Lawmakers grapple with solutions to peril of tax liens (Pt. 3)

Michael Murphy, a 73-year-old Newburyport resident, works in the city’s recycling center about 95 hours a year so he can reduce his annual property tax bill — part of a program that helps people on fixed incomes meet their tax obligations. Photo Credit: Chris Burrell/NECIR

Critics of a state law that allows cities and towns in Massachusetts to sell tax lien debt to private investment companies have been calling for reforms for the last three years.

They’re still waiting for changes they say could help homeowners – who stand to lose everything, including their equity, in a tax foreclosure. Reforms could also take a bite out of big profits for investors.

The New England Center for Investigative Reporting looks at solutions aimed at protecting local taxpayers while helping them meet their obligations and avoid devastating financial losses. This is the third in a series.

At the recycling barn on a recent Saturday morning in Newburyport, Michael Murphy is helping to build a white mountain of Styrofoam even higher.

Murphy is 73 years old and his job here brings no paycheck. He’s one of about 80 residents in the city who take advantage of a program allowing people over 60 to trade 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 everbody’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.

A bill pending in the State Legislature would do much of this.

It would also take a big bite out of profit margins for investors who would only be able to recoup fees and legal costs from the sale of a house resulting from a tax lien purchase. And property owners could get back some of their equity.

The bill’s sponsor is John Mahoney, a state representative from Worcester, a city that auctions off tax liens to investors every year.

“The cities want to get whole as quickly as possible,” he 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 state’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 getting windfall payouts, 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.

This story, Part 3 in a series, aired on WGBH 89.7.