Sponsored by:
Senator VINCENT J. POLISTINA
District 2 (Atlantic)
SYNOPSIS
Revises tax lien foreclosure process to protect equity accrued by property owner in tax lien foreclosure.
CURRENT VERSION OF TEXT
As introduced.
An Act revising the tax lien foreclosure process, revising 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 states 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 lienholders 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 Caesars, but no more. In this case, the party that kept the excess funds was a public entity, not a private lienholder.
On December 4, 2023, the New Jersey Appellate Division court issued its decision in 257-261 20th Avenue Realty, LLC v. Alessandro Roberto, et al., finding that New Jerseys tax sale law, which established the confiscation of a property owners equity when a tax lien on a property is foreclosed, violates the Takings Clause of the Fifth Amendment to the United States Constitution as determined in the Tyler case, and also approved the retroactive application of the decision to any foreclosure case pending final judgment to account for the new principle of law established in Tyler (The Appellate Division court referred to this as pipeline retroactivity).
b. New Jerseys 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 whats what rather than whos 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 owners 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 Jerseys 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