At the beginning of May I wrote about Tyler v. Hennepin County, Minnesota, a case then pending in the United States Supreme Court “that may up-end the way in which New Jersey and many other States enforce the requirement to pay real estate taxes.”
In New Jersey, when property taxes become delinquent, the municipal tax collector sells the tax lien and issues a tax sale certificate. The purchaser pays the delinquent taxes and may pay subsequent taxes and add that amount to the lien. If the property owner has not redeemed the property by paying the amount of the lien, accrued interest, and costs and penalties within the applicable time period, the lien holder may start a foreclosure action that will ultimately result in an order setting the time, place, and amount necessary for redemption. If the property owner does not pay by that deadline, the lien holder then has title to the property. When the lien is sold to an outside “investor,” the municipality merely gets the taxes and interest it was owed; any windfall goes to the investor.
Although the mechanics of Minnesota’s process differ from New Jersey’s, the relevant similarity is that the property owner loses her entire equity in the property, even if it far surpasses that amount of the delinquency. Based upon the tenor of the arguments before the Supreme Court, I predicted that it would find that the windfall to the foreclosing tax sale certificate holder violates some constitutional right of the property owner and I concluded that “our Legislature would be well advised to change the way that property tax liens are enforced, such as by judicial sale like mortgages.”
The Court decided the case promptly and unanimously, ruling that Geraldine Tyler’s complaint indeed stated a takings claim and remanding for further proceedings.
I have not seen any significant coverage of the Tyler case in New Jersey news source or any hint that the Legislature is paying any attention to my warning. That may change due to a single sentence in an unpublished Appellate Division opinion issued last Friday. Absent Tyler, the case, PC7 REO, LLC v. Johnson, would be of interest only the parties. The property owner was seeking relief from a default judgment foreclosing a tax sale certificate for $250,000 in taxes on property that she claimed had a value of $1 million, relief which the trial court denied, a decision which, but for the intervening decision in Tyler, would almost certainly have been affirmed. But Tyler had been decided and the appellate court remanded the matter to the trial court for further proceedings, with the following ominous comment: “We leave to the trial court the determination of whether Newark, the entity that we assume, without deciding, would be responsible for providing just compensation to Johnson in the event of a taking, should be joined as a party in this matter.”
Jay Bohn
June 12, 2023