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Client Alert September 11, 2023 - Guidance on Tax Title Foreclosure Surplus Proceeds

Updated: Oct 11, 2023

On May 25, 2023, the Supreme Court of the United States issued its decision in Tyler v. Hennepin County. At issue in the case was what should happen to funds that are obtained by municipalities through tax foreclosure sale that exceed the tax debt owed. The Court ruled that state law must provide a legal mechanism for property owners to obtain surplus proceeds from a tax title sale. Failure to provide such a process constitutes a taxing under the Fifth Amendment to the United States Constitution. The Tyler decision has led to confusion surrounding proper procedures for comparable foreclosure practices in Massachusetts. This is in part due to lack of language in M.G.L. c.60, §77B, the statute governing land acquired by municipalities through foreclosure, addressing the reservation of surplus proceeds, as well as language in other statutes that may conflict with the return of these funds.

On September 6, 2023, the Division of Local Serivces issued Bulletin 2023-5 which discusses the Tyler decision and outlines how municipalities should treat such excess tax proceeds until a legislative amendment is adopted to establish a clear process. Specifically, DLS asserts that such proceeds are general fund revenue. However, DLS also notes that it will not object to the placement of such excess proceeds into an agency account until there is a directive from the courts or the legislature on this matter. An agency account is an account that is separate from the general fund and is primarily used to hold assets that will be transferred to another party, such as a taxpayer or other government entity, at a later date. For example, federal taxes withheld from employees may be held in an agency account until they become due and are forwarded to the federal government. You may want to consider whether to adopt DLS’s suggestion. We expect that there will be legislative action in response to the Tyler decision. When there is, we will be sure to update you.

Please contact us as further questions arise.

We are here to help.


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