Pellegrino & Feldstein, L.L.C. - Attorneys at Law - Foreclosure Practice

Tax Foreclosure Practice

Tax Lien Law

Priority of Your Lien:

Recorded tax certificates are superior to all prior or subsequent liens and transfers except for subsequent tax certificates.   There are, however, several exceptions to this general rule. For example, liens held by the State of New Jersey have priority over tax certificates acquired after the imposition of the State's lien.   Additionally, liens imposed by the State for the remediation of environmental hazards under the Spill Compensation Fund Act are given priority over both prior and subsequent tax certificates.

In the absence of a federal statute, "first in time, first in right" governs priority of federal liens vs. tax certificates.   Thus a mortgage held by a federal agency has priority over a subsequently issued tax certificate.   Tax certificates are given priority over federal tax liens regardless of when they arise, pursuant to the Federal Tax Lien Act of 1966.

Exceptions to the priority of tax sale certificates have also been carved out for certain privately held interests in land.   For instance, a previously recorded easement is not affected by a subsequently issued tax sale certificate.   Additionally, administrative expenses of a decedent's estate are afforded priority over tax sale certificates.

Seasoned investors spend a substantial amount of time evaluating each property on which they intend to bid.   Despite the high priority afforded to tax certificates, they are only worth the value of the underlying property.

Foreclosure Proceedings:

Generally, a foreclosure proceedings may not be started until two years after the date of the sale, and the foreclosure action must be initiated within twenty years of the date of sale or the tax sale certificate may become void.

Many of the costs associated with the foreclosure of a tax certificate can be recovered if the lien is redeemed.   If the proper procedure is followed, the court may award attorney's fees of up to $350.00 per tax sale certificate.

The holder of a tax certificate may also be reimbursed for fees actually paid for recording the certificate and for all necessary advertising.   In addition to the interest and fees, a certificate holder is entitled to a lump sum in the amount of 2% of any certificate which exceeds the sum of $200; 4% of any certificate which exceeds the sum of $5,000; and 6% of any certificate which exceeds the sum of $10,000.

Because a certificate holder must wait at least two years before initiating a foreclosure proceeding (which generally lasts a year), purchasers must be prepared to tie their money up for an extended period of time.   A lien holder must also be prepared to pay subsequent taxes on the property throughout the 2 year waiting period and the foreclosure proceedings.