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MA Dept. of Revenue Releases Guidance on Retaining Surplus Proceeds from Tax Title Foreclosures

In May, the U.S. Supreme Court issued its decision in Tyler v. Hennepin County, 598 U.S. 631 (2023). At issue was what should happen to funds that are obtained by local governments through tax foreclosure sales when the proceeds exceed the tax debt owed. The Court ruled that the retention of such proceeds by the government instead of returning the excess to the property owner, constituted an unconstitutional taking of private property without just compensation in violation of the 5th and 14th amendments to the Constitution.


The decision has led to some uncertainty surrounding similar practices in Massachusetts. Specifically, neither G.L. c. 60, which deals with tax title takings, nor any other statutory provision currently ensures that property owners are notified that they are entitled to claim surplus proceeds after their foreclosed property has been sold. While the legislature and the courts address how to secure constitutional protections to property owners, municipal treasurers must consider how to ensure that surplus proceeds can be easily returned if necessary.


The Massachusetts Department of Revenue Division of Local Services released Bulletin 2023-05 to address how to account for surplus proceeds if such funds may need to be paid to property owners. Under current law, proceeds from the sale of foreclosed property are credited to the general fund. G.L. c. 44, § 53. DLS states that, given the Tyler decision, it will not object if the Treasurer instead temporarily holds such funds in an agency account until there is further direction on the matter from the courts or the legislature. 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 a governmental entity. This alternative has the benefit of bypassing Town Meeting approval before it may be returned.


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