FILE - Property Taxes Home House Purchase Equity

(The Center Square) – Maine is among a handful of states that allow local governments and investors to "steal" equity from homeowners who have fallen behind on their property taxes, according to a new report.

The report by the nonprofit Pacific Legal Foundation found that Maine and 11 other states, plus Washington, D.C., have laws on the books that allow local governments or private investors to take more than what is owed from homeowners who are facing default on their property taxes.

The report also highlighted that at least 10 of the states – which besides Maine include New York, New Jersey and Illinois – have protections for home equity in the foreclosure process, but also have loopholes on the books allowing governments or private entities "to seize excess equity value that should belong to the homeowner."

Angela Erickson, Pacific Legal's strategic research director and co-author of the report, said those laws in Maine and elsewhere have allowed local government officials to take homes that "have been in families for generations" and "leave some people homeless over tax debts that amount to less than 1% of their property’s value."

"Home equity theft is robbing thousands of people of their homes and all the equity they’ve built," she said. "A system that allows governments and private investors to take more than what is owed creates a perverse incentive to work against the homeowner – not with the homeowner – to get the tax debt paid."

In Maine, local governments are allowed to foreclose and sell tax-delinquent properties when the redemption period expires, or 18 months after the government files a tax lien.

Most U.S. states have similar laws. But some states, including Maine, allow the local governments to keep the surplus proceeds from tax foreclosure, the group said.

The report found that from 2014 to 2021, about 43 Maine homeowners were victims of home equity theft, totaling $4 million in value. On average, the state's homeowners lost $167,000, or 88%, of their home equity, the group said.

Maine also has a homestead exemption law that allows homeowners 65 and older to claim the surplus from tax sales if they reside in Maine full time, but the foundation pointed out that not everyone qualifies for those benefits.

Among the report's findings:

• Homeowners in the dozen states collectively lost more than $777 million in savings on more than 5,600 homes based on their market value, above what they owed in tax debt.

• On average, homeowners in those states lost 86% of their equity.

• Local governments, which often sell properties for a fraction of market value, collected $26 million more than they were owed on about 1,300 homes.

• Private investors collected an estimated $250 million more than they were owed on about 2,600 homes.

The legal foundation has filed several petitions to the U.S. Supreme Court asking justices to take up lawsuits filed by clients who have suffered from "unjust" home equity theft.