Foreclosure suit takes aim at ‘home equity theft’

The sale of a foreclosed property has amounted to “home equity theft,” a suit against a Massachusetts city and a private investor alleges. The legal organization filing the lawsuit said the procedure is allowed in at least 11 other states.

The Pacific Legal Foundation filed the suit this week in a state court on behalf of Deborah Foss, 66, of New Bedford, Massachusetts. The complaint accuses Boston-based Tallage Davis, LLC of depriving Foss of $210K in home equity stemming from a recent foreclosure and sale. In 2018, Tallage acquired Foss’ New Bedford home from a property tax lien, which kicked off a Land Court process resulting in Foss’ eviction in February after her nonpayment.

The process, part of Massachusetts’ tax foreclosure statute, amounts to home equity theft because the private investor, or in other states a local government, is allowed to obtain valuable property to satisfy tax debts worth substantially less than the property itself, said Joshua Polk, an attorney with PLF. The organization says 12 states allow the process and five others have loopholes that make it possible. Combined, they can deprive hundreds of homeowners millions of dollars of equity nationwide, Polk said.

“What we’re interested in is just bringing the tax foreclosure in line with traditional mortgage practice, w. the debts are satisfied and what’s left, the ownership interest still maintained by the homeowner is respected and returned,” Polk said. “I don’t see any reason why tax debt should be treated differently.”

Tallage in a press release declined to comment on the complaint but said it followed all statutory requirements governing the tax lien foreclosure process. The firm, through its attorney, Daniel Hill of Hill Law, also disputed details of its foreclosure process as described in a Boston Globe article that first reported the story.

Most of the foreclosures that occur in this system are either for vacant land or investment-owned properties that are underwater, Tallage said in comments shared with National Mortgage News.

Foss didn’t have a mortgage and purchased her home for $168,500 in 2015, the suit states. She was unable to pay property taxes beginning in 2016 because of medical and financial problems, according to the complaint, resulting in the initial $3,768 property tax lien from New Bedford.

In 2018, New Bedford assigned the tax title to Tallage for $9,626.19, according to the lawsuit. Tallage filed a complaint in Land Court against Foss to foreclose its tax lien, while the debt increased to $24K by 2019, an amount amassed from two more years of unpaid taxes, Hill explained in a response. Through the process, Foss was unable to pay the debt and Tallage foreclosed on the property, selling it for $242K in March, an amount $210K more than Foss’ total debt, the suit claims.

The PLF is seeking, along with damages and restitution, a ruling finding the state’s tax foreclosure statute unlawful. The organization helped homeowners strike down a home equity theft practice in Michigan and consulted the Montana legislature in passing its own home equity theft ban.

Many homeowners don’t understand how to calculate their home equity position, a Hometap survey found. Home equity levels across the nation remain high, deterring more foreclosure actions, according to CoreLogic, although 1.1 million loans are in a negative equity position.