ASSEMBLY APPROPRIATIONS COMMITTEE
STATEMENT TO
ASSEMBLY, No. 3772
with committee amendments
STATE OF NEW JERSEY
DATED: JUNE 24, 2024
The Assembly Appropriations Committee reports favorably and
with committee amendments Assembly Bill No. 3772.
As amended, this bill would revise 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 into compliance with the
2023 United States Supreme Court decision in Tyler v. Hennepin
County, Minnesota, et al., 143 S. Ct. 1369 (2023) concerning the
ability of a property owner, whose right to redeem a tax lien on their
property has been foreclosed by the holder of a tax sale certificate, to
receive any of the owner’s equity remaining in the property after the
tax lien foreclosure.
Under existing State law, the holder of a tax sale certificate, after
six months in the case of a municipality holding the tax sale certificate
or in the case of the holder of a tax sale certificate on a property that is
abandoned, or after two years in the case of a third party lienholder,
may file suit in Superior Court to foreclose the right of the property
owner to redeem the tax lien. Upon the foreclosure, the lienholder
receives title to the property and all of the equity remaining in the
property, leaving the former property owner with no funds from the
foreclosure with which to purchase another property.
In the Tyler decision, the Supreme Court determined that Hennepin
County could not keep equity in the property beyond the amount it was
owed for overdue property taxes and interest thereon. Under the
Court’s ruling, excess equity was considered to be property that could
not be taken from the former property owner, consistent with the
takings clause restrictions of the 5th Amendment of the United States
Constitution.
The bill revises the “tax sale law” and the In Rem Tax Foreclosure
Act to require that, except in cases of abandoned property, as that term
is defined in P.L.2003, c.210 (C.55:19-78 et seq.), a property owner
whose property is subject to a tax lien foreclosure, or that owner’s
heirs, have the right to demand, by written request to the Superior
Court prior to the date that the final judgment is entered, that the
holder of the tax sale certificate foreclose the right to redeem that
certificate in the same manner as a mortgage, through a judicial sale of
the property through the office of the county sheriff, or in the 2
alternative, through an Internet auction of the property through the
office of the county sheriff. In the event that the owner or the owner’s
heirs do not demand a judicial sale or an Internet auction, the tax sale
certificate holder may foreclose without such sale, and the owner and
the owner’s heirs would have no claim against the holder of the tax
sale certificate for any equity in the property. For abandoned
properties, no judicial sale or Internet auction would be required and
the Superior Court would be authorized to bar any claims to surplus
equity as part of a foreclosure action.
The bill also stipulates that the amount received through a judicial
sale or the Internet auction would be conclusively presumed to be the
fair market value of the property, and if no one bids on the property
through a judicial sale or Internet auction, and the owner of the tax sale
certificate obtains fee title from the sheriff, it would be conclusively
presumed that there is no equity in the property. In the event that the
sheriff has not established an Internet auction, the owner or the
owner’s heirs would only be entitled to a judicial sale.
The bill would require the county sheriff to deposit with the clerk
of the Superior Court any surplus funds derived from the judicial sale
or Internet auction, after the holder of the tax sale certificate has been
paid the redemption moneys, allowable costs, and attorney’s fees as set
forth by the court in the final judgment of foreclosure, and the sheriff
has deducted the costs to the office of the county sheriff of holding the
judicial sale or Internet auction. This process would be the exclusive
method through which the owner, or the owner’s heirs, may claim and
receive any surplus funds. The bill defines “surplus funds” as meaning
any funds derived from the judicial sale or Internet auction of a
property, after the holder of the tax sale certificate has been fully
redeemed, and paid moneys due and owing to the holder of the tax sale
certificate, and after the costs charged by the sheriff to the holder of
the tax sale certificate to conduct the judicial sale or the Internet
auction have been withheld.
In the event a premium payment is made by the lienholder to
acquire a tax sale certificate for a property that is required to be sold at
a judicial sale or Internet auction, the bill would require the premium
payment to be refunded to the lienholder provided a writ of execution
is sent to the county sheriff to schedule the judicial sale or Internet
auction within five years from the date of the tax sale. The premium
would not be refunded, however, if the lienholder is the successful
bidder at the judicial sale or auction. For any premium payments that
are due to escheat to a municipality during tax year 2024, the bill
would extend the escheatment for an additional year.
The bill also requires that the notice provided by lien holders to
property owners of the intention to file a foreclosure complaint must
advise the owner that the owner or the owner’s heirs have the right to
request a judicial sale or an Internet auction of the property to preserve
any equity in the property. The notice would be sent by certified mail 3
to the last known address of each person entitled to redeem the tax sale
certificate and the owner’s address based upon the last deed of record
with the county clerk. The notice would also contain the amount
necessary to redeem the outstanding tax sale certificate.
The bill also provides a detailed reimbursement structure for
expenses incurred by the lienholder, which are to be certified by the
lien holder to the tax collector and added to the amount required to
redeem the tax sale certificate. Depending on whether a foreclosure
complaint has been filed, the lienholder would be entitled to
reimbursement of various expenses related to preparation and litigation
of a foreclosure action such as attorney’s fees, mailing costs, filing
fees, service of process fees, and property search costs.
The bill also provides that the provisions of the bill would apply to
any tax lien for which the right of redemption has not been foreclosed
as of its effective date.
As amended and reported by the committee, A3772 is identical to
S2334 (2R).
COMMITTEE AMENDMENTS :
The committee amended the bill to:
Change the timeline in which a property owner, or the owner’s
heirs, whose property is not abandoned and is subject to a tax lien
foreclosure, has the right to make written demand to the Superior
Court to foreclose the property owner’s right to redeem that certificate
through a judicial sale of the property as in the manner of a mortgage
or an Internet auction through the office of the county sheriff from 45
days after the property owner is served with a foreclosure complaint,
to any time prior to the date that the final judgment is entered;
Provide that in the case of a premium paid by a lienholder to a
municipality, the premium would be required to be refunded if within
five years of the date of the tax sale, the writ of execution is sent to the
county sheriff’s office to schedule a sheriff’s sale of the property;
however, if the lienholder is the successful bidder at the judicial sale or
Internet auction, the tax collector cannot refund the premium. The
amendments also extend by one year a premium that is due to escheat
to a municipality in 2024;
Stipulate that the amount received through a judicial sale or
Internet auction would be conclusively presumed to be the fair market
value of the property. If no one bids on the property through a judicial
sale or at an Internet auction, and the owner of the tax sale certificate
obtains fee title from the sheriff, it would be conclusively presumed
that there is no equity in the property;
Provide that in the event that the sheriff has not established an
Internet auction, the owner or the owner’s heirs would only be entitled
to a judicial sale;
Require the county sheriff to deposit with the clerk of the Superior
Court any surplus funds derived from the judicial sale, or Internet 4
auction, after the holder of the tax sale certificate has been paid the
redemption moneys, including allowable costs and attorney’s fees, and
the sheriff has deducted the costs to the office of the county sheriff of
holding the judicial sale or Internet auction. The amendments specify
that this process would be the exclusive method through which the
owner, or the owner’s heirs, may claim and receive any surplus funds;
Define “surplus funds” as meaning any funds derived from the
judicial sale or Internet auction of a property, after the holder of the tax
sale certificate has been fully redeemed, and paid moneys due and
owing to the holder of the tax sale certificate, and after the costs
charged by the sheriff to the holder of the tax sale certificate to
conduct the judicial sale or the Internet auction have been withheld;
Require that notice provided by a lienholder other than a
municipality be provided at least 30 days’ notice to the property owner
who is entitled to redeem an outstanding tax lien be sent to the owner’s
address based on the last deed of record with the county clerk, in
addition to the person’s last known address;
Require that notice provided by lien holders to property owners
advise the owner that the owner or the owner’s heirs have the right to
request a judicial sale or an Internet auction of the property to preserve
any equity in the property;
Provide a detailed reimbursement structure for expenses actually
incurred by the lien holder for preparation and litigation of a
foreclosure action, such as attorney’s fees, mailing costs, service of
process fees, and property search costs, which costs are required to be
certified by the lien holder to the tax collector and added to the amount
required to redeem the tax sale certificate;
Permit municipalities that hold a tax sale certificate to file an
action to foreclose the right of redemption at the time of a tax sale, and
at any time thereafter, for properties that are abandoned pursuant to the
“Abandoned Properties Rehabilitation Act,” P.L.2003, c.210 (C.55:19-
78 et al.);
Authorize the Superior Court to bar claims to surplus equity for
abandoned properties;
Exempt abandoned properties from the judicial sale and Internet
auction requirements established by the bill;
Require that the provisions of the bill apply to any tax lien for
which the right of redemption has not been foreclosed as of the bill’s
effective date;
Require that the process set forth in section 3 of the bill would be
the exclusive method through which the owner or the owner’s heirs
may assert a claim to any surplus funds by motion to the Superior
Court; and
Require that if all costs and reasonable attorney’s fees are not
recovered through the judicial sale or Internet auction, and the holder
of the tax sale certificate has a first lien paramount to any other lien on
any surplus funds and is thereby entitled to apply to the Superior Court 5
to recover any unpaid costs or attorney’s fees, the attorney would be
required to record a Statewide judgment lien for the outstanding
attorney’s fees.
FISCAL IMPACT:
The Office of Legislative Services (OLS) concludes that the bill
will result in an indeterminate reduction in annual municipal revenues
and have no net impact on county finances.
Municipalities will incur a revenue loss due to two aspect of the
bill. First, municipalities will no longer be permitted to retain the full
amount of proceeds resulting from the sale of foreclosed property for
which a municipality holds the tax sale certificate. Second,
municipalities will be required to refund to the holder of a tax sale
certificate the full amount of the premium bid offered by the certificate
holder if a property is scheduled for a judicial sale or Internet auction
within five years of the date of the tax sale. However, data on the total
amount of revenue generated by the sale of foreclosed properties and
the amount of premium bids retained by municipalities are not
compiled on a Statewide basis, hindering a full accounting of the
potential impact of the bill on municipal revenues.
The OLS anticipates that the bill will not have a net impact on
county finances because it requires county sheriffs to deduct the costs
of holding a judicial sale or an Internet auction from the proceeds of
the sale of a property prior to remitting any funds to the property
owner, resulting in offsetting county costs and revenues.