As dozens of cities and towns in Massachusetts turn to for-profit companies to go after delinquent taxpayers and recover lost revenue, the consequences for some property owners and even renters can be unforgiving, leading to financial losses and in some cases foreclosures and evictions.
Cash-strapped cities of Worcester, Lowell, New Bedford, Pittsfield and Quincy sold off more than 1,300 tax liens to third-party investors in the past five years, recovering nearly $10 million.
Tax collectors are happy to recover all of the money they are owed, and investors can collect up to 16 percent interest from homeowners whose titles were sold off. If those property owners fail to pay back the debt, investors can sometimes reap big profits, foreclosing on the real estate in Land Court.
In tax lien foreclosures, property owners lose everything, including any equity they had. One Boston company buying up these tax liens has more than doubled its rate of foreclosures against Massachusetts property owners over the last four years, according to Land Court records obtained by the New England Center for Investigative Reporting.
A 1996 state law allows the practice, which has drawn criticism from consumer advocates and some lawmakers pushing for reforms that would take a big cut of the profits to investors buying up tax liens and improve the notification process for delinquent taxpayers.
Helping communities recoup lost revenue is what motivated lawmakers back in the mid-90s to enable this practice of selling tax liens to investors.
“The budget crisis of the early 90s had left us strapped for bringing money back to cities and towns,” said Daniel Bosely, a former legislator from North Adams who wrote the state law. He said at the time, it was considered a creative revenue generator. But looking back, he’s now concerned about the impact on some taxpayers caught in the system his legislation helped create.
Paul Meaney is one of those taxpayers. A financial planner who owns four rental properties on a side street in Worcester, he almost lost all the houses a few years ago because he failed to pay his water and sewer bills.
Meaney says he assumed the bills were covered by the escrow account he set up with his lender.
“I didn’t just fall off the turnip truck. And if this could happen to me, it could happen to anybody,” Meaney said.
The unpaid water and sewer bills on Meaney’s house at 28 Caro Street totaled $492.51. A Boston-based investment company called Tallage LLC bought the tax lien in the spring of 2011 from the city of Worcester for $1,052.84 — the amount Meaney owed after interest and late fees assessed by the city.
“I did not know,” Meaney said emphatically. “We were in the middle of a family medical crisis at the time. I never saw anything, I had no idea this was going on.”
When Tallage bought the tax lien on 28 Caro Street, the market value of Meaney’s house was more than $270,000.
Meaney fought Tallage’s foreclosure efforts in a three-day trial in Land Court, arguing that his wife’s MS diagnosis and other troubles at home were the main reason he didn’t see notices from the city and Tallage about unpaid bills.
The Land Court reversed the foreclosure judgment and ordered Meaney to pay $4,600 to get his house title back. That didn’t include the tens of thousands of dollars he had to pay his own lawyer.
Meaney is still bitter.
“I mean I understand city of Worcester to some degree. They are entitled to their money, but I don’t think everyone else should be completely wiped out in the process. And that’s the only system that exists,” he said. “There’s got to be other remedies for them to get their money than to just throw these titles out to these dogs.”
Andrew Kahrl, a professor at the University of Virginia who has studied tax lien sales across the country, said the industry preys on people in distress and has a profit incentive not to communicate with homeowners.
“Keeping property owners in the dark [regarding the foreclosure process] is foundational to their strategy,” he said. “And fear and confusion have long been hallmarks of this sort of trade itself."
But Worcester officials say their approach doesn’t leave anyone in the dark.
Thomas Zidelis, Worcester’s chief financial officer, said he goes on an aggressive campaign to notify delinquent taxpayers about the severe risks of a tax lien. And he doesn’t think it’s unfair to hold delinquent taxpayer accountable, no matter how small the bill.
“At minimum, there’s 12 notifications before we even commence the tax lien process,” he said. “In terms of fair, that’s a matter of opinion. The statute allows for that as a means of collection.”
Tallage, LLC has emerged as the dominant player in the state, buying up some 2,000 tax liens from 30 cities and towns since the company’s founding nearly a decade ago. The company in downtown Boston is run by real estate investor William Cowin.
Tallage’s general counsel, Daniel Hill, said the company helps cities and towns recoup lost revenue needed to pay for services like public schools, police and firefighter. He also said most of the properties it forecloses on are aren’t owner-occupied and that many of the tax liens it buys are ultimately redeemed by property owners.
An analysis of real estate records in Lowell found that Tallage sold off more than two dozen properties that it bought as tax lien debt since 2012, quadrupling its initial investment.
Tallage disputes those numbers, saying the company incurs many other expenses beyond the cost of the actual tax lien.
While Paul Meaney got his Worcester property back in a costly court battle, not everyone is so fortunate. Since 2015, court records show that Tallage has pursued more than 40 eviction cases statewide — nearly half of them in Quincy.
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According to housing court records, as many as 130 residents and tenants faced eviction. It’s a number hotly contested by Tallage’s lawyer. Hill says out of an abundance of caution, Tallage lists all potential owners and tenants associated with an address. And he maintains that most properties are actually unoccupied.
Hill says when Tallage does evict tenants, in most cases they offer to pay relocation costs.
Madeline Lahssak, of Quincy, is one of those tenants. She lives in the first-floor apartment of a duplex in Quincy along with her grown daughter and niece. They’re facing eviction by Tallage, which bought a tax lien from Quincy’s tax collector.
Lahssak had no idea the house she was living in had been foreclosed on — that there was a new owner — until a knock on the door.
“Jackie from Tallage comes here and says they took over the property and she said, ‘We’ll work with you.,'" Lahssak said. "But then a week later, I get served with a 30-day notice to get out.”
In Lahssak’s case, she had one day to decide whether to accept an offer of $10,000 to move out within 60 days. As generous as that sounds, the quick cash offer to Lahssak was not so helpful.
“I’m gonna say it: I’m poor. I need a Section 8,” she said. “I need a home I can afford because I don’t want to be back into court and when I can’t pay my rent.
Lahssak just needs time to find a subsidized rental, which is the main reason she decided to fight the eviction in Quincy District Court with the help of lawyers from Greater Boston Legal Services.
In November, Lahssak watched as one of Tallage’s lawyers, Leonard Frisoli expressed his frustration at how long these eviction cases are taking.
“They are seeking to drag this out,” Frisoli told Judge Mark Coven. “Every time we do something for them, they want more.”
Tallage bought up 88 tax liens from the city of Quincy four years ago and has filed 18 eviction cases in this courthouse since 2016.
Frisoli also bristled at Coven’s opinion of the tax lien business run by his client.
“Judge, you previously commented that you didn’t appreciate what my client does,” Frisoli said.
“I never said like that,” Coven responded. “I said he likes to buy these places at foreclosure, fix them up and flip them. I get that.”
Frisoli then corrected Coven: “They don’t fix them up, your honor. They just take them and sell them.”
In the period of time it takes Tallage to take and sell a property, tenants sometimes have no idea any of it is happening.
Rosa Silva and her family of four didn’t know for a whole year that the duplex where they live had been foreclosed on and taken over by Tallage.
And she was shocked when she learned how little Tallage paid for the duplex.
“The value of the house is around $389,000, and the company they only pay $31,000,” said Silva, who used to work as a housecleaner but was injured in a fall. Her husband is a chef at Babson College.
“On top of that, they only give me 28 days to leave. No it doesn’t work like that,” she added.
Silva also fought back in court beginning last September and now has until end of March to find a new home.
Lawyers at Greater Boston Boston Legal Services say renters caught in tax lien foreclosures are the most vulnerable in what they call a “deeply flawed process,” largely because they get no advance warning that they’re losing their homes.
“What we’re seeing is months go by and technically there’s been a change of ownership, but our clients don’t even know who to contact with issues with their property,” said Alexa Rosenbloom, an attorney at Greater Boston Legal Service. “And it doesn’t work perfectly in the mortgage foreclosure context either, banks are bad landlords, but at least there is somebody, they know who to contact and at least they know who the owner of their property is.”
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Rosenbloom and other critics want to see reforms in state law that would give renters the same 30-day notice that homeowners get from banks seeking to foreclose and the names of new owners who should be contacted for repairs.
She also called for a mechanism that would allow renters to band together and buy a tax lien themselves, potentially preserving the stock of affordable housing.
Those solutions directed at renters are not part of a reform bill in the state legislature, which has failed over the last three years to make headway.
The bill sponsored by Rep. John Mahoney, a Worcester Democrat, is aimed at protecting rights of property owners. (Worcester is a city that auctions off tax liens to investors every year.) It would beef up notification protocols and retool the profits that investors like Tallage could make from buying up tax lien debt. Those companies would only be able to recoup fees and legal costs. And delinquent taxpayers would be cut back in, with the proceeds of the foreclosure sale being split between the municipality and the homeowner.
Some cities are also working on their own to help struggling taxpayers meet their obligations and avoid the financial devastation that can come with a tax lien.
One city is Newburyport, where taxpayers over the age of 60 who earn less than $66,000 a year are eligible to work off some of their local taxes.
At the recycling barn on a recent Saturday morning in Newburyport, Michael Murphy stood near a white mountain of Styrofoam. Murphy is 73 years old, and his job here sorting recyclables brings no paycheck. He’s one of about 80 residents in the city who take advantage of a program trading their labor for a discounted tax bill – up to $1,500 a year.
“Senior citizens who are not wealthy have to budget. When you retire, it’s pretty much a flat line unless you get a part time job or you get an opportunity like this,” said Murphy, who works about 95 hours a year for the city. “It’s a great opportunity for senior citizens. My tax bill is about probably $2,300 so if I get a thousand dollars off, I only pay $1,300 which is a great savings for me, for any senior.”
Newburyport’s tax collector said that as taxes inevitably rise, this program can help residents on fixed incomes meet their tax obligations.
A hundred miles south, New Bedford is also trying to work with property owners struggling to pay local tax bills.
Renee Fernandes, the city’s tax collector, said that in the last three years, New Bedford auctioned off almost 300 tax liens and recovered $2.8 million. But she’s also helped some 280 residents stave off potential disaster through a program that extends the amount of time taxpayers have to catch up on unpaid bills from three years to five years.
Some delinquent taxpayers are also eligible for a 50 percent reduction in the accrued interest.
“We need to balance the books, but we need to have empathy for everybody’s situation here in the city. We want everybody to be able to stay in their homes,” she said. “But there’s no hammer like an immediate hammer.”
John Rao, an attorney at the National Consumer Law Center, based in Boston, is a sharp critic of selling off tax liens, calling it “outrageous” that the penalty for not paying a bill is losing property that could be worth hundreds of thousands of dollars.
“To have a process that permits that in this age, it’s just nonsensical and really needs to be reformed,” he said. “We’ve seen cases where they might have $100,000 to $200,000 of equity. That just all goes to the purchaser who may have bought the property for $5,000 so it becomes a complete windfall for the purchaser at the tax sale.”
Rao wrote a 2012 report on tax liens that called for a laundry list of changes nationally: reducing excessive profits for investors, setting payment plans for delinquent taxpayers to redeem their properties and a much better notification process.
Mahoney's bill would do much of this.
“The cities want to get whole as quickly as possible,” Mahoney said. “We’re just saying in this bill, let’s have some safeguards for people who might be in unusual circumstances.”
Earlier versions of the same bill got backing from Attorney General Maura Healey, but Mahoney’s bill faces pushback from many corners. Cities and towns don’t want to jeopardize their revenue stream. And the Massachusetts land court’s chief justice has criticized the bill’s complex plan for disbursing profits from sales after foreclosures.
The bill also doesn’t sit well with one of the dominant investors buying up tax lien debt in Massachusetts.
Tallage’s lawyer, Daniel Hill, said that without the chance of taking properties their business would not be viable. State finance records show Tallage spent $46,000 on a lobbyist to make its case to lawmakers.
Mahoney says he’s willing to negotiate changes in the bill but he has just a couple weeks to get a thumbs up from a joint revenue committee.