New lawsuit puts pressure on Maine towns that keep profits from tax foreclosures

By Billy Kobin, Bangor Daily News Staff

AUGUSTA — A Hancock County man who lost his roughly $40,000 property over not paying $2,600 in taxes has filed a lawsuit against his former town in a class action case that may put more Maine towns on notice even after lawmakers changed foreclosure rules last year.

The lawsuit serves as a reminder of the legal troubles that towns could face for past actions, even though the Legislature and Gov. Janet Mills approved new laws both in 2023 and this year to change Maine’s practice of keeping surplus from foreclosed home sales.

Last year’s law, led by Rep. Chad Perkins, R-Dover-Foxcroft, came in response to the U.S. Supreme Court ruling in favor of a Minnesota woman whose local government seized her condo for $2,300 in unpaid taxes, sold it for $40,000 and then kept the leftover money.

Maine had been among about a dozen states that permitted for years what one legal group called “home equity theft,” but the new law Mills signed last summer sought to improve the process by requiring towns to give former owners at least 90 days’ notice of their right to seek the excess proceeds from foreclosure sales via a letter sent to their last known address. 

If former owners seek the surplus money, then towns must sell the property via quitclaim deed at the highest possible price, under the law that also established a working group to study “equity in the property tax foreclosure process.”

The work group issued recommendations in January that also led to an additional bill Mills signed this month that makes further changes, such as increasing the amount of time a foreclosed property may be listed for sale from six to 12 months. 

But the new laws do not change the fact “a lot of towns” in Maine for years had been keeping excess proceeds, said Stonington lawyer John Steed, who owns the Island Justice law firm. Steed filed the class action complaint April 23 on behalf of Bruce Cookson, whose tax and home sale figures are similar to the Minnesota woman’s case that won in the Supreme Court.

Cookson had inherited an Eastbrook property that had been in his family for generations but started falling behind on property taxes in 2020. By 2022, he owed roughly $2,600 in taxes. The town foreclosed on the property, and its three-member board of selectmen approved the sale to another man who was “friends with town officials” for $2,900, the suit said.

The town said in a 2021 assessment the property was worth $37,300, but the complaint said the fair market value was “significantly higher” and more than $40,000. The lawsuit said the man and his wife were evicted in November 2022 after the town “took property worth 14 times that amount without giving Bruce Cookson anything.”

The complaint claims the town of Eastbrook, and other Maine municipalities that may get added to the case, violated the Fifth Amendment’s ban on taking private property “without just compensation” and the Eighth Amendment’s ban on “excessive fines.”

The lawsuit is seeking an unspecified amount of damages and other relief. Eastbrook, a town of about 400 residents about 17 miles northeast of Ellsworth, has a three-member board of selectmen. A town official said she passed on a request for comment on the lawsuit to the board, which had not responded as of late Wednesday afternoon.

“I think there are hundreds, if not thousands, of people who would be helped by this [complaint] who live in towns that, frankly, on their own should be reaching out to let them know they’ve been wronged,” Steed said.

The Pacific Legal Foundation, which represented the Minnesota woman before the Supreme Court, found 43 Maine homes from 2014 to 2021 were seized under what it called “home equity theft,” with owners losing $167,000, or 88 percent, of their equity on average.

The Maine Municipal Association had opposed past efforts to change the foreclosure process but has informed members of what they must keep in mind under the 2023 law. Maine Municipal Association lobbyist Kate Dufour said “our attorneys are available to respond to our member’s questions regarding this issue and are encouraged to do so.”

Cookson, 46, and his wife live with another family member “in much tighter quarters now,” Steed said. 

The lawyer added other examples of inherited properties are found throughout Maine, which is the oldest state by median age in the U.S, and he argued the foreclosure process has swiftly harmed vulnerable residents.

“They struggle to pay their taxes,” Steed said. “Then they lose everything.”