As cash-strapped towns and cities around the Bay State face a mounting stash of unpaid tax liens, they are increasingly turning to for-profit companies to pursue delinquent property owners — prompting concern among consumer advocates that vulnerable residents are being hit with astronomical fees and sometimes are losing their homes in the process.
Massachusetts cities including Worcester, Lawrence and Lowell — all hard-hit by the nation’s foreclosure crisis and economic recession — have unloaded hundreds of delinquent debts to private investors since 2008 in an effort to raise quick funds for depleted city coffers, interviews and publics records show. Smaller towns like West Springfield and Hopedale also are turning to private companies to collect unpaid taxes.
The affects of these sales are now being seen in Massachusetts Land Court where a handful of private companies have filed more than 1,100 cases since 2012 seeking to foreclose on delinquent borrowers whose tax liens they purchased from local municipalities, according to court records analyzed by the New England Center for Investigative Reporting. While the majority of owners turn up to pay their delinquent taxes, a small fraction end up losing their homes or properties for original debts that can start as small as a few hundred dollars, interviews and data show.
Among troubled homeowners are people like Colin Roache, a 78-year-old barbershop owner who was stunned in October to learn that a private New Jersey-based company, Tower DBW, took title to his three-family home after purchasing a tax lien on his home in 2011 for $2,768.61. The company, records show, paid his taxes for four years before gaining title to the home in late September in Land Court. Now, Roache says, the company has offered to let him regain possession of his house, valued at $161,000, if he pays more than $22,000 to cover his debt, interest and fees.
“It’s unfair for people to target your place like that,’’ says Roache, a Jamaican native who in August had secured a modification on his mortgage that had given him hope that his financial problems had been solved. “I had no idea it would come to this.”
An attorney for Tower declined to comment. But this aggressive tax-collecting tool — increasingly used around the US — is putting consumer advocates on high alert that vulnerable elderly residents are at risk of losing their homes. A 1996 Bay State law allows municipalities to sell delinquent tax liens to third-party companies — individually or in bulk — which are then permitted to impose 16 percent interest on debts until they are paid. If residents fail to respond, companies can file a complaint in Massachusetts Land Court to foreclose on a property, becoming the beneficiary of a huge profit if the owner doesn’t respond.
Consumer and housing advocates say they are seeing an increasing stream of low-income elderly residents like Roache coming into their offices confused about threatening letters and a spike in debt. While towns have the legal power to seize homes in tax default and charge interest, consumer advocates say, for-profit companies have more incentive to foreclose and impose high interest rates. The Boston-based National Consumer Law Center has been pushing reform for several years — urging states to better notify residents about the risks of not paying taxes and to reconsider laws that allow huge profits to companies paying relatively small sums for tax debts.
“I can’t think of anything else in the law that can be such a real loss to a property owner for something as little as a couple of thousand dollars owed,’’ says NCLC attorney John Rao. “There is no reason why the laws need to be structured so that the investor gets the windfall.”
Massachusetts — and 28 other states, plus Washington, D.C. — allow the sale of tax liens to private investors, says Brad Westover, executive director of the Florida-based nonprofit National Tax Lien Association. He defends the process, saying the industry is “highly regulated’’ — with Massachusetts among the strictest — and shouldn’t be hindered because a “small percentage of homeowners’’ lose their homes.
Most people pay their property taxes. But a small percentage of defaults — about 3 percent nationwide — create a “huge stress” for municipalities that rely on taxes to fund public schools, fire and police departments, and streets and roads, according to the tax lien association. Each year, $14 billion in property taxes remains unpaid, the association says.
“Current tax-paying homeowners shouldn’t be penalized with the possibility of higher property taxes because others won’t pay theirs,” Westover writes. “It’s also unfair to expect paying homeowners to keep paying when they see no consequences for not paying.”
But even municipal officials in the Bay State disagree about the value and ethics of selling tax liens to third parties. Officials from Boston, Attleboro and Norton told NECIR that they prefer to pursue tax liens in-house. Dave Sweeney, Boston’s chief financial officer, says one reason to do so, is that in outsourcing the process, the city “loses all control over the fate of the properties’.’ He adds: “The city does very well with its existing practices, which include significant outreach efforts to delinquents.”
“The idea of somebody else collecting on the tax titles just doesn’t appeal to me,” says Ethel Sandbach Attleboro treasurer. That city sold a few tax liens more than 10 years ago, but found it more trouble than it was worth, she says, because some debt collectors bought a lien and didn’t foreclose, confusing the line of title. She also worries about the impact of sales on troubled homeowners.
In 2009, the city of Lawrence once sold about $4.2 million worth of tax liens in bulk to the New Jersey-based Plymouth Park Tax Services, LLC, a former subsidiary of JPMorgan Chase & Co. that has recently been dissolved. Acting treasurer Mark Ianello says the city now prefers to go after its own debtors because officials can maintain more control over what happens to a neglected property or a troubled homeowner. However, he admits the past sale “was a bit of a windfall” for city coffers.
But that one bulk sale in Lawrence has had negative repercussions, says Kristen M. Antolini, an attorney with the nonprofit Northeast Justice Center in Lawrence, which provides free legal services to low income and elderly residents. She says she has seen a growing group of clients ask for help, shocked when they hear what could happen if they don’t pay their back taxes: “They have no idea they can lose their home. It is a huge blow to them when I explain to them what it actually means.”
There has been a “tidal wave of tax title problems,” particularly among low-income elderly residents, says Len Raymond, executive director of the Lowell-based nonprofit Homeowner Options for Massachusetts Elders. Seniors, he says, are often beset with mounting financial pressures and struggle to cover their taxes. Many, he says, are too proud to seek help but also aren’t aware of the consequences of ignoring tax bills. Currently, the agency is helping about 25 elderly homeowners at risk of losing their homes because of tax liens.
“Elders are not in the position to pay off these kind of debts,’’ he says. “There should be a cut or a moratorium dealing with seniors.”
In 2012, the influx of private investors purchasing tax liens caught the attention and concern of Massachusetts Land Court Judge Keith Long, who bundled a group of similar cases before him together and requested input from interested parties — including towns, companies and nonprofits. In his request, Long noted that tax foreclosures are unusual because of the double-digit interest rates imposed on property owners and the potential for huge profits.
“Property owners should pay their taxes,’’ he wrote, but he questioned the fairness of people losing their homes to for-profit companies for relatively small tax bills. “Such entities are responsible to their investors, not the citizens of a city or town, and their goals and incentives are not the same.”
Among responses to the judge, the Massachusetts Collectors and Treasurers Association argued that sufficient protections for residents are in place, but added that if there remain concerns about delinquent tax liens leading to big profits for-profit companies, a change of law is required.
An attorney representing Boston-based Tallage, LLC, — one of the biggest companies buying tax liens here — submitted a statement to the court saying the company had purchased more than 500 tax title accounts in Massachusetts. Of these cases, the company had only received five foreclosure decrees for single-family, owner-occupied homes, wrote attorney Daniel Hill, and in each case allowed the homeowner to pay their taxes and regain rights to their home.
“There is no tax title ‘foreclosure crisis’ looming in Land Court, nor are the elderly particularly at risk of losing their homes,’’ Hill wrote.
In Worcester, Colin Roache hopes he will win back the property he has owned since 1990.
The stocky grandfather with a lilting Caribbean accent says a perfect storm of personal and financial troubles kept him from paying his tax debts until it was too late. Roache has had trouble staying abreast of bills ever since his wife of 45 years, the family bookkeeper, fell ill with thyroid problems several years ago. The couple missed one year of tax payments that the city sold to a for-profit company a year later following an official request for payment and several public notices, public records show.
Roache says that, after the sale, he didn’t hear anything for years because the company, as required by state law, paid his taxes each year — adding up to more than $13,000 as his case wound through Land Court.
Roache said he was distracted, nursing his sick wife, Francella, and negotiating with his mortgage lender for a loan modification to cover a drop in income at his barbershop. Francella passed away in June at the age of 85. In August, Roach received some good news that the loan modification had been approved, slicing his monthly mortgage payment from more than $2,000 to about $1,100. He knew about the looming tax debt, he says, but planned to address the problem after resolving his mortgage issues.
Less than two months later, he was stunned to answer a knock at his door from a Tower representative telling him that he no longer owns his home.
According to state law, Roache has a year from the time of the court award of his home to Tower to request a reversal of the decision. Now he is struggling with how he can pay off the debt — he doesn’t want to leave his home. He’s unclear how the costs could mount so quickly.
“I lived here for 20 years and someone says I owe them $22,000 and they own my house,’’ he says. “I can’t see why that is justice.”
The New England Center for Investigative Reporting is an independent nonprofit news outlet based at Boston University and WGBH TV/radio. NECIR interns Ryan Towey and Paula Sokolska contributed to this story.