Home Equity Takings Case Will Move Forward, Federal Judge Rules

A federal judge has denied a motion by the city of Greenfield, Massachusetts, to dismiss a lawsuit accusing the city of taking the excess value of two homeowners’ foreclosed properties over a tax debt. According to an article in the Greenfield Reporter, the plaintiffs alleged Greenfield officials violated their rights under the Takings Clause of the Fifth and Eighth Amendments by foreclosing on three properties to recover approximately $7,339 in combined unpaid taxes and pocketing the approximately $289,000 in combined excess value collected at resale.

The city’s attorney filed the motion to dismiss, claiming the city simply followed the state statutory scheme for tax takings, but “the judge wrote that a significant factor in the case centers around whether the plaintiffs had access to a legal procedure with which they could claim the excess funds under state law,” and he also called the hundreds of thousands of dollars in excess value a “giant windfall” for the city, reports staff writer Anthony Cammalleri.

Cammalleri writes that the judge’s ruling came just days after the Massachusetts Senate passed an amendment to the state’s annual spending plan that would prohibit municipalities and private companies from taking entire equity of a home in the event of a tax lien foreclosure, aiming to bring the state’s home equity laws in line with the last year’s Tyler v. Hennepin County, Minn. Supreme Court ruling that declared this type of practice (which critics call “home equity theft”) unconstitutional.