On July 10, 2024, New Jersey Governor Phil Murphy signed a new bill into law that aligns New Jersey’s tax sale law with a recent United States Supreme Court decision. This move comes in response to the landmark U.S. Supreme Court case Tyler v. Hennepin County, which set new legal standards regarding the handling of home equity in tax foreclosure situations.
Background: Tyler v. Hennepin County
Tyler v. Hennepin County centered around the practice of local governments retaining the excess proceeds from the sale of foreclosed homes. In this case, the U.S. Supreme Court ruled that this practice violated the Fifth Amendment, which protects against the unlawful taking of property without just compensation. The ruling necessitated that any surplus equity from a tax foreclosure sale be remitted to the former property owner.
New Jersey’s Legislative Response
In response to the Supreme Court ruling in Tyler v. Hennepin County, New Jersey lawmakers unanimously passed Bill A3772 (“New Law”), which amends New Jersey Tax Sale Law (N.J.S.A. 54:5-1 et seq.) and the In Rem Tax Foreclosure Act (N.J.S.A. 54:5-104.29 et seq.) to bring the State's tax sale processes in line with federal constitutional requirements. The New Law prohibits the holder of a tax sale certificate from keeping any surplus equity from tax foreclosure sales, ensuring that property owners or their heirs are compensated for the value of their property beyond the tax debt owed.
Key Provisions of the New Law
Protection of Equity: The core provision of the New Law provides that a property owner whose property is subject to a tax lien foreclosure, or that owner’s heirs, has the right to demand by written request 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 alternative, through an online auction of the property through the office of the county sheriff. This ensures compliance with the Tyler decision and protects property owners’ rights.
Process for Property Owners to Reclaim Surplus Equity: The New Law institutes a specific and clear process for property owners to reclaim any surplus equity resulting from a tax sale. Following a tax sale, the local government is mandated to notify the former property owner if there are any surplus proceeds. This notification must include detailed information regarding the sale, the total amount obtained, and the amount of surplus funds available. Property owners must make a demand to recover the surplus proceeds in writing to the New Jersey Superior Court and prior to the date the final judgment is entered. The court is required to review the claim promptly. Upon verifying the claim and the documentation provided, the court must approve the request for disbursement of the surplus funds.
Implications for New Jersey Property Owners
The passage of the New Law is a significant victory for property owners in New Jersey. It provides a safeguard against the loss of equity in their property during tax foreclosure proceedings and aligns State practices with constitutional protections. The New Law does not cover property owners whose property was foreclosed before July 10, 2024.
For a copy of this decision, please contact either of the authors Nicholas Racioppi (nracioppi@riker.com) or Hunain Sarwar (hsarwar@riker.com).
