NJ’s New Amendment to Tax Foreclosure Law: More Harm Than Good?

On September 24, 2021, Governor Murphy signed a law amending N.J.S.A. § 54:5-89.1, with the amendment preventing investors who purchase homes subject to a tax foreclosure for below fair market value from intervening in foreclosure actions to redeem those properties. The statute at issue addresses the rights of people with unrecorded interests in properties that are in foreclosure for unpaid taxes or municipal liens. Under the statute, anyone with such an interest in the property is bound by the foreclosure judgment; however, once the person records the interest, they may apply to intervene in the action. Under the prior version of the law, “[n]o person, however, shall be admitted as a party to such action, nor shall he have the right to redeem the lands from the tax sale whenever it shall appear that he has acquired such interest in the lands for a nominal consideration after the filing of the complaint,” with exceptions for relatives or those who purchased the property at a judicial sale. (Emphasis added). According to the Assembly members who sponsored the amendment, under this prior version of the law, “[h]omeowners who are in the process of foreclosure are being approached and convinced that their property value has dropped significantly and is worth much less than they know. They are being told the best option is to get what they can get for their home now before the value declines anymore. Some of these elaborate schemes weave in false appraisals and lawyers backing up the buyers’ deception. For the many who believe these so-called real estate investors or 'title raiders' that you may find through 1-800 number posters, flyers, or online ads on Craigslist, they watch their homes being re-sold for more than they were offered for it.”

Under the amendment, the law now states that no person can intervene in an action or exercise the right of redemption if they “acquired such interest in the lands for less than fair market value after the filing of the complaint[.]” (Emphasis added). Thus, those who pay more than nominal consideration but less than fair market value are now barred from intervening or redeeming. According to the sponsors, “New Jersey has some of the highest foreclosure rates in the nation. Homeownership and equity equate to wealth for many families in the state. To know they are being deceived out of their homes in the middle of a fight against foreclosure is unacceptable. This new law marks the beginning of an ongoing effort to address the concerns homeowners have with the foreclosure process, lending and predatory practices that are taking homes away from families.”

The amendment, however, could cause more harm than good. If a property owner does not have sufficient funds to redeem a tax sale certificate, the property is lost to the tax sale certificate holder and the property owner receives nothing. Under the prior scheme, the investor has to intervene in the foreclosure and demonstrate that the property owner received more than nominal consideration, as adjudicated by the Court. See, e.g., Simon v. Cronecker, 189 N.J. 304 (2007). If approved by the Court, the investor usually would have redeemed the tax sale certificate and the homeowners would receive cash and often an extended (albeit short) time to stay in the property, often rent-free, before the property would turned over to the investor. While not perfect, and there are more than enough examples of unscrupulous investors taking advantage of a homeowner’s plight, the homeowner would receive consideration for his property, and the Court had a say in protecting the homeowner from outrageously low offers. If investors now have to pay fair market value for properties, one can anticipate that there will be less bidding for properties pre-foreclosure and more homes foreclosed on and lost with the homeowners receiving nothing. Time will tell if this noble amendment works for those unfortunate homeowners or it will be a case of the best intentions leading to wrong results.   

For copy of the statute, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, Desiree McDonald at dmcdonald@riker.com, or Kevin Hakansson at khakansson@riker.com.