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Frequently Asked Questions
- Who may redeem my tax lien?
N.J.S.A. 54:5-54 limits the right of redemption to only 'the owner, his heirs, holder of any prior outstanding tax lien certificate, mortgagee, or occupant.'
Other interests such as judgments, condominium liens, subsequent tax liens, and construction liens do not create any right to redeem a tax lien.
- How does redemption take place?
The redeeming party must obtain a redemption figure (including any recoverable costs and legal fees) from the tax collector and deliver the money to the tax collector.
The collector then contacts the tax lien holder and delivers a 'voucher' confirming the redemption figure.
The lien holder then confirms that the figure is correct, signs the back of the Tax Sale Certificate for cancellation, and delivers it to the tax collector.
The collector then delivers the redemption money to the lien holder, and cancels the lien from the public records.
- Are there any limits as to who can purchase tax liens in New Jersey?
Generally, any individual, corporation, partnership, LLC or other entity may purchase tax liens.
The only limitation is that an owner or other entity which is already obligated to pay the taxes, may not benefit by obtaining a tax lien on the same property.
- When can I start to foreclose on a tax lien?
Tax liens that are purchased at auction cannot be foreclosed for two years following the auction.
If the lien is purchased from the municipality by assignment (after it was struck off to the municipality at auction),
then foreclosure may be started six months after the date of the tax certificate.
- How long does it take to foreclose on a tax lien?
It takes eleven months on average to complete foreclosure proceedings for a private (non-municipal) lien holder.
Some files are completed faster than others due to variable factors such as:
(1) The number of defendants; (2) The ability to locate all defendants; (3) Whether a defendant files a contesting Answer or Bankruptcy;
(4) The necessity to file special Motions to appoint a guardian ad litem for a minor; (5) Whether the FDIC holds an interest in the property; and (6) Whether an estate or heirs are involved.
Files are also routinely delayed due to backlogs at the County recording office (awaiting boarding date for Lis pendens) and
the Foreclosure Unit of the Court which processes all foreclosures (awaiting return of pleadings).
Municipalities may foreclose under a different statute for in rem foreclosures which are less costly and much faster.
In rem foreclosures average just three or four months.
Most legal fee arrangements require periodic payments based on the progress of the file, so the attorney has incentive to reach the end as quickly as possible.
- Why does it take so long?
The Tax Lien Law is designed with many 'holding periods' to allow the owner and other interested parties time to raise money and redeem the tax lien.
The '30-Day letter', Order Setting Time, and Default period all cause delays in the foreclosure process.
- Why does this type of foreclosure take longer than an in rem foreclosure by a municipality?
Municipalities may foreclose under a different statute for in rem foreclosures.
In rem foreclosure is less costly and much faster because all service is done by mail, and there is no Order Setting Time or 30-Day letter.
In rem foreclosure averages just three or four months.
- What happens if there is a federal IRS tax lien on the property?
Municipal tax liens have priority over federal IRS tax liens, so the foreclosure proceeding will eliminate the IRS lien.
However, any time that the federal government holds an interest in the property, a sheriff's sale must be scheduled at the end of the foreclosure proceedings.
- What happens if the FDIC (Federal Depository Insurance Corporation) holds a mortgage on the property?
Municipal tax liens have priority over all types of mortgages.
However, written consent must be obtained before foreclosure can be completed against the FDIC where it holds a mortgage on the subject property.
In our experience, such 'consent' is never denied, but it always causes delay and sometimes results in a redemption by the FDIC.
Experienced tax lien attorneys have the appropriate forms and contact information.
- What risks do lien investors face?
Some of the risks include Bankruptcy delays; Damage or destruction of the property; Environmental contamination; Valuation of the underlying property;
Foreclosure by a subsequent tax lien holder; Loss of premium if foreclosure is not completed within five years; and Morality issues relating to foreclosing on someone's home.
- Can a tax lien be discharged in Bankruptcy?
No, but an 'Automatic Stay' applies as soon as a bankruptcy petition is filed, so the foreclosure proceedings must stop until a Court Order is obtained allowing for the foreclosure to continue.
- Can I stop subsequent tax lien holders from foreclosing on me?
Subsequent (newer) tax liens have priority over prior (older) tax liens.
The holder of a prior tax lien can pay off the subsequent lien and have the cost added to its tax lien.
The only limitation on this rule is that anyone who acquires an interest in property for 'nominal consideration' is not permitted to redeem subsequent tax liens.
This is designed to stop title raiders and heir hunters.
- Will there be a sheriff's sale at the end of the foreclosure?
Tax lien foreclosure in New Jersey is generally a 'strict foreclosure' process whereby the Final Judgment is recorded as a Deed and the lien holder becomes the owner without a Sheriff's Sale.
There is an exception however.
If the federal government holds an interest in the property, such as an IRS federal tax lien, then 'strict foreclosure' is not permitted, and there must be a Sheriff's Sale at the end of the foreclosure process.
This opens the door to other investors who may bid at the sale to pay off the plaintiff / tax lien holder, and take title to the property via Sheriff's Deed.
When this happens, you do not get the property, but you get paid off with interest.
- As the lien holder, do I have the right to enter the property?
No. A tax lien holder has no right to entry of possession of the property until the foreclosure is completed.
Any unauthorized entry onto the property could be considered trespass.
It is possible under certain circumstances, however, to apply to the Court for permission to enter a property.
You should discuss this option with your attorney if, for example, the property is abandoned and needs to be secured.
- Can I be liable if someone is injured on the subject property while I hold a tax lien on the property?
A tax lien holder is not responsible for the condition of the property until the foreclosure is completed and Final Judgment is entered.
The lien holder becomes the owner and is liable for the property.
It is recommended that investors obtain liability and casualty insurance for all properties that are foreclosed.
- Can I file a tax appeal if I believe that the taxes are assessed too high?
No. Although recent case law has ruled that a tax lien holder would have standing to appeal the tax assessment on the underlying property,
N.J.S.A. 54:4-67 was subsequently amended to prohibit any tax appeal from being heard if there is any tax lien on the subject property.
This, in effect, eliminated any opportunity for a tax lien holder to file a tax appeal.
- Can I have a rent receiver appointed?
There is generally no right to have a rent receiver appointed to collect rents prior to entry of Final Judgment.
We successfully applied for a rent receiver on at least one occasion under very limited circumstances.
The Court opinion was not published.
- Do I have to keep paying taxes on the property after I buy a tax lien?
It is advisable to keep paying subsequent taxes but it is not always necessary.
If you do not pay the subsequent taxes, then the taxes will become a lien that has priority over your lien.
Eventually you will either have to pay it off, or you will be foreclosed.
Also, the Court will not issue a Final Judgment unless all open taxes are paid by someone - either the owner or another lien holder.
- How do I go about paying subsequent taxes?
The tax collector will calculate the amount due and you must pay the subsequent taxes to the tax collector.
Most towns calculate the amount due for free, but Paterson and Jersey City often charge a fee.
It is important that you prepare and file an 'Affidavit of Subsequent Tax Payment' so that the money paid for subsequent taxes will be added to your tax lien.
The tax collector will sign it, and of course, you must keep a copy of the Affidavit for your records.
If you just pay off taxes without filing an Affidavit with the Tax Collector, the amount you pay will not be added to your lien.
- Can I combine more than one lien in a single complaint?
Up to 15 liens may be included in one complaint, as long as they are all from the same municipality.
Grouping liens together saves some expenses, such as filing fees and Certificates of Regularity; however, it generally slows down the foreclosure process.
Therefore, we recommend filing separate complaints for each lien, unless common property owners are involved.
- Can a tax lien be assigned from one private investor to another?
Yes. Private assignments are very common.
A lien holder may assign a tax lien for any negotiated price.
Tax liens are often assigned for more or less than the current redemption value of the lien.
This is commonly referred to as a 'discount' or 'premium'.
If the lien is sold for less than its redemption value, it is sold at a 'discount.'
If it is sold for more than its redemption value then it is sold at a 'premium.'
The premium will be lost if the tax lien is redeemed because the redeeming party only has to pay the current redemption value regardless of what was paid for assignment of the lien.
- Can a lien holder enter into a payment plan to allow the property owner to pay off the tax lien over a period of time?
Generally, redemption must be made through a single payment to the tax collector's office.
This issue was recently addressed by the New Jersey Appellate and Supreme Courts, and it appears that private lien holders may enter into payment plans to cancel a tax lien under limited circumstances.
Legal consultation should be obtained before you even consider taking any payment.
- Will I be able to get title insurance after the foreclosure is completed?
Yes, but most title insurance companies will not issue a title insurance policy for three months after Final Judgment.
- Can a replacement be obtained if the original tax sale certificate is lost?
Yes. N.J.S.A. 54:5-52.1 provides that municipalities may issue a 'duplicate' tax certificate for a fee of up to $100.
The replacement certificate must be labeled with the word 'duplicate', and most municipalities charge $100 for this service.
- What costs will be incurred in the foreclosure process and which costs are recoverable if the lien is redeemed?
The Recoverable Costs [ and the Typical Recoverable Amount ] are as follows:
- Plaintiff's costs foreclosure (N.J.S.A. 22A:2-10): [ $50.00 ]
- Fee for filing foreclosure complaint (N.J.S.A. 22A:2-8): [ $200.00 ]
(as of July 1, 2002 - $200.00)
- Fee for filing lis pendens (N.J.S.A. 2A:15-13): [ $40.00 ]
(as of July 21, 2003 the maximum fee is $50.00)
- Fees for filing motion(s) ____ @ $30.00 per motion: [ $30.00 ]
(N.J.S.A. 22A:2-8)
- Search fees pursuant (R. 4:42-10(a)): [ $275.00 ]
(Cannot exceed the greater of 1% of the total amount due plaintiff under the final judgment or $500.00 and includes property, tax, title, judgment, d.m.v and skip searches)
- Service of process on defendant(s): [ Varies widely ]
(N.J.S.A. 22A:2-8, R. 4:4-3(c) and R. 4:42-8(c))
- Tax Certificate fee: [ Varies widely ]
- Costs for service of process by publication (N.J.S.A. 22A:2-8): [ Varies widely ]
- Costs for service of process by mail (N.J.S.A. 22A:2-8): [ Varies widely ]
- Attorneys' fees ($500.00 for matters received after September 1, 2004): [ $500.00 ]
- Total Recoverable Costs: [ $900 to $1,400 ]
In addition, Expenses for Skip Traces ($50), Sheriff's Sale ($500 - $1,000), Certificate of Regularity ($200) and full legal fee are not recoverable.
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