New Jersey Assembly Bill A3772 Amends Procedure for Tax Foreclosures
Understanding New Jersey Assembly Bill A3772 and Its Impact on Tax Foreclosures
On July 10, 2024, new legislation was enacted in New Jersey, which revises the process for property tax lien holders to foreclose the right to redeem property tax liens and allows property owners to protect remaining equity in the property. Assembly Bill A3772 (now P.L. 2024, c. 39) revises the “tax sale law,” R.S. 54:5-1 et seq. and the In Rem Tax Foreclosure Act (1948) (P.L. 1948, c.96 *C.54:5-104.29 et seq,) to bring those laws in compliance with the U.S. Supreme Court decision in Tyler v. Hennepin County, Minnesota, et al., 143 S.Ct.1369 (2023) concerning the ability of a property owner to recognize any equity remaining in his/her property after a tax lien foreclosure. This Supreme Court ruling held that the county could not keep equity in property beyond what it was owed for overdue property taxes and that any excess equity taken from the property owner consists of a taking in violation of the 5th Amendment of the U.S. Constitution.
Under previous New Jersey law, a municipality or a tax certificate holder could utilize a strict foreclosure process, which does not require a public sale of the property, to foreclose real estate and the owners’ right to redeem the property. In that scenario, the municipality or certificate holder, as it may be, would have obtained title to the property by way of judgment of foreclosure regardless of the value of the property, avoiding the ability of third parties to bid on the property above the amounts owed to the municipality or certificate holder, and potentially leaving the property owner without a right to recognize any equity above the amount of the tax lien foreclosed.
The new law amends the tax sale law and In Rem Tax Foreclosure Act to permit a property owner to require a judicial sale of the property by the County Sheriff in the same manner as a mortgage foreclosure is subject to a judicial sale of a mortgage that is in default. The amendments provide that in order to require a judicial sale, the property owner would need to make a motion to the Superior Court within 45 days of service of the foreclosure complaint or the publication of notice of foreclosure as required by law, whichever is later. In the event the property owner does not move for a judicial sale within this time period, the municipality or certificate holder is not required to hold a judicial sale and, presumably, would be allowed to proceed with a strict foreclosure process that has previously been the practice.
As for mortgage holders and others holding liens against any property that is subject to a tax foreclosure, the right to demand a judicial sale does not seem to be available to them; the new law seems to only give the right to demand a judicial sale to property owners or their heirs. Accordingly, subsequent lienholders are left with the same remedies they always had, which is to pay off the taxes before they are reduced to a judgment in tax foreclosure. If a property owner (or his/her heirs) demand a judicial sale, subsequent lienholders should have the right to bid at said sales subject to the tax lien being foreclosed.
For more information regarding the potential impact of these amendments upon mortgage holders, please contact Vincent DiMaiolo, Jr., Esq. at vdimaiolo@fskslaw.com or (973) 538-4700.
