This is for general information purposes only.
TYPES OF TAX SALE
There are 2 types of tax sales in New Jersey. The accelerated tax sale is held prior to the end of the year for that year’s tax delinquencies. It is a one time cash inflow benefit- for the first year it is held. There are no delinquencies as of the year end; the reserve for uncollectibles becomes much smaller.
The standard tax sale is held within the current year for delinquent taxes of the prior year. This benefits the property owner. The sale can be held at any time.
For the purpose of this document, ‘tax’ refers to real estate taxes, utility balances, and any other outstanding municipal charge.
The tax sale list must be prepared a minimum of 50 calendar days before the sale. It is kept as a permanent tax record.
Residents are notified via quarterly delinquent notices, on official notice of tax sale, newspaper advertisement, and public posting (in 5 Township locales), that a lien on their property is up for sale. New Jersey requires at least 4 weeks of notice be given the property owner, and interested parties, immediately prior to the week of the sale. When advertising begins, additional fees are assessed for the cost of holding the sale, as well as the advertising costs. The minimum is $15.00, the maximum $100.00, based on 2% of the total prior year’s tax and interest. The costs are added to the lien. Up to two mailings of the notice may replace two publications, and up to $25.00 may be charged for each mailing. The mailings need not be certified. These costs are also added to the lien.
The advertisement lists property information: block, lot, last assessed owner, location, type of debt, and balance to be sold.
PRIOR TO SALE
Prior to the actual sale, the property owner may pay to avoid having a lien sold at auction. To do so, the past year’s taxes must be paid, as well as ALL the interest – for both years - and costs. Only certified checks, money orders or cash is accepted once the official notice is mailed. For a municipality that accepts credit card payments, no such payment may be accepted on delinquent accounts 50 days prior to the tax sale.
The sale is open to the public. Only the prior year’s taxes and interest, and related costs, are sold. Interest on the current year’s delinquencies is not sold, although it must be paid to avoid sale (see above). Bidding starts at 18%, and goes down until bidding stops. After 0%, premiums are bid. Bid parameters are set by the Collector, and may be in whole, half or quarter percentage points. Premiums may be offered by hundreds, fifty, etc.
If no bids are made on the property, the Township retains the lien, at 18%.
The rate ‘sold’ to the winning bidder is the rate the lien holder will earn on the amount purchased. For example, if the winning bid is 10% on a $1,000.00 sale, the lien holder earns 10% return on that investment. If a premium is the winning bid, no interest is earned on the original lien, and the premium is paid to the Township to hold. If, after 5 years, there is no redemption of the lien, the Township retains the premium. If within the 5 year period the lien is redeemed, the premium is returned to the lien holder; no interest is paid on this amount. If the lien holder forecloses, the premium remains with the Township. It is only when redemption is made within 5 years that a lien holder receives his premium back.
Why are premiums paid under these terms? The lien holder has a belief that s/he will earn enough, either through foreclosure or payment of subsequent taxes, to cover the principal and interest lost on the premium investment. Properties with higher valuations will receive larger premiums, as will properties with higher outstanding balances. Higher balances are less likely to be redeemed, and therefore, the lien holder has a higher chance of effecting foreclosure.
Payment must be made immediately to the Collector after the sale with cash or certified funds. Wire transfers may be acceptable provided advance notice has been given the Collector. Failure to make payment within the time allowed by the Collector will result in the property being again offered for sale.
The Collector must mail all certificates to the lien holders by the end of 10 days. The lien holder is responsible for recording the instrument at the County. Failure to do so in a timely manner may result in a nullification of the document. Effective 2010, the lien holder is legally obligated to provide the Tax Collector a copy of the recorded instrument upon its return from the County. This copy is also made a permanent record.
During the period between the sale and the mailing of the certificate, the property owner may come in and pay off the lien without incurring additional penalties. The lien holder is then notified of the payment and reimbursed.
Once a bidder has become a lien holder, s/he has the right to pay any delinquent municipal tax, and have it added to the lien. Bear in mind that the original certificate amount earns what the lien holder bid at sale. Any additional tax paid by the lien holder earns the interest rate outstanding on that balance. Example: the certificate was sold for $1,000.00 at 10%, the lien holder paid subsequent taxes which had an interest rate of 18%, and the lien holder also paid delinquent sewer, which has an interest rate of 8%. The lien holder earns 10% on the certificate, 18% on subsequent taxes, and 8% on the subsequent utility balance.
A lien holder may pay subsequent taxes at any time; however, if a property owner pays the same quarter, within the 10 day grace period, the lien holder will have his funds returned. The property owner always has priority if payment is made before the last day of the grace period.
In order to have the subsequent payments added to the lien, the lien holder must file affidavits at time of payment. If the lien holder chooses not to pay subsequent taxes, a new lien may be placed on the property for sale the following year.
The lien holder must hold the certificate for 2 years before foreclosure can occur. At any time in those 2 years, the property owner, or other interested party, can redeem the lien. After the foreclosure process has begun, only the Court can grant the right to redeem. The lien holder is not obligated to foreclose. As mentioned, foreclosure results in the premium being turned over to the municipality.
Redemption can only be made through the Collector. This insures that the lien holder receives his legally owed monies, and protects the redeeming party from being overcharged. Effective 2010, such requests must be in writing. Also, in a calendar year, two requests by the same party for the same lien are provided gratis. After the second request, the Township may, by ordinance, charge a $50.00 fee for any further requests. If a lien holder requests a redemption statement, the Township may, again by ordinance, charge a $50.00 fee to the lien holder.
The owner of a property, or a legally interested party (mortgagee, heir, etc), may redeem at any time as long as foreclosure has not begun. The legally interested party must prove to the Collector, upon request, their right to redeem. Under NJSA 54:5-54 “Except as hereinafter provided, the owner, his heirs, holder of any prior outstanding tax lien certificate, mortgagee, or occupant of land sold for municipal taxes, assessment for benefits pursuant to RS 54:5-7 or other municipal charges, may redeem it at any time until the right to redeem has been cut off …” “…by paying to the Collector… the amount required for redemption…”
The lien holder is entitled to receive his original investment, the interest on the certificate, any subsequent taxes paid plus the interest accrued on them, the amount legally allowed by the state for search and recording (if recorded), and a redemption penalty. This penalty is assessed at time of redemption only- a foreclosure does not receive this penalty. The certificate must be $200.00 or greater; penalties are 2% ($200.00 - $5,000.00), 4% ($5,001.00 - $10,000.00), or 6% (over $10,000.00). The penalty is only assessed on the original certificate.
Redemption can only be made for the entire amount outstanding. The Collector prepares a statement computing interest to the next Committee meeting. Payment must be made prior to the meeting date. Payment is only remitted to the lien holder upon receipt of the endorsed certificate.
Once the foreclosure process has begun, redemption can only be made with permission of the Court.
PRIORITY OF LIENS:
The most recent, or newest, lien is known as the PARAMOUNT LIEN. All other liens existing prior to the paramount lien are known as SUBORDINATE LIENS.
Subordinate liens may redeem paramount liens, but paramount liens cannot redeem subordinate liens.
Paramount liens can foreclose all subordinate (older) liens. Subordinate liens cannot foreclose paramount liens.
If no one bids on the property, the Township assumes the lien at an interest rate of 18%. The Township may bid on properties as well.
Lien holders have no legal right to exercise rights of ownership, seek entry to, or inspect property, or act as landlord. They should not attempt to communicate with the owner unless it is through the Collector’s office.
Interest paid to lien holders at time of redemption is taxable interest, and 1099s are issued. Tax information is required prior to the tax sale and issuance of certificates.
If a resident has filed for bankruptcy prior to the sale, the Collector must obtain a stay in order to sell the lien. If a resident files for bankruptcy after sale and before foreclosure, any premium due date would be extended for each day that the foreclosure action is precluded by the filing (effective January 2010).
Liens held by the municipality may be foreclosed after 6 months. They can be assigned to outside parties for full or partial value.
Effective 2010, the Collector may, at her discretion, remove any total delinquency (including costs) of less than $100.00 from the tax sale. This property may be so exempted for up to 5 years, if the accrued balance remains below $100.00. All costs remain as a lien upon the property.