eighth Circuit — with a Supreme Court petition pending — and the legislation is stalled in Arizona.
Perhaps abusive tax garnishees have been allowed to continue because most people are unaware that it happens regularly in their state. Currently, this list includes Alabama, Arizona, Colorado, Illinois, Massachusetts, Maine, Minnesota, Nebraska, New Jersey, New York, and Oregon. And a few other states sometimes engage in this kind of predatory seizure when the government wants the property to fulfill another public use.
We all understand that people are obligated to pay their taxes and those who don’t will face the consequences, and sometimes foreclosure. But the government should not be allowed to take the savings accumulated in these properties. The more Americans learn about how the government targets people like Deborah Foss, Uri Rafaeli and Lynette Johnson, the less they like it — and the more likely they are to demand that the government stop the theft.
We’ve made huge strides in tackling the unfair practice of home equity theft in recent years – now we need a boost to make these unfair foreclosures a thing of the past.