TALLAGE LLC v. PAUL MEANEY, MICHELE MEANEY and SOVEREIGN BANK.

Introduction

This case is a tax lien foreclosure proceeding on the property at 28 Caro Street in Worcester — a three family dwelling, presently used as apartments for rental to students at the nearby College of the Holy Cross — brought by plaintiff Tallage LLC, a private company which purchases municipal tax liens, against the property’s owners, defendants Paul and Michele Meaney, for failure to pay a fiscal year 2010 $224.58 water bill and $267.93 sewer charge. Defendant Sovereign Bank (now Santander Bank) is the holder of a $230,500 mortgage on the property, granted by the Meaneys in connection with a 2005 refinancing.

Water and sewer services are city-provided in Worcester, so their unpaid bills are considered “taxpayer receivables” and can thus result in property tax liens. See G.L. c. 60, §43 (definition of “taxes”). Tax liens are unique. When mortgage foreclosures occur, or when sheriff’s auctions take place on judgment liens, any surplus remaining after the obligation is paid is returned to the property owner. In stark contrast, when the right of redemption on a property tax lien is foreclosed, the holder of the lien acquires “absolute title” to the property, eliminating all of the owner’s equity and all interests that derived from the owner (the owner’s mortgage, for example), [Note 1] regardless of the amount owed on the lien. G.L. c. 60, §64. None of the surplus over and above what the holder of the tax lien is owed is returned to the taxpayer or any of his creditors; once foreclosure is final, the tax lienholder keeps it all. Id.

Since May 2008, Worcester has auctioned its tax receivables to private entities, which bid on them individually (the receivables go to their respective highest bidder), and can thus pick and choose the ones they want. See G.L. c. 60, §43. [Note 2] Private entities are interested in tax receivables for two reasons.

First, as tax liens, they accrue interest at 14% from the time they are due until the collector’s sale or tax taking occurs, G.L. c. 59, §57, and then at 16% thereafter, G.L. c. 60, §62— a rate of return not easily obtained from other investments. Moreover, once a tax lien foreclosure proceeding is filed, the foreclosing party can also be awarded its counsel fees and costs. See G.L. c. 60, §§65 & 68. A small bill can thus rapidly become much larger.

Second, as noted above, once a judgment enters foreclosing the taxpayer’s right of redemption, the foreclosing party has “absolute title” to the property, regardless of the amount at issue in the foreclosure. G.L. c. 60, §64. A small investment — a few hundred dollars for a water or sewer lien, say — can thus potentially result in the acquisition of the entire title to the property, free and clear of all mortgages and owner equity claims, and thus an astronomical return.

Private entities thus seek out and bid on properties with considerable “upside” — the spread between the purchase price and the property’s fair market value — and, as discussed more fully below, such was the case here. For a net investment of only $1052.84, [Note 3] Tallage acquired tax title to the 28 Caro Street property — an income-producing rental property in a prime location — with a fair market value in excess of $270,000.

Tallage then perfected the tax lien by recording the collector’s deed, filed this case, received a default judgment foreclosing the Meaneys’ right of redemption and then, less than three weeks after securing that judgment and well within the one year period in which this court has discretion to vacate the judgment (see G.L. c. 60, §69A), sold its interest in the property to a third party, HIGCO Corp., for $150,000. The Meaneys’ offer to redeem the property, made shortly after the HIGCO transaction, was rejected by Tallage, and both the Meaneys and Sovereign then moved to vacate the judgment and allow them to redeem. This court has explicit statutory authority to allow such motions “after careful consideration and in instances where it is required to accomplish justice,” so long as they are filed within a year after judgment entered. See Sharon v. Kafka, 18 Mass. App. Ct. 541 , 542 (1984). See also Glusgol v. Ortiz, Land Court Tax Lien Case No. 10 T.L. 141689, Order Granting Motion to Vacate Judgment (Dec. 20, 2011) (Patterson, Recorder) [Note 4] (hereafter, Glusgol) (granting motion to vacate, filed within the year, even though property had been conveyed to a third-party in the interim).

Put briefly, and as more fully discussed below, the parties’ contentions were these.

At the time these events occurred (2010 and 2011), the Meaneys were overwhelmed with health and other issues and either did not see or, as I find more probable, were distracted from the water and sewer bill at issue, [Note 5] the notice sent by the city that those charges would be auctioned, and the subsequent notices regarding these court proceedings, and thus left them unattended and unaddressed. They certainly never appreciated, and none of the notices they received ever stated, that they could lose their entire equity in the property, while remaining personally liable for the now-unsecured mortgage debt, as the result of a judgment in this case. They are not rich, and this property, along with the income it produces, is an important part of their family’s livelihood and savings, and to be obligated on the mortgage debt without any corresponding property to meet that obligation will be crippling. Finally, they point to the fact that only Tallage has refused their offer of redemption. Their three other properties, caught up in the same events but with a different purchaser of the tax liens, have all been redeemed with that purchaser’s assent.

Tallage, in response, points to the many notices that were sent to the Meaneys and argues that they should have been more attentive, with no one but themselves to blame for their loss. Tallage also makes the further argument that, as a matter of law, its sale of the property to a third party prior to the Meaneys’ offer to redeem cuts off the one-year period within which this court may vacate the foreclosure judgment — a legal argument the Land Court has previously considered and rejected in Glusgol, supra.

An evidentiary hearing was held on the motion to vacate and, for the reasons stated on the record at the conclusion of that hearing, the motion to vacate was allowed and the parties were directed to implement the redemption with these written findings and rulings, confirming that direction, to follow.

Tax Lien Foreclosure Proceedings

Before discussing the matters presently before the court, an explanation of tax lien foreclosure proceedings generally, followed one on how private companies can come to possess a citizen’s municipal tax obligation, may be helpful. I thus begin with a summary of the law regarding the assessment and collection of property taxes in Massachusetts, and a broad overview of the issues raised by the “privatization” of such collection.

Municipalities assess taxes on real property, see G.L. c. 59, and a detailed statutory framework exists for their collection when they go unpaid, see G.L. c. 60. Such taxes are not limited to the property assessments alone. Unpaid municipal water and sewer charges can also be added to the tax account. See G.L. c. 60, §43 (definition of “taxes”).

In the usual case, collection enforcement proceeds as follows. An instrument of taking is recorded at the Registry of Deeds and, if against the proper party(ies) and in compliance with the statutory prerequisites, places title in the municipality subject to the property owner’s right of redemption. Generally speaking, the municipality then proceeds against the property owner itself. Some municipalities, however, will sell some or all of their tax titles to private investors, leaving it to them to pursue. If, as here, the municipality has sold the tax receivable to a private investor, a collector’s deed (rather than an instrument of taking) is recorded, putting title in the private investor, once again subject to the taxpayer’s redemption right. Unless previously resolved by agreement, an action is then filed in the Land Court to foreclose the right of redemption. [Note 6] One of two alternatives then occurs: (1) the municipality or investor enter into an agreement with the property owner on a redemption figure and payment plan and, upon satisfaction, the case is dismissed, or (2) in the absence of such voluntary agreement, after due proceedings, the court makes a “finding” of the amount necessary to redeem and the date by which redemption must take place, often involving a payment schedule. If the taxpayer fails to comply with the finding, the right of redemption is foreclosed and judgment enters accordingly. As previously noted, that judgment may be vacated within one year if the court, “after careful consideration and in instances where it is required to accomplish justice,” so allows. See Sharon v. Kafka, 18 Mass. App. Ct., 541, 542 (1984). Once past the year, it may be vacated only if a “due process” violation occurred, e.g. the failure adequately to notify the record owners or mortgagees of the foreclosure proceeding. [Note 7] See Christian v. Mooney, 400 Mass. 753 , 760-761 (1987). [Note 8]

As noted above, tax foreclosure cases are unlike any other in certain important respects. Interest accrues at 14% from the time taxes are due until the collector’s sale or tax taking occurs, G.L. c. 59, §57, and at 16% thereafter, G.L. c. 60, §62. A small tax bill can thus rapidly become much larger. Also, unlike mortgage foreclosures or executions on money judgments in ordinary civil cases, the tax-foreclosing party keeps all surplus. Once the right of redemption has been foreclosed, tax title is “absolute” and neither the property owner nor any party claiming through the owner (such as mortgagees, lienors, or attaching creditors) has any claim, then or later, to the property or any part of its value. G.L. c. 60, §64; Buk Lhu v. Dignotti, 431 Mass. 292 , 296 (2000).

Property owners should pay their taxes, but a Procrustean application of 14%/16% interest rates and a complete loss of equity once redemption rights are foreclosed can arguably lead to inequitable results. Those who make these arguments are often the elderly or widowed who, once behind in their payments, find it difficult to “catch up”; those whose employment has been interrupted and have the same issue; heirs who have difficulty co-ordinating amongst themselves after a parent or relative’s death; or those, as here, who have had severe health issues that disrupted their lives. The Legislature has thus enacted three safeguards. First, the municipality may reduce the interest owed and enter into payment plans with the property owner. G.L. c. 60, §62A. Second, the municipality may apply to the Commissioner of the Department of Revenue for a reduction in the principal owed. G.L. c. 58, §8. Third, the Land Court has been given discretion to “make a finding allowing the [property owner] to redeem, within a time fixed by the court…” and to “impose such other terms as justice and the circumstances warrant.” G.L. c. 60, §68. This last allows the court “to determine whether the party seeking to redeem can meet the financial burdens imposed by statute, and if he can, on what terms payment to the town should be made.” Lynnfield v. Owners Unknown, 397 Mass. 470 , 475 (1974). The Land Court may also exercise other potential powers to address inequities, either inherent or conferred by statute, expressly or by implication. See, e.g., G.L. c. 60, §75; G.L. c. 220, §2; G.L. c. 185, §25, and G.L. c. 185, §25A. [Note 9] These include the explicit power at issue here: the court’s discretion under G.L. c. 60, §69A, “after careful consideration and in instances where it is required to accomplish justice,” to vacate a judgment foreclosing redemption if the motion is brought within a year after that judgment entered.

With the exception of payment plans, the scope of the court’s powers to address inequities has rarely been explored in the context of tax foreclosure cases. One reason may be that, until recently, actions to foreclose a property owner’s right of redemption have generally been brought and pursued by the municipalities themselves. They have thus been conducted within the political process and, much like a District Attorney’s office, with a large measure of discretion, cognizant of special circumstances.

Tax foreclosure proceedings brought and pursued by private entities are outside the political process. Such entities are responsible to their investors, not the citizens of a city or town, and their goals and incentives are not the same. Maximizing return on investment may not include accommodation to individual circumstance to the same extent a municipality, acting for itself, might otherwise deem warranted. [Note 10] Constitutional problems arising from such privatization are thus raised and, to avoid them, the court has appropriate discretion to address circumstances that a municipality would likely have accommodated, but a private entity has not. See McCulloch v. Maryland, 17 U.S. 316, 407, 431 (1819) (identifying the “great powers” of government as “to lay and collect taxes; to borrow money; to regulate commerce; to declare and conduct a war; and to raise and support armies and navies” and observing, “the power to tax involves the power to destroy”).

Facts

Based on the sworn testimony of the witnesses, my assessment of the witnesses’ credibility, the admitted exhibits, the records of the Land Court of which I may take judicial notice, and the inferences I draw from the entirety of the evidence, these are the facts as I find them after trial.

Defendant Paul Meaney is a financial advisor with Integrated Financial Partners in Waltham. He and his wife, defendant Michele Meaney, have two small children — Jack, who was seven at the time of trial, and Kate, who was five. Michele has stayed home with the children, taking time from her career while they are young. They currently live in Natick.

The Meaneys are not rich. To supplement Mr. Meaney’s earnings and to save for their children’s educations and their ultimate retirement, the Meaneys have purchased four three-family homes on Caro Street in Worcester near Mr. Meaney’s alma mater, the College of Holy Cross. The four are: (1) 21 Caro Street, (2) 23 Caro Street, (3) 25 Caro Street, and (4) 28 Caro Street. Each is used for apartments for rental to Holy Cross students. The one at issue in this case is 28 Caro Street, purchased by the Meaneys in January 2003 for $270,000, and refinanced by them in September 2005 with a mortgage to defendant Sovereign Bank in the principal amount of $230,500. [Note 11] Sovereign is also the mortgagee on 21, 23 and 25 Caro Street.

Mr. Meaney manages the properties himself. He contracts with a property maintenance company to handle building maintenance and repairs, but he is the one who finds and interacts with tenants, collects rents, and pays building-related expenses. The monthly mortgage payments include a property tax escrow, and Sovereign employs a company named CoreLogic which monitors the City’s tax records to learn the taxes owed and then pay them from the tax escrow funds. CoreLogic, however, does not monitor water and sewer bills. These are sent to the Meaneys who, in the ordinary course, pay the City directly.

Worcester’s water and sewer charges are mailed quarterly. If a quarter’s bill is unpaid, it is added to the next quarter if within the same tax year. No bill goes beyond the tax year, however. If unpaid at fiscal year’s end, [Note 12] it is added to the taxpayer’s tax account for that fiscal year where it can become a tax lien. Water and sewer bills in the next fiscal year do not reflect unpaid charges from previous years.

The Meaneys have failed to pay water and sewer bills on one or more of their Worcester properties on occasion in the past. CoreLogic learned of this on those occasions, and arranged for their payment from the Meaneys’ tax escrow. The tax escrow obligation was then adjusted upwards to cover the shortfall, and these readjustments (reflected on subsequent monthly mortgage bills) alerted Mr. Meaney to the fact that he had missed the payments. His conclusion from this — wrong, as it turned out — was that CoreLogic would always catch unpaid water and sewer bills added to the tax title account, arrange for their payment, and then readjust his escrow payments. Such was not the case with the water and sewer bill at issue in this proceeding. CoreLogic learned of the unpaid bill in January 2011 after it had been added to the Meaneys’ tax account [Note 13] but, for reasons neither it nor Sovereign could explain at trial, never paid it. Most likely, it was never brought to the proper person’s attention — one more in the series of unfortunate events that occurred in this case. See discussion below.

The City mailed water and sewer bills on all four Caro Street properties on December 31, 2009. Mr. Meaney paid all of them in timely fashion. All previous water and sewer bills had likewise been paid. The ones that were missed were the next ones, mailed on April 1, 2010 — four separate bills, one each for each of the four buildings. The charges that led to the lien foreclosed in this proceeding (28 Caro Street) were $224.58 for water and $267.93 for sewer.

The Meaneys claim that they never saw the April 1, 2010 bill for 28 Caro Street or any of the April 1 bills for the other three properties, all of which were mailed by the City to their residential address at that time: 357 Commercial Street, Apartment 725, Boston MA 02109. These bills were mailed when the Meaneys were moving from that address to their new home at 17 Davis Brook Drive in Natick. I am not convinced that none of these bills were seen. One bill may have gone astray, but it is difficult to believe that none of the four arrived, and seeing a bill for even one of the buildings would have alerted the Meaneys that bills for the three others had also been sent. More likely, the bills were received, put in moving boxes, and then overlooked after the move was completed in the expectation that any unpaid charges would simply appear on the next bill. [Note 14] What the Meaneys did not realize was that, because the fiscal year changed on July 1, 2010, the April 1, 2010 charges from the prior fiscal year would not be added to any future water and sewer bill but, instead, go on the tax account for collection there. None of these charges appeared on any later water and sewer bill.

Worcester does not sell its tax receivables as soon as they are overdue. Instead, it waits until it has a large number of them, and then schedules a public auction. Each taxpayer whose receivable will be auctioned is mailed notice of the auction, and that occurred here. By letter from the City Treasurer dated February 7, 2011, sent to their new address in Natick, the Meaneys were told that, unless they paid $597.23 by no later than March 16, 2011, [Note 15] a collector’s deed granting the right to collect their “fiscal year 2010 outstanding Real Estate tax due” on the 28 Caro Street property would be auctioned on April 5, 2011. [Note 16] The letter went on to say that the collector’s deed “will grant authority to a third party purchaser to proceed with collection actions as provided by the statute [G.L. c. 60, §43] including perfecting a lien on the property and filing a Foreclosure complaint with the Massachusetts Land Court.” Notice of the auction, with specific identification of the 28 Caro Street property, was also published in the Worcester Telegram on March 22, 2011.

The Meaneys claim that they did not see this letter or the published notice. Again, I am not convinced. Four such letters were sent, one for each of the four properties with an April 1, 2010 unpaid water and sewer bill. Surely at least the envelope from at least one of those letters would have been seen. They were, after all, from the City — not an advertisement or solicitation from a bulk mailer. But I give full credibility to this: the Meaneys were in the midst of a health and related family crisis, and many things simply fell through the cracks. The City’s letters said they were for “outstanding Real Estate tax due,” an accurate but misleading statement (many people — perhaps most, including the Meaneys at this time — have no appreciation that unpaid municipal water and sewer charges fall within the category of “real estate tax due”) [Note 17] and the Meaneys, quite understandably, believed that Sovereign Bank was attending to all such taxes through their tax escrow, paid monthly by automatic deduction from Mr. Meaney’s bank account. [Note 18] Moreover, I agree (and so find) that the Meaneys’ health and family issues were both overwhelming and the primary reason why more attention was not paid to both this and later notices. These issues were as follows.

As noted above, the Meaneys are a young family with young children. In January 2010, while on a family vacation in Arizona, Mrs. Meaney began experiencing a “tingling” sensation in both of her feet. She also lost strength in her right arm, and was unable to lift anything with weight. She sought medical attention immediately upon returning to Boston, and was told her symptoms were likely caused by a pinched nerve. They worsened, however — she lost all strength in her right side and dropped her daughter when she ran to her after ballet practice — and thus began the first of many brain scans and other tests. Her condition was not diagnosed at that time (the MRIs could not identify anything specific), but she was told that she had a “strong potential” for multiple sclerosis (MS) — a chronic, typically progressive disease involving damage to the sheaths of nerve cells in the brain and spinal cord, whose symptoms may include numbness, impairment of speech and muscular coordination, blurred vision, and severe fatigue, see The Concise Oxford Dictionary (10th Ed.) at 1282 (Oxford University Press, 1999) — and, after many tests and many months, this diagnosis ultimately was confirmed. The tests themselves caused problems. Among them was a spinal tap leak, undetected, that caused blinding headaches and an emergency ambulance ride to the hospital. In addition, Mrs. Meaney began having gastrointestinal issues and was housebound as a result. Cervical and colon biopsies gave troubling results, there was concern that Mrs. Meaney might have celiac disease, [Note 19] and she also had an abnormal pap smear.

These events had profound effects on the Meaneys’ family life. The children were terrified that their mother might be dying and regularly had nightmares, waking up four and five times a night. Moreover, at this same time, Jack was diagnosed with a learning disability, doubtless not helped by his concerns for his mother, which required special schooling and therapy. Kate developed vision problems that needed regular therapy sessions. Mr. Meaney, as fearful for his wife as the children, pushed his work aside to take his wife to her numerous doctor and hospital visits (she could not drive herself) and to be with the children both at home and their activities. Mail would come in and be scattered around the house. Tenant rent checks went uncashed. Other tenants skipped paying, leaving town before Mr. Meaney noticed and could take effective action. Many of Mr. Meaney’s long-time clients fired him because he was distracted from their work. A babysitter was hired to help out, but described her work as “damage control.” All this continued through December 2012, when family life began stabilizing. In addition, for much of this time, the Meaneys were involved in a zoning dispute with the City, including complaints for contempt, over whether the apartments in their Caro Street properties were “lodging houses” being operated without a license [Note 20] — a dispute not finally resolved until the Supreme Judicial Court ruled in the Meaneys’ favor on May 15, 2013. City of Worcester v. College Hill Properties LLC, et al., 465 Mass. 134 (2013) (addressing the Meaneys’ case and those of other similarly-situated apartment owners).

The auction notice letters from the City arrived at the Meaneys’ house in early February 2011, and it is not surprising that they were pushed aside for a later attention that never occurred. The auction itself took place April 6, 2011. Coco Bella LLC purchased the collector’s deeds for 21, 23 and 25 Caro Street, and Tallage purchased the collector’s deed for 28 Caro Street — the property at issue in this case. Each of these deeds was recorded at the Worcester Registry in May.

Tax lien foreclosure cases were filed in the Land Court in November 2011 against each of the four properties — Coco Bella LLC v. Meaney, 11 TL 143163 (21 Caro Street), Coco Bella LLC v. Meaney, 11 TL 143157 (23 Caro Street), Coco Bella LLC v. Meaney, 11 TL 143161 (25 Caro Street), and Tallage LLC v. Meaney, 11 TL 143094 (28 Caro Street). Each arose from an unpaid water and sewer bill from April 2010 — none in a principal amount over $500 [Note 21] — and each sought foreclosure and the resulting “absolute title” to the entirety of the property. Following the usual Land Court procedures, a title examiner was appointed in each of these cases to determine all persons with an interest in the property so that certified mail citations could be sent. [Note 22] The title examiners completed their work in early 2012 and, in April 2012, citations were sent in each case to each of the Meaneys (Paul and Michele, in separate envelopes), mailed to their former address on Commercial Street in Boston (these were forwarded by the post office to the Meaneys’ Natick home), and to the Meaneys’ mortgagee bank, Sovereign, mailed to its central mailroom located at 1130 Berkshire Boulevard in Reading, Pennsylvania.

The notices sent to the Meaneys were either signed-for by their babysitter, Christine McDonough, or by Mrs. Meaney. The notices to Sovereign Bank were signed-for by an employee of Pitney Bowes (a third-party contractor that receives and sorts Sovereign’s mail), who should have forwarded them to Sovereign’s Escrow Servicing department at 601 Penn Street in Reading, but instead sent them to the Default Operations department, located at 450 Penn Street — a separate building. The Default Operations department received them, but never forwarded them to Escrow Servicing or took any action regarding them. Part of this may be due to the wording of the Citations — a Land Court form that has since been changed. The wording in the Citations sent to the Meaneys and Sovereign said:

NOTICE

A tax lien complaint has been presented to said Court [the Land Court] by the above plaintiff(s) to foreclose all right of redemption concerning the land described as:

[DESCRIPTION OF LAND]

You have been named as a party who may have an interest in this proceeding.

If you desire to make any objection or defense to said complaint you or your attorney must file a written appearance and an answer, setting forth clearly and specifically your objections or defenses to said complaint, in the office of the Recorder of said Court in Boston, Three Pemberton Square, Room 507, or in the office of the Assistant Recorder of said Court at the local Registry of Deeds, on or before the return day set forth above.

Unless your appearance is filed, your default will be recorded, the said complaint will be taken as confessed and you may be forever barred from contesting said complaint or any judgment entered thereon.

The Citation then gave the name and contact information for the plaintiff’s attorney. There was nothing on the form that gave any indication that the recipient’s ownership interest was at risk, much less the entirety of that interest. [Note 23]

Mr. Meany handles all business-related mail that comes to the house, and he first saw the letters and notices regarding the unpaid water and sewer charges, previously unopened or put aside, in mid-April, 2012. The ones he recalls seeing are the ones in the Coco Bella cases (not the ones related to this property, the deed to which had been acquired by Tallage), and he called Coco Bella’s attorney to see what they were about. He spoke with her briefly, and subsequently received an email with invoices to redeem 21 Caro Street for $5,135.91 and 23 Caro Street for $4,648.28 — figures that shocked him since the principal of the unpaid water and sewer charge for 21 Caro Street was only $354.08 (the demanded figure was over 14 times that amount) and $352.51 for 23 Caro (the demanded figure was over 13 times that amount). [Note 24] Caught up in his family problems and believing that — at worst — he would simply owe money whose amount could be addressed later, he did not respond to those demands or follow up with Coco Bella’s law firm at that time. At no time did he realize that he was at risk of losing the properties themselves. He did not call Tallage’s attorney because he did not see the notices for the Tallage case, and he did not file answers in any of the four cases, Coco Bella’s or Tallage’s. Because of its internal mail-forwarding failures, Sovereign, likewise, did not file answers in any of the cases prior to entry of judgment.

These failures to file responses in the court cases had consequences. Default judgments were entered in each of the four in July 2012, foreclosing both the Meaneys’ and Sovereign’s rights of redemption and, for Sovereign, terminating its mortgages on the properties. Coco Bella sold 25 Caro Street to HIGCO Corporation [Note 25] for $150,000 on July 19, nine days after judgment in that case was entered, and Tallage sold 28 Caro Street to HIGCO for $150,000 on July 26, only fifteen days after the July 11 entry of judgment. HIGCO was aware in both instances that the interests it was purchasing came from tax lien foreclosures, and was thus on notice that those judgments and resulting titles could be vacated by the court on motion brought within a year. G.L. c. 60, §69A. The deed it received from Tallage was a release deed, conveying only such interest as Tallage had acquired in the 28 Caro Street property with no warranties of any kind, and its agreement with Tallage contained an express provision addressing the possibility of a motion to vacate, as follows:

26. Tax Title – Buyer’s Option for Indemnification

Buyer acknowledges that Seller’s title to the Property is through the foreclosure of a municipal property tax lien pursuant to G.L. 60, and that under said statute interested parties may attempt to vacate the foreclosure judgment entered by the Land Court on July 11, 2012 within one year of the judgment. Buyer agrees that the Seller shall have no obligation to defend and indemnify Buyer for any damages, expense or loss arising out of any such action or motion to vacate the judgment, provided however that the Seller shall defend and indemnify the Buyer upon the occurrence of the following conditions precedent: (a) a motion to vacate the foreclosure decree is filed and docketed by the Land Court before July 11, 2013; and (b) within five days of the entry of such motion to vacate in the Land Court, the Buyer gives written notice to the Seller exercising its option to obtain Seller’s defense and indemnification of said motion to vacate and Seller delivers $25,000 in good and clear funds to the Buyer. In the event that the Buyer exercises the option described above, the Buyer agrees to defer to the Seller’s defense strategy, including any compromises of claims, and to fully cooperate in good faith with any such defense. The Buyer further agrees that the Seller may, at its option and in its sole judgment and discretion, take any justiciable appeals from any adverse rulings or judgments in connection with this defense. The Seller may, at its own option and in the absence of the Buyer’s exercise of the option described above, defend against any such motion to vacate. The Seller’s obligations to indemnify Buyer under this section 26 shall be limited to $175,000, expressly excluding any other damages or losses incurred by the Buyer such as carrying costs or costs to improve the Property, and shall only arise if the foreclosure decree is vacated by a court of competent jurisdiction following any and all appeals.

Purchase and Sale Agreement, 28 Caro Street (Jul. 26, 2012) (Trial Ex. T-29).

The Meaneys learned of the 25 and 28 Caro Street conveyances in August when Mrs. Meaney’s mother saw a report of the property transfers in the Worcester Telegram and called her about it. Mrs. Meaney then immediately called Mr. Meaney, who immediately contacted the attorney who was representing them in the zoning litigation (Gary Brackett), and attorney Brackett immediately called Coco Bella’s attorney and negotiated the redemption of 21 and 23 Caro Street. Sovereign became aware of the situation at approximately the same time by notice from CoreLogic.

Coco Bella rejected the Meaneys’ redemption of 25 Caro Street (the one it had sold to HIGCO) and, shortly thereafter, the Meaneys and Sovereign each filed a formal motion to vacate the judgment of foreclosure in that case.

Attorney Brackett made a similar request to Tallage to redeem the 28 Caro Street property, contacting its attorney on August 23, 2012. Tallage refused this request. Sovereign then filed a motion to vacate the 28 Caro Street judgment on October 9, 2012, and the Meaneys followed with their own motion to vacate on October 23, both well within the G.L. c. 60, §69A one-year period. A consolidated evidentiary hearing on the motions to vacate in both the Coco Bella 25 Caro Street case and this case was subsequently held before this court. The motions to vacate were allowed at the conclusion of that hearing (April 1, 2013), with these explanatory findings and supplementary rulings to follow.

Coco Bella later came to agreement with the Meaneys on the terms of redemption in the 25 Caro Street case. See Coco Bella LLC v. Paul Meaney, Michele Meaney and Sovereign Bank, Tax Lien Case No. 11 TL 143161, Joint Motion for Approval of Agreement for Judgment, allowed by the court on June 27, 2013. Tallage has not agreed, leaving only that case for final resolution. These findings and rulings are thus addressed solely to that case.

Discussion

As noted above, even if no “due process” violation has occurred, judgments in tax lien cases foreclosing a taxpayer’s right to redeem may be vacated if (1) a motion to do so is filed within one year after entry of the judgment, G.L. c. 60, §69A, and (2) the court, after “careful consideration,” finds that to do so “is required to accomplish justice,” see Sharon, 18 Mass. App. Ct. at 542. I find and rule that both conditions have been met.

There is no dispute that both Sovereign’s and the Meaneys’ motions to vacate the Tallage (28 Caro Street) judgment were filed within the year. Indeed, the evidence showed that they were filed promptly after the Meaneys and Sovereign learned of that judgment, and shortly after the Meaneys’ offer to Tallage to redeem the property was rejected.

I begin with a fundamental point. “[T]he only legitimate interest of a town in seeking to foreclose rights of redemption is the collection of the taxes due on the property, together with other costs and interest. When an owner of property taken for the nonpayment of real estate taxes comes forward with sufficient funds to redeem the property, the purpose of the statute has been fulfilled.” Lynnfield v. Owners Unknown, 397 Mass. 470 , 474 (1986). See also Boston v. James, 26 Mass. App. Ct. 625 , 631 (1988) (quoting Lynnfield). “In keeping with the respect with which our society regards the private ownership of property, the long standing policy in this Commonwealth favors allowing an owner to redeem property taken for the nonpayment of taxes.” Lynnfield, 397 at 473-474.

The Meaneys should have been more attentive to the many notices sent their way, but I fully credit their explanation that (1) they were overwhelmed with Mrs. Meaney’s and the children’s health issues at the time the notices were sent, (2) once they were able to focus on their mail, they fully intended to take care of these obligations, (3) as a backstop, they assumed their bank would take care of anything related to their tax account, and they’d have their mortgage tax escrow adjusted accordingly, and (4) they had no idea — no idea at all — that their failure to pay what started out as minor utility bills could result in the total loss of their properties. The fact that rent checks sent to them went uncashed and tenants’ skipped rental payments went unnoticed shows the depths of the crises they were experiencing, and negates any thought that they intentionally ignored these bills and notices. [Note 26] These are “extraordinary” circumstances fully justifying the exercise of this Court’s discretion to vacate the foreclosure. See Sharon, 18 Mass. App. Ct. at 542 (citing Lynch v. Boston, 313 Mass. 478 , 480 (1943)). Moreover, in these circumstances, it would be inequitable to allow Tallage to profit from such a windfall — the acquisition of full title to a $270,000 property for $1052.84 plus court expenses, which it immediately turned around and sold for $150,000.

Tallage bases both its refusal to agree to redemption, and its opposition to any court order vacating the foreclosure of that right, on an argument that the one-year period for the owner to file a motion to vacate the foreclosure judgment is superseded and ends once the property is sold to an “innocent third-party purchaser for value,” citing G.L. c. 60, §69. Tallage is incorrect, however, both in its reading of the law and in its factual assertion that HIGCO is an “innocent purchaser for value.” By its express terms, G.L. c. 60, §69 only bars the petitioner in the tax lien foreclosure case (here, Tallage) from moving to vacate the judgment foreclosing the right of redemption once the property has been sold to an innocent purchaser for value. G.L. c. 60, §69A governs motions to vacate by “any person other than the petitioner” (emphasis added) — for example, as here, by the owners and their mortgagee bank — and is thus the applicable provision. See Glusgol v. Ortiz, Land Court Tax Lien Case No. 10 T.L. 141689 (DJP), Order Granting Motion to Vacate Judgment (Dec. 20, 2011), cited supra. Moreover, HIGCO is not an “innocent purchaser for value,” and Tallage did not sell the property to HIGCO as such. The fair market value of 28 Caro Street is in excess of $270,000. Its rushed sale by Tallage to HIGCO for approximately half that was a recognition, by both Tallage and HIGCO, that the property might well be redeemed by either the Meaneys or their mortgage bank (Sovereign, with $230,500 at risk) within the one-year period set forth in G.L. c. 60, §69A. This is corroborated by the fact that Tallage’s deed to HIGCO was a release deed, conveying only whatever interest Tallage had, with no warranties or covenants of any kind. Moreover, the purchase and sale agreement between Tallage and HIGCO contained a specific provision addressing a G.L. c. 60, §69A motion to vacate, and was thus an explicit allocation of risk between the two of them if such an event occurred. As the agreement provides, once the motion to vacate is granted and redemption occurs, HIGCO gets its money back (the $150,000 it paid Tallage, plus the $25,000 it advanced to fund Tallage’s opposition to the motion to vacate) and the parties have no other obligations to each other.

Relief

As ordered at the conclusion of the evidentiary hearing, the motion to vacate the judgment foreclosing the Meaneys’ right of redemption is ALLOWED. The property has been the Meaneys’ since that time, with only the dollar amount owed Tallage for the redemption in question. Unlike Coco Bella, [Note 27] and although it had full power to do so, [Note 28] Tallage has not come to an agreement with the Meaneys on that number, leaving this court to set it. [Note 29] The cause of this is plain from their differing submissions.

Tallage identifies and itemizes its requests as follows:

Principal paid at auction: $626.24 [Note 30]

Interest and fees paid at auction: $554.04 Principal interest (post auction): $75

Recording cost of collector deed: $125 2011 tax payment: $1150.59 [Note 31]

Recording cost-2011 tax payment certificate: $75

Recording administrative fee (2011 tax certificate): $75

Tax lien foreclosure petition deposit with Land Court: $515

Supplemental title and other services: $137

Recording cost of notice of filing petition: $75

Administrative fee (notice of filing petition): $75

Recording cost of final decree/judgment: $75

Administrative fee (final decree): $75

Property management and insurance: $162.87

Recording cost of vacation of judgment/withdrawal: $150 Administrative fee (withdrawal/vacate): $200

Closing costs (to HIGCO) (deed stamps,etc.): $884

Legal fees-Law Offices of Daniel C. Hill: $25,582.50

TOTAL: $30,612.24

Sovereign, joined by the Meaneys, offered redemption as follows:

Principal paid at auction: $626.25

Interest at 16% on the tax sale figure of $626.25 from the date of the tax sale deed (May 6, 2011) to May 1, 2013 (the motion to vacate was allowed April 1, 2013): $199.03

2011 tax payment ($1,150.59 payment minus $724 refund by the City of Worcester): $426.59

Interest at 16% on $426.59 tax payment from date of payment (May 6, 2011 to May 1, 2013) $135.57

Land Court filing fee: $515

Record tax collector’s deed: $125

Record notice of filing at the Registry: $75

Title search: $137

Record 2011 tax payment certificate: $75

Record final decree/judgment: $75

Record vacated judgment: $75

Record withdrawal: $75

Legal fees: $4,455 [Note 32]

TOTAL: $6,994.44

Interest, costs and fees in tax lien cases are governed by G.L. c. 60, §§65 & 68. Interest is set at 16%, “costs of the proceeding” are to be awarded, and the petitioning party is entitled to “such counsel fee as the court deems reasonable”, not to exceed the actual costs incurred, and taking into account “the taxpayer’s ability to pay said fees in any such fee award.” Id.

I need not and do not reach the question of whether the 16% interest rate should be abated to some degree in this case, since neither Sovereign nor the Meaneys has requested I do so. I likewise need not and do not reach the question of whether the interest period should end on the date the Meaneys offered to redeem the property (August 23, 2012), the date I find a municipality would have accepted that offer, since, again, neither Sovereign nor the Meaneys has made that request. I do, however, concur with the defendants that the interest period stops on the date the motions to vacate were orally granted in court (April 1, 2013), with the one-month extra (to May 1, 2013) which the defendants apparently accept as the time by which the funds would have been paid. As explained more fully below, the fact that this matter did not end at that time is entirely due to the amount Tallage insisted upon receiving, which I find unjustified.

The appropriate redemption figure certainly includes the principal paid at auction for the water and sewer lien at issue ($626.25), plus interest on that amount at 16% from the date of auction (May 6, 2011) to May 1, 2013 ($199.03). It also includes the net tax payment made the day of the auction ($426.59), plus 16% interest to May 1, 2013 ($135.57).

The appropriate redemption figure also includes the costs of this proceeding: the Registry charge to record the Collector’s Deed ($125), the Land Court filing fee ($515), the Registry charge to record the Land Court petition ($75), the cost of the Land Court examiner who searched the title to ascertain the persons entitled to notice ($137), the Registry charge to record the 2011 tax payment certificate ($75), the Registry charge to record the foreclosure judgment ($75), and then the Registry charges to record the redemption documents — $75 for the order vacating the foreclosure judgment ($75), and then $75 for the document withdrawing the Land Court case ($75). None of these recording fees are contested by the defendants.

The core of the dispute is over the legal and HIGCO-related charges.

I begin by allowing what Tallage characterizes as the “administrative charges” related to the various Registry filings, but which more properly should be seen as “legal fees” so related — the law firm’s fee for the time it took to have the filings taken to the Registry by a legal assistant or similarly-qualified employee or outside contractor, and put on record. A fee for such time is appropriate and, with two exceptions, awarded in the requested amounts: $75 total (not $150) for the time involved in recording the tax collector’s deed and 2011 tax payment certificate ($75), [Note 33] $75 for the time involved in recording the Land Court petition ($75), $75 for the time involved in recording the foreclosure judgment ($75), and $75 (not $200) for the time involved in recording the order vacating the foreclosure judgment and the document withdrawing the Land Court case ($75). [Note 34]

Tallage’s request for “property management and insurance” ($162.87) is unusual but, in the context of these proceedings, reasonable. It reflects the cost to oversee and ensure the property while it was formally in Tallage’s name (after the July 11, 2011 foreclosure judgment was entered, and before the August 23, 2012 request for redemption was received), and it would have been irresponsible for insurance and supervision not to have been irrefutably in place at that time.

Tallage’s legal fees related to the preparation and filing of the petition to foreclose, and then in connection with the action to foreclose, to and including the time it received the Meaneys’ request to vacate the foreclosure judgment and redeem the property (Aug. 23, 2012) and then, thereafter, its receipt and evaluation of the actual motion to vacate (Oct. 15, 2012), [Note 35] are an appropriate part of the redemption figure and, tracking the Hill Law Affidavit of Legal Fees and attached invoices submitted (Apr. 8, 2013), are awarded as follows:

11/7/2011 Perform title search and evaluate sufficiency of city’s tax taking, prepare complaint to foreclose and related papers; file same in Land Court 4 hours @ $225/hour $900 [Note 36]

12/20/2011 Prepare and file notice of petition with registry of deeds .2 hours @ $225/hour $45

6/19/2012 Prepare and file motion for default, military affidavit .7 hours @ $225/hour $157.50

7/25/2012 Land court research; pull files/obtain copies of returns of service.3 hours @ $225/hour $67.50

7/25/2012 Deliver copy of judgment to Tremont Street [Tallage’s office], which I presume also included a discussion with Tallage regarding that judgment .6 hours @ $225/hour $135

8/23/2012 Review letter from G. Brackett [the Meaneys’ attorney]; conference with client re: options, defenses; tc with buyer re status .5 hours @ $225/hour $112.50

10/15/2012 Review motion to vacate; tc with client re: same; emails re Same .8 hours @ $225/hour $180

Legal fees and other expenses related to Tallage’s almost-immediate sale of its interest to HIGCO — a transaction it knew was problematic, at best, until the one-year period for filing a motion to vacate the foreclosure judgment had passed — and the legal fees and expenses Tallage incurred in opposing the motions to vacate, are not appropriately a part of the sum the Meaneys and Sovereign should pay to redeem the property, nor is anything else. The foreclosure judgment had been entered by default, so Tallage knew that the merits of any response by the Meaneys and/or Sovereign had never been reviewed by the court. The disparity between the fair market value of 28 Caro Street (in excess of $270,000) and the price Tallage paid to acquire the tax lien title ($1,052.84), not to mention Sovereign’s interest in preserving its $230,500 mortgage, were such that a motion to vacate was certainly to be expected, and the rush to sell the property to HIGCO (by release deed, with no warranties or covenants, at approximately half its fair market value), along with the detailed defense/indemnification clause contained in the purchase and sale agreement, show that Tallage fully expected its filing. Quite apart from the health and other circumstances of the Meaney family, that disparity alone put Tallage on notice of the high likelihood that the Land Court would vacate the foreclosure and allow redemption. Moreover, the court’s allowance of such a motion in the Glusgol case, discussed supra, seven months before the default judgment in this case was entered and expressly rejecting the argument that a third-party sale terminated the otherwise one-year period, was further notice that any sale prior to the end of the one-year period, challenged by a timely-filed motion to vacate, would likely not remain. Simply put, Tallage should have agreed to redemption at that time, and its opposition thereafter was unreasonable and cannot monetarily be assessed against the defendants in any amount.

Conclusion

For the foregoing reasons, the court’s order vacating the foreclosure judgment is confirmed, and the amount to be paid Tallage for the redemption is $4,599.81. Payment shall be made no later than thirty (30) days from the date of this Order. Since this is less than the $6,994.44 figure the defendants offered in April 2013, [Note 37] no interest is owed.

SO ORDERED.