New Bedford homeowners sue over ‘home equity theft’

New Bedford homeowners sue over ‘home equity theft’

Two people are suing to reclaim hundreds of thousands of dollars in home equity that they lost through tax foreclosures in New Bedford.

In both cases, a private tax collector working on the city’s behalf foreclosed on properties worth over $100,000 to collect on property tax debts of a few thousand dollars. The collector didn’t return the excess value to the homeowners — a practice that critics call “home equity theft.”

Massachusetts law technically allows tax collectors to keep excess equity in tax foreclosures, but the U.S. Supreme Court struck down a similar law in Minnesota last year. Justices unanimously ruled in Tyler v. Hennepin County that the practice violates the Fifth Amendment. Top legal officials in Massachusetts now say the Bay State’s tax collection laws are unconstitutional.

The two lawsuits are the first of their kind in New Bedford since the Supreme Court decision. The plaintiffs cite the decision in their court filings, writing that the city and a private tax collection firm “have done precisely what the Supreme Court said the law prohibits.”

Read the complaints ⇢

Estate of Estate of Ildemaro Vieira
Joseph J. Santos

Nick Rosenberg, a lawyer representing both plaintiffs, said the cases are “pretty straightforward.”

“There’s no reason why towns should be able to take from their citizens more property than they owe in back taxes,” he said.

Ana Almeida, representing the estate of Ildemaro Vieira, and Debra Almeida, as an agent with power of attorney for Joseph J. Santos, filed their cases in Massachusetts District Court earlier this year.

They’re suing Tallage, a private company that bought tax debts from the city and foreclosed on the homeowners, reaping the excess equity. The other defendants in the cases are the City of New Bedford; John Taxiarchos, the city’s current treasurer; and Renee Fernandes, the city’s former treasurer. 

Rosenberg said his law firm started looking into tax foreclosures after the Tyler v. Hennepin County ruling, and they were surprised by the wide range of stories they found.

“It’s just crazy that that much equity is being taken from these families,” he said.

A New Bedford Light investigation found that dozens of New Bedford property owners have lost their houses — and all the remaining equity in them — over tax debts that were just a fraction of the property’s value. Tallage raked in about $6.2 million in revenue from foreclosure sales.

Santos is a veteran who had lived at 340 Purchase St. for most of his life, according to his complaint. But his veteran benefits weren’t enough to cover his expenses, the complaint says, and by 2018 he owed the city $7,677 in property taxes. That year, the city sold the debt to Tallage for the exact amount that Santos owed. The company foreclosed on the property, which the complaint says was valued at $143,900, and sold it for $120,000, pocketing the proceeds.

“Unbelievably, the City made the decision to put in motion kicking a nearly lifelong resident to the street, and essentially gifting a private company $136,223.04,” the complaint says.

Vieira owned a home at 48 Morton Court, which was behind on $7,979 in property taxes when Tallage bought the debt in 2018. Tallage foreclosed on the property and sold it for $120,000.

Rosenberg’s firm was unable to make its clients available for an interview.

Other Massachusetts property owners have tried to stop tax collectors from keeping their equity, including a woman from New Bedford, but none of them could convince a judge to rule that the state’s law was unconstitutional — until this month. Judge Michael K. Callan of Hampden Superior Court cited the Tyler v. Hennepin County decision when he barred the City of Springfield from taking about $123,000 in equity from a homeowner behind on taxes.

The two New Bedford cases are among the first cases filed since the Supreme Court ruling that seek to reclaim equity from past foreclosures. At least one other similar case brought by a Greenfield man is pending in federal court.

None of the judges in these cases have the authority to strike down the state’s tax collection law — only a state or federal appeals court or supreme court could do that. But the judges in these cases can set precedent that could persuade other judges to rule in a similar way.

The cases are likely to succeed, said Ralph D. Clifford, a professor emeritus at UMass Dartmouth Law who has studied tax foreclosures.

“This is not one of those cases where everybody has to scratch their head and wonder what’s going on,” he said. “The Constitution clearly indicates that the government can’t take property without due process.”

Clifford said he’s surprised that no one has brought a class action case representing everyone who might have the right to reclaim lost equity. Class actions are more complicated, but there’s a significant amount of money on the table, he said. His research found that in a typical year, Massachusetts homeowners lose about $56 million in equity through tax foreclosures.

Rosenberg, the lawyer representing the New Bedford plaintiffs, said his firm has considered filing a class action and might do it in the future. In the meantime, he said he hopes to bring more cases like the ones he’s filed.

But the best way to fix this legal problem isn’t through the courts, Clifford said — it’s through the Legislature. Bills to change the state’s law have languished in committee for years. Last year, the state’s attorney general said the law is unconstitutional and called on the Legislature to fix it.

Lawmakers on the revenue committee are still crafting the new legislation, a staff member told The Light earlier this year. State Sen. Mark Montigny, who has repeatedly filed bills to protect property owners’ equity in tax foreclosures, issued a press release this week saying he’s prepared to force a roll call vote on the legislation, potentially by attaching it to the state budget.

New Bedford officials have stopped filing new tax foreclosures while they wait for the Legislature to clarify the law. The city hasn’t sold tax debt to Tallage since 2019.

The city and Tallage both declined to comment on the pending lawsuits.

Email Grace Ferguson at [email protected]

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