Quote from NJ HOA Info on July 23, 2024, 1:44 pm

Gov. Phil Murphy on Wednesday signed a bill that will allow homeowners facing foreclosure or tax sales to reclaim home equity not needed to cover their debts.

The bill, which won unanimous support in both legislative chambers, is a bid to conform New Jersey tax sales to a U.S. Supreme Court decision called Tyler v. Hennepin County that bars governments from keeping home equity in excess of a taxpayer’s debts.

“This legislation modernizes the tax sale law, dating back to 1918, and protects distressed property owners by allowing a sheriff sale up until final judgment, except for abandoned properties,” said bill sponsor Assemblywoman Barbara McCann Stamato. “It also ensures municipalities can foreclose on delinquent properties in accordance with the Tyler decision by the Supreme Court.”

In that case, the high court ruled Minnesota’s Hennepin County committed an unconstitutional taking in violation of the Fifth Amendment and levied an unreasonable fine that ran afoul of the Eighth Amendment when it seized a resident’s home over $15,00 in unpaid taxes, sold it for $40,000, and kept the difference.

The decision sent reverberations through New Jersey and other states whose tax sale laws were made unconstitutional by the ruling, and it spawned a series of lawsuits from residents seeking to reclaim equity in foreclosed homes in and outside of the Garden State.

In New Jersey, governments can sell liens on lots in arrears on their property taxes or utilities to private holders or other government entities at tax sale auctions that must be held at least once each year.

Would-be buyers bid down the starting interest rate of 18% until it hits zero, then bid up premiums paid to the government selling the lien. They can move to claim the property if a homeowner does not settle their debts within six months, or two years for a private tax sale certificate holder.

The bill Murphy signed Wednesday allows homeowners or their heirs to reclaim excess equity by requesting their property be sold at a judicial sale or online auction so long as they make the request before the court enters a final judgment.

Once the property is sold, the homeowner would receive their remaining equity, less their debt and costs for the county sheriff’s office that administered the sale and the tax sale certificate holder.

The law does not allow property owners to reclaim surplus equity on abandoned properties, and it provides for the reimbursement of additional expenses if a homeowner does not request an auction until after a tax sale certificate holder moves to foreclose on a property.

The law went into effect immediately. Residents whose right of redemption remains intact as of Wednesday can claim excess equity under the new law once their properties go to a tax sale.

Property owners whose homes were foreclosed before Wednesday are not covered by the bill.

It’s not clear how the new law will affect a bevy of lawsuits filed after the Supreme Court’s ruling in Tyler.

Among other suits, residents who lost home equity to foreclosures before Tyler have lodged class action suits to reclaim their equity.

Though New Jersey’s Supreme Court ordered its foreclosure office to stop issuing final judgments in tax sale certificate cases and made a series of other rules changes to conform with Tyler last July, some foreclosure cases have continued.

A three-judge panel last December warned applying Tyler retroactively could prove unworkable.