New Jersey Modernizes Tax Sale Certificate Law: Protecting Homeowners' Equity by Requiring Sheriff Sales

In a significant move to protect homeowners facing foreclosure or tax sales, New Jersey Governor Phil Murphy signed a groundbreaking bill that allows homeowners to reclaim home equity not needed to cover their debts. This legislative action aligns New Jersey's tax sale laws with a recent U.S. Supreme Court decision, ensuring greater protection for distressed property owners.  By requiring a Sheriff Sale to foreclose, this will give significantly more time and protection for homeowners to save the equity in their home. 

Aligning with the Supreme Court's Tyler Decision

The new law is a response to the U.S. Supreme Court's ruling in Tyler v. Hennepin County, 598 U.S. 631 (2023), which established that governments cannot retain home equity exceeding a taxpayer's debts. This case involved Hennepin County, Minnesota, which was found to have violated the Fifth and Eighth Amendments by seizing a home over $15,000 in unpaid taxes, selling it for $40,000, and keeping the excess proceeds. The ruling has had widespread implications, necessitating changes in state laws across the country, including New Jersey.

Key Provisions of the New Jersey Bill

The bill, which received unanimous support in both legislative chambers, modernizes the state's tax sale law, originally enacted in 1918. It introduces several key changes aimed at protecting homeowners:

1. Sheriff Sale Up Until Final Judgment: Homeowners are now allowed to request a sheriff sale up until the final judgment, except for abandoned properties.
2. Judicial and Online Auctions: Homeowners or their heirs can reclaim excess equity by requesting their property be sold at a judicial sale or online auction, provided they do so before the court enters a final judgment.
3. Distribution of Sale Proceeds: Once the property is sold, the homeowner will receive the remaining equity after deducting their debt and the costs associated with the county sheriff's office and the tax sale certificate holder.
4. Exclusion for Abandoned Properties: The law does not permit property owners to reclaim surplus equity on abandoned properties.
5. Reimbursement of Additional Expenses: If a homeowner delays requesting an auction until after a tax sale certificate holder moves to foreclose, additional expenses will be reimbursed.

Immediate Impact and Future Implications

The law went into effect immediately upon signing. Homeowners whose right of redemption is still intact as of the enactment date can now claim excess equity under the new provisions once their properties go to a tax sale. However, the law does not apply to properties foreclosed before its enactment, leaving some homeowners ineligible.

The impact of this law on ongoing and future lawsuits is yet to be fully understood. Following the Tyler decision, numerous lawsuits have been filed by residents seeking to reclaim lost home equity from past foreclosures. Although the New Jersey Supreme Court has already ordered its foreclosure office to halt issuing final judgments in tax sale certificate cases and has implemented rule changes to comply with the Tyler ruling, some foreclosure cases are still proceeding.

Big Step in Protecting Homeowners in NJ from Tax Sale Foreclosures

Governor Murphy's signing of this bill marks a significant step forward in protecting the rights of New Jersey homeowners. By modernizing the state's tax sale laws and ensuring compliance with the Supreme Court's decision, New Jersey is setting a precedent for other states to follow. Homeowners facing foreclosure or tax sales now have a clearer path to reclaiming their home equity, providing much-needed relief and financial protection in challenging times.

This will help many of our clients.  Under the old tax sale certificate law, the buyer of a tax sale certificate could take a property to final judgment without a sheriff sale.  That final judgment in favor of the tax sale certificate holder operated as a deed to the tax sale holder and cut off the homeowner’s rights and the homeowner would lose the equity in the house.  This would result in a windfall for the tax sale certificate holder and the loss of equity in the house by the homeowner. 

If you are facing a tax sale certificate foreclosure, please immediately contact our attorneys in one of our NJ offices for guidance and help.   A powerful strategy to save your property from the tax sale foreclosure is Chapter 13 or Chapter 11 bankruptcy and restructuring the debt on the tax sale certificate or buying time to sell the property in an orderly way where you receive the net equity or profit from the home.  You need to work on the best legal strategy for you to preserve your property or the money you can recover from it.