Protecting Your Home Equity: Steps New Jersey Property Owners Facing Tax Foreclosure May Wish To Consider

Under New Jersey’s tax sale law, a municipality that forecloses on a property due to delinquent taxes is granted full ownership of the property, even if its value exceeds the outstanding tax amount by a significant margin. For instance, if a property worth $200,000 is foreclosed upon by a municipality owed only $20,000 in taxes, the municipality receives a windfall of $180,000. This principle applies whether the municipality forecloses on the property directly or if a private party purchases a tax sale certificate from the municipality and initiates the foreclosure process.

However, on May 25, 2023, the United States Supreme Court unanimously ruled in Tyler v. Hennepin County, 143 S.Ct. 1369, affirming that government entities cannot take more than what they are owed. This principle can be traced back to at least 1215 and “held true through the passage of the Fourteenth Amendment.” The Court concluded that retaining a property’s equity by the government during tax foreclosure violates the Takings Clause of the Fifth Amendment. In their ruling, they stated, “The taxpayer must render unto Caesar what is Caesar’s, but no more.”

Acknowledging the potential impact of the Tyler v. Hennepin County decision on tax foreclosures in New Jersey, the state’s Supreme Court issued an order on July 10, 2023, directing court staff members to stop recommending tax foreclosure final judgments for applications filed on or after May 25, 2023, the date of the Tyler v. Hennepin County decision. In such cases, the foreclosure must be entered by a Superior Court Judge.

Property owners facing tax foreclosure may want to consider following the example of Irvington resident David McLeod. McLeod filed an objection with the Court simply stating that “my house is worth far more than what is owed on the tax certificate” and that “Tyler v. Hennepin County calls into question whether this type of tax foreclosure case violates the Takings Clause of the Fifth Amendment.” In response, Superior Court Judge Jodi Lee Alper signed a July 26, 2023 Order that “severed McLeod’s property from the main foreclosure” while allowing “remaining properties that do not have any objections or contesting answers to proceed as uncontested foreclosures in the ordinary course with the Foreclosure Unit.” Thus, it seems that property owners who do not file objections may still risk losing their equity in a foreclosure action, despite the Tyler v. Hennepin County ruling.

For property owners facing foreclosure, it might be beneficial to become familiar with the New Jersey Judiciary’s Electronic Document Submission (JEDS) system, which enables them to electronically submit documents, such as foreclosure objections, to the Court. Those who have difficulty navigating the JEDS system, should contact the court’s Ombudsman for their county. Ombudsmen are specifically there to assist people in using the system effectively. Contact information can be found here.

DISCLAIMER: The information provided here should not be considered legal advice. Anyone affected by a tax foreclosure should seek advice from a licensed attorney.

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