PioneerLegal: 'Equity theft' targets vulnerable homeowners
Homeowners understand that if you fall behind on mortgage payments, the bank can foreclose and sell your home. But few homeowners — or members of the public — understand that they could lose their homes even after paying off their mortgages.
A recent U.S. Bankruptcy Court ruling is a small step toward ending this unjust practice.
Carmen Nancy Rodriguez, who came to Massachusetts from Puerto Rico, bought her Worcester home in 1996 and paid off her mortgage in full. She worked in a TJ Maxx warehouse for 37 years and raised her children in the home.
Around 2018, Nancy, as she’s known by her friends, was forced to retire due to illness and temporarily fell behind on her property taxes. Tallage-Davis LLC purchased a so-called tax collector’s deed from the City of Worcester for about $3,700 and attempted to evict Nancy, sell the home and keep all her equity.
Common sense would dictate that a homeowner who had paid off her mortgage shouldn’t lose her home over a $3,700 tax bill. And even if the house were to be sold, Nancy should get all proceeds beyond the $3,700 to use for retirement or to educate her children and grandchildren.
But that’s not how things work in Massachusetts and just a few other states. After covering her tax bill, Tallage would have realized all the proceeds from a fully paid-for home that Nancy estimates is worth at least $300,000.
But on March 15, Chief Judge Elizabeth Katz of the U.S. Bankruptcy Court for Massachusetts denied a Tallage motion that would have allowed the company to evict Nancy from her decades-long home.
According to its website, Tallage identifies “opportunities below the institutional radar that through the experience of its principals is (sic) likely to yield superior returns for the perceived market risk of the investment.”
Tallage acquires tax collector deeds from a variety of cities and towns, most often Worcester, then commences an action in Massachusetts Land Court to foreclose the homeowner’s right to redeem, or take back, the property.
This is not the first time the company has come under judicial scrutiny. Retired Land Court Justice Keith C. Long recognized in Tallage, LLC v. Meaney (2015) that people such as Nancy are frequently the victim of an inherently unfair tax collection system.
“Property owners should pay their taxes,” Long wrote. “But a Procrustean application of 14%/16% interest rates and a complete loss of equity once redemption rights are foreclosed can arguably lead to inequitable results. Those who [are caught] are often the elderly or widowed who, once behind in their payments, find it difficult to ‘catch up’ ”… including those “who have had severe health issues that disrupted their lives.”
Long also opined that when the tax collector is a private actor such as Tallage, rather than a municipality, the entity has no incentive to ensure that the taxpayer has a fair chance to redeem their home.
In this case, Nancy lost title to her home and had to file a bankruptcy case. Under bankruptcy law, where a person loses an asset because of fraud, they are entitled to get it back. One type of fraud can be established if the company that takes the asset fails to pay “reasonably equivalent value.” Here, Nancy argues that her home was transferred to Tallage for a payment of approximately $3,700 — far from fair value.
More help may arrive for Nancy from the U.S. Supreme Court, which is scheduled to hear Tyler v. Hennepin County, Minnesota on April 26. In Tyler, the court will decide whether it’s constitutional for municipalities such as Worcester and private actors like Tallage to take property without just compensation.
PioneerLegal, a public-interest law firm that assembled a legal team that represents Carmen Nancy Rodriguez, and Morgan Lewis have filed a brief in Tyler v. Hennepin County, urging the court to invalidate statutes that allow such so-called “equity theft.” Hopefully the ruling in that case will mark the end of practices like those employed by Tallage-Davis to enrich themselves by preying on those who are most vulnerable.
Robert Cordy is a retired justice of the Massachusetts Supreme Judicial Court, and Brackett Denniston is former general counsel at General Electric. Both serve on the board of PioneerLegal, with Denniston as chairman.
This article originally appeared on Telegram & Gazette: PioneerLegal guest column on fighting equity theft targeting homeowners
