Revises tax lien foreclosure process to require return of surplus equity in all circumstances, requires appointment of guardian ad litem for certain persons during foreclosure proceeding.

S4476

SENATE, No. 4476

STATE OF NEW JERSEY

222nd LEGISLATURE

�

INTRODUCED JUNE 18, 2026

Sponsored by:

Senator� BENJIE E. WIMBERLY

District 35 (Bergen and Passaic)

Senator� ANGELA V. MCKNIGHT

District 31 (Hudson)

SYNOPSIS

���� Revises tax lien foreclosure process to require
return of surplus equity in all circumstances, requires appointment of guardian
ad litem for certain persons during foreclosure proceeding.

CURRENT VERSION OF TEXT

���� As introduced.

��

An Act

concerning the foreclosure of tax liens and
amending various parts of the statutory law.

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

���� 1.� R.S.54:5-33 is amended to
read as follows:

���� 54:5-33.� a.� Payment for the
sale shall be made before the conclusion of the sale, or the property shall be
resold.� Any premium payment shall be held by the collector and returned to the
purchaser of the fee if and when redemption is made.� If redemption is not made
within five years from date of sale the premium payment shall be turned over to
the treasurer of the municipality and become a part of the funds of the
municipality.� In the event that a petition of bankruptcy has been filed by the
property owner, the five year limitation shall be extended for each day that
the foreclosure action is precluded by that bankruptcy filing.

���� b.�
[
In the event
]

When
a
property is
[
required
to be
]

sold at a judicial sale as in the manner of the foreclosure of a mortgage or an
Internet auction through the office of the county sheriff, the premium shall be
refunded to the lienholder if, within five years of the date of the tax sale,
the writ of execution is sent to the county sheriff's office to schedule the
judicial sale or Internet auction.

���� In the event that the holder
of the tax sale certificate, or an assignee, is the successful bidder at the
judicial sale or the Internet auction, the tax collector shall not refund any
premium.

���� Any premium that is due to
escheat to the municipality in 2024 shall be extended one year.

(cf:� P.L.2024, c.39, s.1)

���� 2.� R.S.54:5-84 is amended to
read as follows:

���� 54:5-84.� If a delinquent
owner or lienor is under the age of 18, a person with an intellectual
disability, or a person who has been adjudicated incapacitated and in need of a
guardianship available under Title 3B of the New Jersey Statutes,
or if such
a person is an immediate family member of a delinquent owner or lienor of a
parcel of real property on which a tax lien has been sold or is held by a
municipality, which person resides in that property with the delinquent owner
or lienor,
upon expiration of the time limit for the redemption of the real
estate in which that person has an interest,
and for so long as the
minority, disability, or capacity continues,
the right to redeem
[
shall not be
barred by service of notice as provided in this article so long as the
minority, disability, or incapacity continues, but
]
shall be barred only by an
action to foreclose brought in the Superior Court
pursuant to the provisions
of R.S.54:5-87 or subsection d. of section 36 of P.L.1948, c.96
(C.54:5-104.64), as applicable
.

����
b.� If a delinquent owner
or lienor under the age of 18, or an immediate family member who is a person
with an intellectual disability or a person who has been adjudicated
incapacitated and in need of a guardianship available under Title 3B of the New
Jersey Statutes, resides in a property being foreclosed, the Court shall appoint
a guardian ad litem for such a person to protect that person�s interests.� The guardian
ad litem shall additionally contact the delinquent owner or lienor to inform
them of the foreclosure process and of the need to make housing arrangements on
behalf of the person under the age of 18, the person with an intellectual
disability, or the person who has been adjudicated incapacitated and in need of
a guardianship available under Title 3B of the New Jersey Statutes.

(cf:� P.L.2013, c.103, s.132)

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

���� 54:5-87. �a. The Superior
Court, in an action to foreclose the right of redemption brought pursuant to
subsection b. of R.S.54:5-86, may give full and complete relief under this
chapter, in accordance with other statutory authority of the court, to bar the
right of redemption,
[
to
bar claims to surplus equity,
]

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.� 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.� An action brought
pursuant to subsection b. of R.S.54:5-86 shall not require a judicial sale as
in the manner of the foreclosure of a mortgage or an Internet auction through
the office of the county sheriff.

���� b.� In an action brought
pursuant to subsection a. of R.S.54:5-86, in order to preserve any equity
of
the owner, or the owner�s heirs
, that may exist in the property being
foreclosed,
[
the
owner, or the owner's heirs, shall have the right to demand, by written request
to the Superior Court before the date that the final judgment is entered, that
]
the holder of
the tax sale certificate
shall
foreclose the right to redeem that
certificate in the same manner as a mortgage through a judicial sale as in the
manner of the foreclosure of a mortgage of the property through the office of
the county sheriff or, in the alternative, through an Internet auction of the
property through the office of the county sheriff.� The final judgment shall
provide for a writ of execution to the sheriff of the county in which the
property is located and the holding of either a judicial sale or an Internet
auction.�
[
In
the event that the owner or the owner's heirs do not demand a judicial sale or
an Internet auction, the owner of the tax sale certificate may proceed under
subsection a. of this section and foreclose without a judicial sale or an
Internet auction, and the owner and the owner's heirs shall have no claim
against the holder of the tax sale certificate for any equity in the property
]
.� The amount
received through the judicial sale or the Internet auction, as appropriate,
shall be conclusively presumed to be the fair market value of the property.� In
the event that no one bids on the property through the judicial sale or the
Internet auction, and the owner of the tax sale certificate obtains fee title
from the sheriff, it shall be conclusively presumed that there is no equity in
the property.� In the event that the sheriff has not established an Internet
auction, the
[
owner
or the owner's heirs
]

holder of the tax sale certificate
shall only be entitled to
foreclose
the right to redeem that certificate through
a judicial sale as in the
manner of the foreclosure of a mortgage.

���� The sheriff of the county
shall
[
deposit
with the clerk of the Superior Court
]

, within 20 days of the date of the judicial sale or the Internet auction, return
to the owner, or the owner�s heirs,
any surplus funds derived from the
judicial sale or the Internet auction, as appropriate, after the holder of the
tax sale certificate has been paid the redemption moneys, allowable costs, and
attorney's fees as set forth by the court in the final judgment of
foreclosure.� The sheriff shall deduct the costs to the office of the county
sheriff of holding the judicial sale or the Internet auction, as appropriate,
which shall have been withheld by the sheriff from those funds.�
[
The process
set forth in this section shall be the exclusive method through which the
owner, or the owner's heirs, may assert a claim to any surplus funds by motion
to the Superior Court.

���� Application for, and
distribution of, surplus moneys held by the clerk of the court shall be made in
accordance with N.J.S.2A:50-37 and the applicable Rules of Court.
]

���� Notwithstanding the provisions
of N.J.S.2A:50-64, interest shall continue to accrue on the tax sale
certificate pursuant to R.S.54:4-67 through the date of actual payment.

���� As used in this section,
"surplus funds" shall mean and include any funds derived from the
judicial sale as in the manner of the foreclosure of a mortgage or the Internet
auction through the office of the county sheriff of a property pursuant to this
section, after the holder of the tax sale certificate has been fully redeemed,
and paid moneys due and owing to the holder of the tax sale certificate.� The
redemption amount shall also include any costs charged by the sheriff to the
holder of the tax sale certificate to conduct the judicial sale as in the
manner of the foreclosure of a mortgage or the Internet auction.

���� c.���� In the event that any
federal statute or regulation requires a judicial sale as in the manner of the
foreclosure of a mortgage 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.2024, c.39, s.3)

���� 4.� Section 7 of P.L.1965,
c.187 (C.54:5-97.1) is amended to read as follows:

���� 7.� No search fee, counsel fee
or other fee related to certified mailings shall be allowed a plaintiff other
than a municipality in the foreclosure of a tax lien unless, prior to the
filing of the complaint, the plaintiff shall have given at least 30 days'
written notice to the parties entitled to redeem whose interests appear of
record at the time of the tax sale.� The notice shall be sent by certified mail
with postage prepaid thereon, addressed to the last known address of such
persons, and the owner's address based upon the last deed of record with the
county clerk.� The notice shall also contain the amount necessary to redeem the
outstanding tax sale certificate as of the date of the notice.�
[
The notice
shall also advise the owner that the owner, or the owner's heirs, shall have
the right to request a judicial sale as in the manner of the foreclosure of a
mortgage or an Internet auction of the property through the office of the
county sheriff to preserve any equity that may be in the property, except if
the property meets the definition of abandoned property.
]
� A copy of
the notice shall also be filed with the municipal tax collector's office.� Upon
the filing and service of such notice, a plaintiff shall be entitled to such
fees and expenses.

���� A municipality, by ordinance,
may authorize the tax collector to charge to a lienholder a fee not to exceed
$50 for the calculation of the amount due to redeem the tax lien required to be
provided pursuant to this section.� Any request for a redemption calculation
shall specify the date to be used for the calculation, which shall be the date
of the notice.� Neither the tax collector nor the municipality shall be liable
for an incorrect calculation.

(cf:� P.L.2024, c.39, s.4)

���� 5.� Section 6 of P.L.2024,
c.39 (C.54:5-98.1) is amended to read as follows:

���� 6. �a. �In actions commenced
pursuant to subsection a. of R.S.54:5-86, the holder of the tax sale
certificate shall provide to the owner of the property, in writing, with the
summons and complaint for foreclosure, information prominently displayed in
bold face type that states that the owner of the property being foreclosed
[
has the right
to demand, in writing to the Superior Court before the date that the final
judgment is entered, that the foreclosure proceed to
]

shall be entitled to, and
shall receive, all surplus equity remaining in the property subject to the tax
lien foreclosure following
a judicial sale as in the manner of the
foreclosure of a mortgage or an Internet auction of the property, through the
office of the county sheriff.

���� In
actions commenced
pursuant to subsection a. of R.S.54:5-86, in
the event that all costs and
reasonable attorney's fees are not recovered through the judicial sale as in
the manner of the foreclosure of a mortgage or the Internet auction through the
office of the county sheriff, the holder of the tax sale certificate shall have
a first lien paramount to any other lien on any surplus funds and shall be
entitled to apply to the Superior Court to recover any unpaid costs or
attorney's fees.� The attorney shall be required to record a Statewide judgment
lien for the outstanding attorney's fees.

���� b.� In the event that
[
the owner, or
the owner's heirs, has demanded
]

a property is foreclosed through
a judicial sale as in the manner of the
foreclosure of a mortgage or an Internet auction through the office of the
county sheriff, the holder of the tax sale certificate, whether a municipality
or third-party investor, shall be entitled to a first lien on any surplus funds
that are deposited in the Superior Court by the sheriff, in the amount of 10
percent of the surplus funds, to cover administrative costs related to the
foreclosure action, not to exceed $5,000.

���� c.���� As used in this
section, "surplus funds" shall have the same meaning as set forth in
R.S.54:5-87.

(cf:� P.L.2024, c.39, s.6)

���� 6.� Section 7 of P.L.2024,
c.39 (C.54:5-98.2) is amended to read as follows:

���� 7.� In actions commenced by a
municipality pursuant to subsection a. of R.S.54:5-86, the notice of
foreclosure required to be served on the owner and published in the newspaper
shall conspicuously state in boldface type that the owner and the owner's heirs
shall
[
have
the right to demand
]

be entitled to, and shall receive, all surplus equity remaining in the
property subject to the tax lien foreclosure following
a judicial sale as
in the manner of the foreclosure of a mortgage, or an Internet auction through the
office of the county sheriff
[
,
of the property subject to the tax lien foreclosure to preserve any equity that
they may have in the property.

���� The notice shall state that
the owner, or the owner's heirs, has until the date of entry of a final
judgment to file the written request with the Superior Court for a judicial
sale as in the manner of the foreclosure of a mortgage or an Internet auction through
the office of the county sheriff with the Superior Court
]
.

(cf:� P.L.2024, c.39, s.7)

���� 7.� Section 36 of P.L.1948,
c.96 (C.54:5-104.64) is amended to read as follows:

���� 36. (a) In an action commenced
by any person or a municipality holding a tax sale certificate for an abandoned
property pursuant to subsection b. of R.S.54:5-86, the judgment shall give full
and complete relief, in accordance with the provisions of P.L.1948, c.96
(C.54:5-104.29 et seq.), and in accordance with any other statutory authority,
to bar the right of redemption,
[
to
bar claims to surplus equity,
]

to foreclose all prior or subsequent alienations and descents of the lands and
encumbrances thereon, and to adjudge an absolute and indefeasible estate of
inheritance in fee simple in the lands therein described, to be vested in the
plaintiff, except as set forth in subsection d. of this section.

���� (b)� Such judgment shall be
binding and final upon all persons having a vested or contingent title or
interest in, lien, or claim upon or against said lands, including the State of
New Jersey, and any agency and political subdivision thereof, and 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, notwithstanding any infancy or incompetency of such person
or persons, and upon all other persons, 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.

���� An action brought by the
holder of a tax sale certificate for an abandoned property shall not require a
judicial sale as in the manner of the foreclosure of a mortgage or an Internet
auction through the office of the county sheriff.

���� (c)� In the event that any
federal statute or regulation requires a judicial sale as in the manner of the
foreclosure of a mortgage 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.

���� (d)� In an action brought by a
municipality, in order to preserve any equity that may exist in the property
being foreclosed,
[
the
owner, or the owner's heirs, shall have the right to demand, by written request
to the Superior Court before the date that final judgment is entered, that
]
the municipal
tax sale certificate shall be foreclosed with a judicial sale as in the manner
of the foreclosure of a mortgage of the property through the office of the
county sheriff, or, in the alternative, an Internet auction of the property
through the office of the county sheriff. �If there is more than one schedule
in the in rem foreclosure complaint and a request is made for a judicial sale
or an Internet auction, the schedule shall be severed and the final judgment
shall provide for a writ of execution to the sheriff of the county where the
property is located and the holding of either a judicial sale or an Internet
auction, as appropriate.

����
[
In the event that the owner or
the owner's heirs do not demand a judicial sale as in the manner of the
foreclosure of a mortgage, or an Internet auction through the office of the
county sheriff, the municipality may proceed in rem without a judicial sale or
an Internet auction, and the owner or his heirs shall have no claim against the
municipality for any loss of equity in the property.
]
� The amount received at a
judicial sale or an Internet auction shall be conclusively presumed to be the
fair market value of the property.� In the event that no one bids at the
judicial sale or the Internet auction above the amount to redeem, or there is
no bidding at all, it shall be conclusively presumed that there is no equity in
the property.

���� The sheriff of the county
shall
[
deposit
with the clerk of the Superior Court
]

, within 20 days of the date of the judicial sale or the Internet auction, return
to the owner, or the owner�s heirs,
any surplus funds derived from the
judicial sale or the Internet auction, after all of the costs to the office of
the county sheriff for holding the judicial sale or the Internet auction have
been withheld by the sheriff from those funds of the sale, after paying the
amount of the judgment plus any costs to the municipality.

����
[
Application for and distribution
of surplus moneys held by the clerk of court shall be made in accordance with
N.J.S.2A:50-37 and the applicable Rules of Court.
]

���� As used in this subsection,
"surplus funds" shall have the same meaning as set forth in
R.S.54:5-87.

(cf:� P.L.2024, c.39, s.9)

���� 8.� This act shall take effect
immediately, and shall apply to any tax lien for which the right of redemption
has not been foreclosed as of the effective date of this act.� This act shall
have no effect on any foreclosure action in which a final judgment has been
entered prior to the effective date of this act.

STATEMENT

����
This bill revises the �tax sale law,� R.S.54:5-1 et al.,
and the In Rem Tax Foreclosure Act (1948), P.L.1948, c.96 (C.54:5-104.29 et
seq.), to require that all surplus equity in a parcel of real property
following a tax lien foreclosure be returned to the owner of the parcel of real
property,

or the
owner�s heirs.

���� Under current law, if the owner or the owner�s heirs
do not demand a judicial sale or an Internet auction, the tax sale certificate
holder may foreclose without such a sale, and the owner and the owner�s heirs
would have no claim against the holder of the tax sale certificate for any surplus
funds representing equity in the property.� In such a case, the tax sale
certificate holder would be entitled to keep all of the surplus finds, thereby
depriving the delinquent property owner of any equity that had been built up in
the property over time.

���� Under the bill, following a judicial sale or an
Internet auction of the property, and after accounting for costs related to the
judicial sale or Internet auction, the sheriff would be required to return the
excess funds directly to the delinquent property owner, or the owner�s heirs,
within 20 days of the date of sale.

���� The bill also provides that if a person
under
the age of 18, an immediate family member who is a person with an intellectual
disability, or a person who has been adjudicated incapacitated and in need of a
guardianship available under State law, resides in a property being foreclosed,
the Court would be required to appoint a guardian ad litem for such a person to
protect that person�s interests.� The guardian ad litem would also be required
to contact the delinquent owner or lienor to inform them of the foreclosure
process and the need to make housing arrangements after the foreclosure process
has been completed on behalf of the person under the age of 18, the person with
an intellectual disability, or the person who has been adjudicated
incapacitated and in need of a guardianship available under Title 3B of the New
Jersey Statutes.