Outside of New England, property tax collection is primarily the domain of county government and so at the registry of deeds we frequently get calls from out-of-staters asking for the date of our next tax lien sale. Aside from a way of raising cash from government, dabbling in tax liens seems to be big business in much of the rest of the country. To such callers we explain two things: (1) property taxes in Massachusetts are handled at the city and town level so call the local tax collector; and (2) the law of property tax liens in Massachusetts and the legal/procedural culture that has grown up around it prefers to allow the lien to remain on the property until some change in circumstances causes it to be paid off.

Tomorrow the city of Lowell will depart from this past practice and hold an auction of tax liens on city property. The sale will take place at 10 am in the city council chambers at Lowell City Hall. Details of the sale are available on the webpage of the city’s Tax Title Division, a site that also includes a complete list of the 350 properties to be sold. According to the city’s procedural explanation, all 350 (or however many remain once some are pulled back from the sale for whatever reason) are to be offered for sale as a single group. If there are no bidders for that or if an insufficient amount is bid, then three separate multi-parcel bundles will be offered for sale. It’s pretty clear that individual properties will not be auction separately.

Because this is such a rare occurrence, here’s my understanding of the legal principles involved. The city has an automatic lien on all real estate for unpaid property taxes. That’s why any time you buy or refinance, the lender requires you to obtain from the city and record at the registry of deeds a “municipal lien certificate” which certifies the amount of any outstanding taxes. (This document is deceptively named because it typically shows no taxes due but years later homeowners become panicky when they see a document with the word “lien” in its title associated with them in the registry of deeds database).

When a property owner falls behind in payment of taxes, the city may “perfect” its lien by recording a document called a “tax taking” which says the property was taken for non-payment of taxes in a particular amount. Even though the word “taking” is liberally used in this document, it really only serves as a tangible lien in the property records (as opposed to the “automatic” one that initially occurs upon non-payment but which is not represented by any particular document placed on record). The reason the “taking” does not literally take the property for the city is that our law is strongly slanted towards (1) getting the taxes paid and (2) allowing the original owner to keep on owning the property. If you recall that much of our property law emerged from medieval England, the idea of the government seizing someone’s private property was repugnant and so many procedural safeguards to prevent abuse were put in place and remain.

Even after one of these “takings” has occurred, the owner of the property (or someone acting in his stead) has the absolute right to “redeem” the property by paying all back taxes and fees. Unless the city files a petition in land court to foreclose this right of redemption – a costly and time-consuming process – no change in ownership of the property will occur. With the statutory rate of interest on unpaid taxes set at 16%, leaving a “tax taking” lien untouched on a property is in some ways the best investment the city can make on its money. By just patiently waiting until the property is sold, renovated, or refinanced – any of which would require the moving party to pay the city in full – the city receives a return of 16% plus expenses.

By selling these tax liens, the city of Lowell will simply be assigning its rights to proceed in the above manner to some third party. I assume the bidders will be fairly large companies that are already in the tax lien business. I’m unsure of their business models but can assume several scenarios: paying a few cents on the dollar now for the right to receive a 16% return later or perhaps aggressively pursuing foreclosure of liens in Land Court (although if any entity follows a timetable of its own setting, it’s Land Court) and then flipping the properties to third party buyers. Whatever the ultimate plans of the bidders, tomorrow’s auction should certainly be an interesting event.