Bill Text: NJ S1321 | 2024-2025 | Regular Session | Introduced
Bill Title: Protects equity accrued by property owner in tax sale foreclosure.
Spectrum: Partisan Bill (Democrat 3-0)
Status: (Introduced) 2024-01-09 - Introduced in the Senate, Referred to Senate Budget and Appropriations Committee [S1321 Detail]
Download: New_Jersey-2024-S1321-Introduced.html
STATE OF NEW JERSEY
221st LEGISLATURE
PRE-FILED FOR INTRODUCTION IN THE 2024 SESSION
Sponsored by:
Senator NELLIE POU
District 35 (Bergen and Passaic)
Senator JOSEPH P. CRYAN
District 20 (Union)
Senator M. TERESA RUIZ
District 29 (Essex and Hudson)
SYNOPSIS
Protects equity accrued by property owner in tax sale foreclosure.
CURRENT VERSION OF TEXT
Introduced Pending Technical Review by Legislative Counsel.
An Act concerning actions to foreclose the right to redeem tax sale certificates, amending various parts of the statutory law, and supplementing chapter 5 of Title 54 of the Revised Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. (New section) The Legislature finds and declares that:
a. On May 25, 2023, the United States Supreme Court issued a decision in a case before it, Tyler v. Hennepin County, Minnesota, et al., 143 S. Ct. 1369 (2023), that has very important implications for the rights of all property owners, and specifically, New Jersey law governing property taxes on real property.
Ms. Geraldine Tyler owned a condominium in Hennepin County, Minnesota on which accumulated approximately $15,000 in unpaid real estate taxes, interest, and penalties. The county seized the condominium and sold it for $40,000. Instead of returning the excess $25,000 from the sale to Ms. Tyler, the county kept the money for itself as permitted by that state's law. Ms. Tyler filed suit, alleging that the county unconstitutionally retained the excess value of her condominium beyond the $15,000 tax debt in violation of the Takings Clause of the Fifth Amendment to the United States Constitution, as well as the Excessive Fines Clause of the Eighth Amendment. In an opinion written by Chief Justice Roberts for a unanimous Court, the Court found that Ms. Tyler had plausibly alleged a taking under the Fifth Amendment. Since Ms. Tyler agreed that relief under the Takings Clause would fully remedy her harm, the Court did not decide whether she also alleged an excessive fine under the Eighth Amendment. However, the acknowledgement that Ms. Tyler had plausibly alleged a taking under the Fifth Amendment has the effect of limiting what a lienholder can collect when a court forecloses the right of redemption of a lien on the lienholder's behalf to only the property taxes paid by the lienholder, plus interest. In the words of Chief Justice Roberts, "(t)he taxpayer must render unto Caesar what is Caesar's, but no more." In this case, the party that kept the excess funds was a public entity, not a private lienholder.
b. New Jersey's "tax sale law," R.S.54:5-1 et seq., allows the holder of a tax sale certificate, whether it is a municipality or a private lienholder, the ability to foreclose the right of the property owner to redeem the lien by paying to the tax sale certificate holder all of the property taxes, plus interest, that the holder of the tax sale certificate paid to the municipality. Under R.S.54:5-86, an action to foreclose the right of redemption of a tax lien is filed with the Superior Court. Under R.S.54:5-87, as part of the action to foreclose the right of redemption, the court has the authority to "adjudge an absolute and indefeasible estate of inheritance in fee simple, to be vested in the purchaser." In other words, the Superior Court is authorized to grant title of the property to the lienholder, without requiring the lienholder to return the excess equity in the property to the prior owner. This authority applies to both municipalities, as lienholders, as well as to private lienholders. The language of R.S.54:5-85 reinforces this authority of the Superior Court: "[t]he provisions of this article shall be liberally construed as remedial legislation to encourage the barring of the right of redemption by actions in the Superior Court to the end that marketable titles may thereby be secured."
c. The New Jersey Constitution expressly extends property rights protections to actions taken by private parties. Article I, paragraph 20 of the constitution provides that private property shall not be taken for public use without just compensation. That paragraph goes on to provide that "(i)ndividuals or private corporations shall not be authorized to take private property for public use without just compensation first made to the owners."
d. Case law reinforces the provisions of Article I, paragraph 20.
(1) In Hyde v. Somerset Air Service, Inc., 1 N.J. Super. 346, 349-350 (Ch. Div. 1948), the court stated that ". . . in such cases it is a question of what's what rather than who's who. Indeed, the Legislature or governmental agencies cannot constitutionally confer upon individuals or private corporations, acting primarily for their own profit, although for public benefit as well, any right to deprive persons of the lawful enjoyment of their property."
(2) In Oechsle v. Ruhl, 140 N.J. Eq. 355, 360 (Ch. 1947), the court stated that "[a]n act of the legislature cannot confer any right upon an individual to deprive persons of the ordinary enjoyment of their property without just compensation. This principle rests upon the express terms of the constitution which created such a prohibition."
(3) In Pennsylvania R.R. Co. v. Angel, 41 N.J. Eq. 316 (1886), the court stated that "[a]n act of the legislature cannot confer upon individuals or private corporations, acting primarily for their own profit, although for public benefit as well, any right to deprive persons of the ordinary enjoyment of their property, except upon condition that just compensation be first made to the owners."
(4) In Tide-Water Company v. Coster, 18 N.J. Eq. 518 (1866), the court stated that "[t]he legislative power is not competent to take the property of A and transfer it to B, simply for the benefit or convenience of B, because such an act has no public aspect; it concerns and affects, exclusively, the two individuals. In such case, it would be within the authority of the judiciary to pronounce such transfer unconstitutional and void."
In each of these cases, the court reinforced the principle espoused in Article I, paragraph 20 of the New Jersey Constitution that "(i)ndividuals or private corporations shall not be authorized to take private property for public use without just compensation first made to the owners." The taking of the entirety of a property owner's equity in a parcel of real estate because that property owner was delinquent in the payment of property taxes attributable to the parcel of real property would appear to violate Article I, paragraph 20 of New Jersey's Constitution as well as the Fifth Amendment of the United States Constitution based on the reasoning set forth in Tyler v. Hennepin County, Minnesota, et. al.. Therefore, the Legislature has the authority, and a legal obligation to end this practice, which has become colloquially known and referred to as "equity theft," and to require that any excess equity in a parcel of real property that has been the subject of an action in court to foreclose the right of redemption of a tax lien be returned to the former property owner after the lienholder has been reimbursed for property taxes paid, and interest due and owing, on the property during the period in which the lienholder held the tax lien.
e. Therefore, in order to protect the equity of every property owner who may fall behind on their property taxes, whether the tax lien is held by a municipality or by a private lienholder, the Legislature has determined that, in light of the Supreme Court's decision in Tyler v. Hennepin County, Minnesota, et al., the tax sale law shall be amended and supplemented in order to require that all equity remaining after a lienholder, who has foreclosed the right of redemption of a tax lien, has been reimbursed for property taxes paid, plus interest, shall be returned to the delinquent property owner.
2. (New section) a. Notwithstanding any provision of the "tax sale law," R.S.54:5-1 et seq., or the "In Rem Tax Foreclosure Act, 1948", P.L.1948, c.96 (C.54:5-104.29 et seq.), or any other law to the contrary, in the case of a parcel of real property that is the subject of a foreclosure action filed in Superior Court pursuant to the provisions of R.S.54:5-86, upon the approval of the action to foreclose the right of redemption by the court, the court shall not adjudge an absolute and indefeasible estate of inheritance in fee simple to be vested in the purchaser. Instead, the Superior Court shall order that the sum of all property taxes paid by the purchaser, and interest due thereon, together with all costs related to the filing and adjudication of the action to foreclose the right of redemption that were paid by the purchaser, shall be the first priority lien on the property, paramount to any other lien, including any outstanding municipal lien, and shall order the sheriff of the county in which the parcel of real property is located to hold an Internet auction of the property, pursuant to any direction or guidance promulgated by the Administrative Office of the Courts or the Division of Local Government Services in the Department of Community Affairs. The order shall require that all costs of the auction incurred by the sheriff's office shall be reimbursed from the proceeds of the auction.
b. Not later than 14 days following receipt by the sheriff of the moneys paid by the winning bidder at the auction, the sheriff shall make the following reimbursements from these moneys:
(1) to the purchaser, the sum of all property taxes paid, and interest due thereon, together with all costs related to the filing and adjudication of the action to foreclose the right of redemption; and
(2) to the municipality in which the parcel of real property is located, the amount of any other municipal liens on the property together with interest due and owing thereon.
c. The sheriff shall retain for the sheriff's office sufficient funds to cover the costs of the auction, as required in this section. Once these payments have been made, the sheriff shall then forward any remaining moneys to the defendant.
d. As used in this section:
"Defendant means the owner of a parcel of real property or which a tax sale certificate was purchased and whose tight of redemption was barred by a Superior Court judge after failing to repay the purchaser of the lien.
"Purchaser" means the person who purchased the tax sale certificate, paid the property taxes on the parcel of real property and filed the foreclosure action with a court, and on whose behalf the right to redeem was barred by the court.
3. R.S.54:5-86 is amended to read as follows:
54:5-86. a. When the municipality is the purchaser of a tax sale certificate, the municipality, or its assignee or transferee, may, at any time after the expiration of the term of six months from the date of sale, institute an action to foreclose the right of redemption. Except as provided in subsection a. of section 39 of P.L.1996, c.62 (C.55:19-58) or as provided in subsection b. of this section, for all other persons that do not acquire a tax sale certificate from a municipality, an action to foreclose the right of redemption may be instituted at any time after the expiration of the term of two years from the date of sale of the tax sale certificate, subject to the requirements of section 2 of P.L. , c. (C. ) (pending before the Legislature as this bill). On instituting the action the right to redeem shall exist and continue until barred by the judgment of the Superior Court.
b. Any person holding a tax sale certificate on a property that meets the definition of abandoned property as set forth in P.L.2003, c.210 (C.55:19-78 et al.), either at the time of the tax sale or thereafter, may at any time file an action with the Superior Court in the county wherein said municipality is situate, demanding that the right of redemption on such property be barred, pursuant to the "tax sale law," R.S.54:5-1 et seq., or the In Rem Tax Foreclosure Act (1948), P.L.1948, c.96 (C.54:5-104.29 et seq.), subject to the requirements of section 2 of P.L. , c. (C. ) (pending before the Legislature as this bill). The filing shall include a certification by the public officer or the tax collector that the property is abandoned, provided pursuant to subsection d. of section 6 of P.L.2003, c.210 (C.55:19-83). In the event that the certificate holder has unsuccessfully sought such certification from the public officer or tax collector, as the case may be, the certificate holder may submit to the court evidence that the property is abandoned, accompanied by a report and sworn statement by an individual holding appropriate licensure or professional qualifications, and shall provide a copy of those documents submitted to the court to the public officer and the tax collector. On the basis of this submission and any submission provided by the public officer or tax collector, as the case may be, the court shall determine whether the property meets the definition of abandoned property.
c. Any person holding a tax sale certificate on a property that meets the definition of abandoned property as set forth in P.L.2003, c.210 (C.55:19-78 et al.), either at the time of the tax sale or thereafter, may enter upon that property at any time after written notice to the owner by certified mail return receipt requested in order to make repairs, or abate, remove or correct any condition harmful to the public health, safety and welfare, or any condition that is materially reducing the value of the property.
d. Any sums incurred or advanced pursuant to subsection c. of this section may be added to the unpaid balance due the holder of the tax sale certificate at the statutory interest rate for subsequent liens.
(cf: P.L.2015, c.16, s.1)
4. R.S.54:5-87 is amended to read as follows:
54:5-87. The Superior Court, in an action to foreclose the right of redemption, may give full and complete relief under this chapter, in accordance with other statutory authority of the court, to bar the right of redemption and to foreclose all prior or subsequent alienations and descents of the lands and encumbrances thereon, except subsequent municipal liens, and to adjudge an absolute and indefeasible estate of inheritance in fee simple, to be vested in the purchaser, subject to the provisions of section 2 of P.L. ,c. (C. ) (pending before the Legislature as this bill). The judgment shall be final upon the defendants, their heirs, devisees and personal representatives, and their or any of their heirs, devisees, executors, administrators, grantees, assigns or successors in right, title or interest and no application shall be entertained to reopen the judgment after three months from the date thereof, and then only upon the grounds of lack of jurisdiction or fraud in the conduct of the suit. Such judgment and recording thereof shall not be deemed a sale, transfer, or conveyance of title or interest to the subject property under the provisions of the "Uniform Voidable Transactions Act," R.S.25:2-20 et seq.
In the event that any federal statute or regulation requires a judicial sale of the property in order to debar and foreclose a mortgage interest or any other lien held by the United States or any agency or instrumentality thereof, then the tax lien may be foreclosed in the same manner as a mortgage, and the final judgment shall provide for the issuance of a writ of execution to the sheriff of the county wherein the property is situated and the holding of a judicial sale as in the manner of the foreclosure of a mortgage.
(cf: P.L.2021, c.92, s.23)
5. Section 4 of P.L.1948, c.96 (C.54:5-104.32) is amended to read as follows:
4. Any municipality or abandoned property certificate holder may proceed, In Rem, pursuant to the provisions of the In Rem Tax Foreclosure Act (1948), P.L.1948, c.96 (C.54:5-104.29 et seq.), similarly to bar rights of redemption, after said certificate has been recorded in the office of the county recording officer, subject to the provisions of section 2 of P.L. , c. (C. ) (pending before the Legislature as this bill). Neither the foreclosure nor the recording of any such judgment or certificate shall be construed to be a sale, transfer, or conveyance of title or interest to the subject property under the provisions of the "Uniform Voidable Transactions Act," R.S.25:2-20 et seq.
(cf: P.L.2021, c.92, s.25)
6. Section 2 of P.L.1964, c.39 (C.4:5-104.32a) is amended to read as follows:
2. In any case in which any municipality has conveyed to the State of New Jersey or a county thereof its right, title and interest in any real property, acquired through the purchase of any tax sale certificate covering said real property, the State or the county may, in the name of the municipality, foreclose the rights of redemption of said real property from tax sales, in the name of the municipality but for the use of the State or the county, as the case may be, under the In Rem Tax Foreclosure Act [, 1948] (1948), subject to the provisions of section 2 of P.L. , c. (C. ) (pending before the Legislature as this bill).
(cf: P.L.1974, c.22, s.2)
7. This act shall take effect
immediately and shall apply to any tax lien for which the right of redemption
has not been foreclosed as of the effective date of the bill.
STATEMENT
This bill would revise the process governing an action filed in Superior Court by the holder of a tax lien on a parcel of real property when that person institutes an action to foreclose the right of redemption of the tax lien. This bill is necessary because the United States Supreme Court's holding in Tyler v. Hennepin County, Minnesota, et al., 143 S. Ct. 1369 (2023), has undermined the provision of New Jersey's tax sale law which awards the holder of a tax sale certificate the ability to foreclose the property owner's right to redeem the tax lien and awards the holder of the tax sale certificate the property itself, as well as all of the property owner's equity in the property. The right of redemption of a tax lien is the right of the owner of the property on which the tax lien exists to repay the holder of the tax lien for the amount of taxes paid by the lienholder, plus interest, and remove the lien from the property. The provisions of this bill are intended to address the unfairness of the loss of that equity to property owners who lose property in a tax lien foreclosure.
Ms. Geraldine Tyler owned a condominium in Hennepin County, Minnesota on which accumulated approximately $15,000 in unpaid real estate taxes, interest, and penalties. The county seized the condominium and sold it for $40,000. Instead of returning the excess $25,000 from the sale to Ms. Tyler, the county kept the money for itself. Ms. Tyler filed suit, alleging that the county unconstitutionally retained the excess value of her condominium beyond the $15,000 tax debt in violation of the Takings Clause of The Fifth Amendment to the United States Constitution, as well as the Excessive Fines Clause of the Eighth Amendment. In an opinion written by Chief Justice Roberts for a unanimous Court, the Court found that Ms. Tyler had plausibly alleged a taking under the Fifth Amendment. Since Ms. Tyler agreed that relief under the Takings Clause would fully remedy her harm, the Court did not decide whether she also alleged an excessive fine under the Fifth Amendment. However, the acknowledgement that Ms. Tyler had plausibly alleged a taking under the Fifth Amendment has the effect of limiting what a lienholder can collect when the Court forecloses the right of redemption of a lien on the lienholder's behalf to only the property taxes paid by the lienholder, plus interest. In the words of Chief Justice Roberts, "(t)he taxpayer must render unto Caesar what is Caesar's, but no more." In this case, the party that kept the excess funds was a public entity, not a private lienholder.
Currently, under R.S.54:5-86, with respect to a lienholder that is not a municipality, an action to foreclose the right of redemption may be instituted at any time after the expiration of the term of two years from the date of sale of the tax sale certificate. In the case of a municipality that holds a tax certificate, an action may be filed at any time after 6 months from the date of the tax lien sale. Once an action to foreclose the right to redeem has been filed by a tax lien holder, the right to redeem continues to exist until barred by the judgment of the Superior Court. However, upon the action by the judge to bar the right of redemption and foreclose all liens other than municipal liens, the judge grants the holder of the tax sale certificate the title to the property, and that person becomes the owner of the property. At this point, the previous owner's rights to the property are permanently extinguished and the previous owner also loses any value, commonly referred to as equity, built up in the property through appreciation, or the payoff of a mortgage
Under the bill, in the case of a parcel of real property that is the subject of a tax lien foreclosure action filed in Superior Court, upon the approval of the action to foreclose the right of redemption by the Court, the Court would not grant the tax lien holder ownership of the property. Instead, the Court would order that all of the property taxes paid by the tax lien holder, and interest due thereon, together with all costs related to the filing and adjudication of the action to foreclose the right of redemption that were paid by the tax lien holder, would be the first priority lien on the property, paramount to any other lien, including any outstanding municipal lien, and would order the sheriff of the county in which the parcel of real property is located to hold an Internet auction of the property.
Once the Internet auction is completed and the property has been sold, not later than 14 days following receipt by the sheriff of the moneys paid by the winning bidder at the auction, the sheriff would be required to forward to the tax lien holder the sum of all property taxes paid by the tax lien holder, and interest due thereon, together with all costs related to the filing and adjudication of the action to foreclose the right of redemption. The sheriff would be required to also pay to the municipality the amount of any other municipal liens on the property plus any interest due and owing thereon, and retain for the sheriff's office sufficient funds to cover the costs of the auction.
Once those payments are made, the sheriff would then forward any remaining moneys collected from the winning bidder of the auction to the defendant. This allows the defendant to retain funds to either purchase, or rent, another property.
Under current law, with respect to a property taxpayer who has paid down a mortgage, who has equity in a property, or whose property has considerably appreciated over time, the loss of the property in a tax lien foreclosure, as well as the loss of all of the equity in the property, could lead to homelessness or other hardship, as there are no funds returned to the property owner with which to rent, or to purchase, another property.
Property equity is a valuable asset to property owners that should be protected, and retained by the property owners. It provides a property owner with opportunities to turn the equity to cash to purchase or rent another property, or to pay for items like living expenses in retirement, a child's college savings, or the health care of a loved one. "Equity theft," as this practice is known colloquially, occurs when government uses the property to settle an unpaid property tax debt and allow someone other than the property owner to collect the excess revenue beyond the unpaid property tax debt.
Like other assets, home equity should be protected from unjust government seizure. New Jersey is one of a handful of states, plus the District of Columbia, that does not currently, following a tax lien foreclosure, return to a property owner the remaining equity in the property subject to the tax lien foreclosure.
