Protects equity accrued by property owner in tax sale foreclosure.

A1458

ASSEMBLY, No. 1458

STATE OF NEW JERSEY

222nd LEGISLATURE

�

PRE-FILED FOR INTRODUCTION IN THE 2026 SESSION

Sponsored by:

Assemblyman ANTWAN L. MCCLELLAN

District 1 (Atlantic, Cape May and Cumberland)

Assemblyman ALEX SAUICKIE

District 12 (Burlington, Middlesex, Monmouth and Ocean)

Co-Sponsored by:

Assemblyman Webber

SYNOPSIS

���� Protects equity accrued by property owner in tax sale
foreclosure.

CURRENT VERSION OF TEXT

���� Introduced Pending Technical Review by Legislative
Counsel.

��

An Act
concerning actions to foreclose the right to redeem a
tax sale certificate, amending R.S.54:5-86 and R.S.54:5-87, and supplementing
chapter 5 of Title 54 of the Revised Statutes.

����
Be It
Enacted
by the Senate and General Assembly of
the State of New Jersey:

���� 1.��� R.S.54:5-86 is amended
to read as follows:

���� 54:5-86.� a.� When the
municipality is the purchaser of a tax sale certificate, the municipality, or
its assignee or transferee, may, at any time after the expiration of the term
of six months from the date of sale, institute an action to foreclose the right
of redemption.� Except as provided in subsection a. of section 39 of P.L.1996,
c.62 (C.55:19-58) or as provided in subsection b. of this section, for all
other persons that do not acquire a tax sale certificate from a municipality,
an action to foreclose the right of redemption may be instituted at any time
after the expiration of the term of two years from the date of sale of the tax
sale certificate
, subject to the requirements of section 3 of P.L.���� ,�
c,��������� (C.����������������� ) (pending before the Legislature as this bill)
.�
On instituting the action the right to redeem shall exist and continue until
barred by the judgment of the Superior Court.

���� b.��� Any person holding a tax
sale certificate on a property that meets the definition of abandoned property
as set forth in P.L.2003, c.210 (C.55:19-78 et al.), either at the time of
the tax sale or thereafter, may at any time file an action with the Superior
Court in the county wherein said municipality is situate, demanding that the
right of redemption on such property be barred, pursuant to the "tax sale
law," R.S.54:5-1 et seq., or the In Rem Tax Foreclosure Act (1948),
P.L.1948, c.96 (C.54:5-104.29 et seq.).� The filing shall include a
certification by the public officer or the tax collector that the property is
abandoned, provided pursuant to subsection d. of section 6 of P.L.2003, c.210
(C.55:19-83).� In the event that the certificate holder has unsuccessfully
sought such certification from the public officer or tax collector, as the case
may be, the certificate holder may submit to the court evidence that the
property is abandoned, accompanied by a report and sworn statement by an
individual holding appropriate licensure or professional qualifications, and
shall provide a copy of those documents submitted to the court to the public
officer and the tax collector.� On the basis of this submission and any
submission provided by the public officer or tax collector, as the case may be,
the court shall determine whether the property meets the definition of
abandoned property.

���� c.���� Any person holding a
tax sale certificate on a property that meets the definition of abandoned
property as set forth in P.L.2003, c.210 (C.55:19-78 et al.), either at
the time of the tax sale or thereafter, may enter upon that property at any
time after written notice to the owner by certified mail return receipt
requested in order to make repairs, or abate, remove or correct any condition
harmful to the public health, safety and welfare, or any condition that is
materially reducing the value of the property.

���� d.��� Any sums incurred or
advanced pursuant to subsection c. of this section may be added to the unpaid
balance due the holder of the tax sale certificate at the statutory interest
rate for subsequent liens.

(cf: P.L.2015, c.16, s.1)

���� 2.��� R.S.54:5-87 is amended
to read as follows:

���� 54:5-87.� The Superior Court,
in an action to foreclose the right of redemption, may give full and complete
relief under this chapter, in accordance with other statutory authority of the
court, to bar the right of redemption and to foreclose all prior or subsequent
alienations and descents of the lands and encumbrances thereon, except
subsequent municipal liens, and to adjudge an absolute and indefeasible estate
of inheritance in fee simple, to be vested in the purchaser
, except as
provided in, and subject to the provisions of, section 3 of P.L.���� , c,��� ,
(C.������ ) (pending before the Legislature as this bill)
.� The judgment
shall be final upon the defendants, their heirs, devisees and personal
representatives, and their or any of their heirs, devisees, executors,
administrators, grantees, assigns or successors in right, title or interest and
no application shall be entertained to reopen the judgment after three months
from the date thereof, and then only upon the grounds of lack of jurisdiction
or fraud in the conduct of the suit.� Such judgment and recording thereof shall
not be deemed a sale, transfer, or conveyance of title or interest to the
subject property under the provisions of the "Uniform Voidable Transactions
Act," R.S.25:2-20 et seq.

���� In the event that any federal
statute or regulation requires a judicial sale of the property in order to
debar and foreclose a mortgage interest or any other lien held by the United
States or any agency or instrumentality thereof, then the tax lien may be
foreclosed in the same manner as a mortgage, and the final judgment shall
provide for the issuance of a writ of execution to the sheriff of the county
wherein the property is situated and the holding of a judicial sale as in the
manner of the foreclosure of a mortgage.

(cf: P.L.2021, c.92, s.23)

���� 3.��� (New section)� a.� As
used in this section:

���� �Defendant� means the owner of
a parcel of real property for which a tax sale certificate was purchased and
whose right of redemption was barred by a Superior Court judge after failing to
repay the purchaser of the lien.

���� �Purchaser� means the person
who purchased the tax sale certificate, paid the property taxes on the parcel
of real property and filed the foreclosure action with a court, and on whose
behalf the right to redeem was barred by the court.

���� b.��� Notwithstanding any
provision of the �tax sale law,� R.S.54:5-1 et seq., or the �In Rem Tax
Foreclosure Act,� P.L.1948, c.96 (C.54:5-104.29 et seq.), or any other law
to the contrary, in the case of a parcel of real property that is the subject
of a foreclosure action filed in Superior Court pursuant to the provisions of
R.S.54:5-86, upon the approval of the action to foreclose the right of
redemption by the court, the court shall not adjudge an absolute and
indefeasible estate of inheritance in fee simple to be vested in the
purchaser.� Instead, the Superior Court shall order that the sum of all
property taxes paid by the purchaser, and interest due thereon, together with
all costs related to the filing and adjudication of the action to foreclose the
right of redemption that were paid by the purchaser, shall be the first
priority lien on the property, paramount to any other lien, including any
outstanding municipal lien, and shall order the sheriff of the county in which
the parcel of real property is located to hold an Internet auction of the
property, pursuant to any direction or guidance promulgated by the
Administrative Office of the Courts or the Division of Local Government Services
in the Department of Community Affairs.� The order shall require that all costs
of the auction incurred by the sheriff�s office shall be reimbursed from the
proceeds of the auction.

���� c.���� Not later than 14 days
following receipt by the sheriff of the moneys paid by the winning bidder at
the auction, the sheriff shall make the following reimbursements from these
moneys:

���� (1)�� To the purchaser, the
sum of all property taxes paid, and interest due thereon, together with all
costs related to the filing and adjudication of the action to foreclose the
right of redemption; and

���� (2)�� To the municipality in
which the parcel of real property is located, the amount of any other municipal
liens on the property together with interest due and owing thereon.

���� d.��� The sheriff shall retain
for the sheriff�s office sufficient funds to cover the costs of the auction, as
required in this section.� Once these payments have been made, the sheriff
shall then forward any remaining moneys to the defendant.

���� 4.��� This act shall take
effect immediately.

STATEMENT

���� This bill would revise the
process governing an action filed in

Superior Court by the holder of a
tax lien on certain parcels of real property when that person institutes an
action to foreclose the right of redemption of the tax lien.� The right of
redemption of a tax lien is the right of the owner of the property on which the
tax lien exists to pay the holder of the tax lien and remove the lien from the
property.�

���� Currently, under R.S.54:5-86,
for persons who do not acquire a tax sale certificate from a municipality, an
action to foreclose the right of redemption may be instituted at any time after
the expiration of the term of two years from the date of sale of the tax sale
certificate.� Once an action to foreclose the right to redeem has been filed by
a tax lien holder, the right to redeem continues to exist until barred by the
judgment of the Superior Court.� However, upon the action by the judge to bar
the right of redemption and foreclose all liens other than municipal liens, the
judge grants the holder of the tax sale certificate the title to the property,
and that person becomes the owner of the property.� At this point, the previous
owner�s rights to the property are permanently extinguished and the previous
owner also loses any value, commonly referred to as equity, built up in the
property through appreciation, or the payoff of a mortgage.� For a property
taxpayer who has paid down a mortgage, who has equity in a property, or whose
property has considerably appreciated over time, the loss of the property in a
tax lien foreclosure, and all of the equity in the property as well, could lead
to homelessness or other hardship, as there are no funds with which to rent, or
to purchase, another property.

���� The provisions of this bill
are intended to address the unfairness of the loss of that equity to property
owners who lose property in a tax lien foreclosure.

���� Under the bill, in the case of
a parcel of real property that is the subject of a tax lien foreclosure action
filed in Superior Court, upon the approval of the action to foreclose the right
of redemption by the Court, the Court would not grant the plaintiff (the tax
lien holder) ownership of the property.� Instead, the Court would order that
all of the property taxes paid by the plaintiff, and interest due thereon,
together with all costs related to the filing and adjudication of the action to
foreclose the right of redemption that were paid by the plaintiff, would be the
first priority lien on the property, paramount to any other lien, including any
outstanding municipal lien, and would order the sheriff of the county in which
the parcel of real property is located to hold an Internet auction of the
property.

���� Once the Internet auction is
over and the property has been sold, not later than 14 days following receipt
by the sheriff of the moneys paid by the winning bidder at the auction, the
sheriff must forward to the tax lien holder plaintiff the sum of all property
taxes paid by the plaintiff, and interest due thereon, together with all costs
related to the filing and adjudication of the action to foreclose the right of
redemption.� The sheriff must also pay to the municipality the amount of any
other municipal liens on the property plus any interest due and owing thereon,
and retain for the sheriff�s office sufficient funds to cover the costs of the
auction.

���� Once those payments are made,
the sheriff would then forward any remaining moneys collected from the winning
bidder of the auction to the defendant.� This allows the defendant to retain
funds to either purchase, or rent, another property.

���� Property equity is a valuable
asset to property owners that should be retained by the property owners. It
provides a property owner with opportunities to turn the equity to cash to
purchase or rent another property, or to pay for items like living expenses in
retirement, a child�s college savings, or the health care of a loved one.

���� Equity theft happens when
government uses the property to settle an unpaid tax debt and allow someone
other than the property owner collect the excess revenue.

���� Like other assets, home equity
should be protected from unjust government seizure.� The State is part of a
small number of states that do not provide property owners the remaining equity
following a tax sale foreclosure.