In a recent Appellate Division decision, the New Jersey scheme of tax sale certificate foreclosures was radically overturned.  Relying on a 2023 US Supreme Court opinion, the court found that a foreclosure judgment divesting the owner of all equity violated the Fifth Amendment of the US Constitution prohibiting taking of private property without just compensation.

     A tax sale certificate is issued by a municipality when an owner has not paid taxes.  The certificate can be purchased by a private party which may then foreclose on the property.  Historically, investors would pay premiums to purchase a particular certificate, or agree to pay a high rate of interest.  Why?  Because for a small investment, an investor could own the property once foreclosing.  And the owner’s equity would be forfeited to the investor.

     In contrast to a mortgage foreclosure, there is no sheriffs sale in a tax foreclosure.  There is only the entry of a final judgment of foreclosure which vests title in the investor once it is recorded.   In mortgage foreclosures, the owner is permitted to apply to the court for surplus funds if the property brings a higher price at the sheriffs sale.  Not so for a tax foreclosure.

     In response, the New Jersey Senate introduced a bill to amend the tax sale law to protect the equity accrued by property owners.  That is still pending at this time.  Clearly, this change will give investors far less incentive to invest in tax sale certificates.  That will not bode well for the revenue collection needs of New Jersey municipalities.
     I have extensive experience in New Jersey real estate litigation.  Call me today with your questions.

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Charles D. Whelan III has been committed to excellence for over 30 years. With offices located centrally in New Jersey, he is able to provide businesses and individuals with excellent legal services.

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