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FAQ

This list of FAQs may be helpful to you, but it is not intended to address every issue you may face.  Many of the key terms used below are defined in the sidebar. If you need additional information, please contact our office.

When can I start to foreclose on a tax lien?

Tax liens that are purchased at auction cannot be foreclosed for two years following the auction.  If the lien is purchased from the municipality by assignment (after it was struck off to the municipality at auction) then foreclosure may be started six months after the date of the tax certificate.

How long does it take to foreclose on a tax lien?

It takes eleven months on average to complete foreclosure proceedings for a private (non-municipal) lien holder.  Some files are completed faster than others due to variable factors such as (1) The number of defendants; (2) The ability to locate all defendants; (3) Whether a defendant files a contesting Answer or Bankruptcy; (4) The necessity to file special Motions to appoint a guardian ad litem for a minor; (5) Whether the FDIC holds an interest in the property; and (6) Whether an estate or heirs are involved.  Files are also routinely delayed due to backlogs at the County recording office (awaiting boarding date for Lis pendens) and the Foreclosure Unit of the Court which processes all foreclosures (awaiting return of pleadings).

Municipalities may foreclose under a different statute for In Rem foreclosures which are less costly and much faster.  In Rem foreclosures average just three or four months to complete.

Most legal fee arrangements require periodic payments based on the progress of the file, so the attorney has incentive to reach the end as quickly as possible.

Why does it take so long for foreclosure proceedings to complete?

The Tax Lien Law is designed with many “holding periods” to allow the owner and other interested parties time to raise money and redeem the tax lien.  The “30-Day letter”, Order Setting Time, and Default period all cause delays in the foreclosure process.

What risks do lien investors face?

Some of the risks include bankruptcy delays; damage or destruction of the property; environmental contamination; valuation of the underlying property; foreclosure by a subsequent tax lien holder; loss of premium if foreclosure is not completed within five years; and morality issues relating to foreclosing on someone’s home.

Will there be a Sheriff’s Sale at the end of the foreclosure?

Tax lien foreclosure in New Jersey is generally a “strict foreclosure” process, whereby the final judgment is recorded as a deed and the lien holder becomes the owner without a Sheriff’s Sale.  There is an exception however.  If the federal government holds an interest in the property, such as an IRS federal tax lien, then “strict foreclosure” is not permitted, and there must be a Sheriff’s Sale at the end of the foreclosure process.  This opens the door to other investors who may bid at the sale to pay off the plaintiff / tax lien holder, and take title to the property via Sheriff’s Deed.  When this happens, you do not get the property, but you get paid off with interest.

Do I have to keep paying taxes on the property after I buy a tax lien?

It is advisable to keep paying subsequent taxes, but it is not always necessary.  If you do not pay the new taxes that arise, then these taxes will become a lien that has priority over your lien. Eventually you will either have to pay off this new lien, or you will be foreclosed.  Also, the court will not issue a final judgment unless all open taxes are paid by someone – either the owner or another lien holder.

Can I stop subsequent tax lien holders from foreclosing on me?

Subsequent (newer) tax liens have priority over prior (older) tax liens.  The holder of a prior tax lien can pay off the subsequent lien and have the cost added to its tax lien.  The only limitation on this rule is that anyone who acquires an interest in property for “nominal consideration” is not permitted to redeem subsequent tax liens.  This is designed to stop title raiders and heir hunters.

Who may redeem my tax lien?

N.J.S.A. 54:5-54 limits the right of redemption to only “the owner, his heirs, holder of any prior outstanding tax lien certificate, mortgagee, or occupant.” Other interests such as judgments, condominium liens, subsequent tax liens, and construction liens do not create any right to redeem a tax lien.

How do I go about paying subsequent taxes?
The tax collector will calculate the amount due and you must pay the subsequent taxes to the tax collector.  Most towns calculate the amount due for free, but Paterson and Jersey City often charge a fee.  It is important that you prepare and file an “Affidavit of Subsequent Tax Payment” so that the money paid for subsequent taxes will be added to your tax lien.  If you just pay off taxes without filing an Affidavit with the tax collector, the amount you pay will not be added to your lien.  The tax collector will sign it, and of course, you must keep a copy of the Affidavit for your records.
Can a tax lien be assigned from one private investor to another?
Yes. Private assignments are very common. A lien holder may assign a tax lien for any negotiated price.  Tax liens are often assigned for  more or less than the current redemption value of the lien.  This is commonly referred to as a “discount” or “premium.”  The premium will be lost if the tax lien is redeemed because the redeeming party only has to pay the current redemption value regardless of what was paid for assignment of the lien.
What costs will be incurred in the foreclosure process and which costs are recoverable if the lien is redeemed?*
(*Note: Posted Amounts are subject to change at any time.)

 

Plaintiff’s costs foreclosure (N.J.S.A. 22A:2-10): $50.00
Fee for filing foreclosure complaint (N.J.S.A. 22A:2-8): (as of  July 1, 2002 – $200.00) $200.00
Fee for filing lis pendens (N.J.S.A. 2A:15-13): (as of  July 21, 2003 the  maximum fee is $50.00) $40.00
Fees for filing motion(s) ____ @ $30.00 per motion: (N.J.S.A. 22A:2-8) $30.00
Search fees pursuant (R. 4:42-10(a)): (Cannot exceed the greater of 1% of the total amount due plaintiff under the final judgment or $500.00  and includes property, tax, title, judgment, d.m.v and skip searches) $275.00
Service of process on defendant(s): (N.J.S.A. 22A:2-8, R. 4:4-3(c) and R. 4:42-8(c)) Varies widely
Tax Certificate fee Varies widely
Costs for service of process by publication (N.J.S.A. 22A:2-8): Varies widely
Costs for service of process by mail (N.J.S.A. 22A:2-8): Varies widely
Attorneys’ fees ($500.00 for matters received after 9/1/04) $500.00
Total Recoverable Costs $900.00 to $1,400
In addition to these recoverable costs, Expenses for Skip Traces ($50), Sheriff’s Sale ($500 – $1,000), Certificate of Regularity ($200) and full legal fee are not recoverable.
Will I be able to get title insurance after the foreclosure is completed?
Yes, but most title insurance companies will not issue a title insurance policy for three months after final judgment.
How does redemption take place?
The redeeming party must obtain a redemption figure (including any recoverable costs and legal fees) from the tax collector and deliver the money to the tax collector.  The collector then contacts the tax lien holder and delivers a “voucher” confirming the redemption figure.  The lien holder then confirms that the figure is correct, signs the back of the Tax Sale Certificate for cancellation, and delivers it to the tax collector.  The collector then delivers the redemption money to the lien holder, and cancels the lien from the public records.
Can I be liable if someone is injured on the subject property while I hold a tax lien on that property?
A tax lien holder is not responsible for the condition of the property until the foreclosure is completed and final judgment is entered.  The lien holder becomes the owner and is liable for the property. It is recommended that investors obtain liability and casualty insurance for all properties that are foreclosed.
Why does this type of foreclosure take longer than an In Rem foreclosure by a municipality?
Municipalities may foreclose under a different statute for In Rem foreclosures.  In Rem foreclosure is less costly and much faster because all service is done by mail; there is no order setting time or 30-Day letter.  In Rem foreclosure averages just three or four months.
What happens if there is a federal IRS tax lien on the property?
Municipal tax liens have priority over federal IRS tax liens, so the foreclosure proceeding will eliminate the IRS lien.  However, any time that the federal government holds an interest in the property, a Sheriff’s Sale must be scheduled at the end of the foreclosure proceedings.
What happens if the FDIC (Federal Depository Insurance Corporation) holds a mortgage on the property?
Municipal tax liens have priority over all types of mortgages. However, written consent must be obtained before foreclosure can be completed against the FDIC where it holds a mortgage on the subject property.  Experienced tax lien attorneys have the appropriate forms and contact information.  In our experience, such “consent” is never denied, but it always causes delays and sometimes results in a redemption by the FDIC.
Can I file a tax appeal if I believe that the taxes are assessed too high?
No. Although recent case law has ruled that a tax lien holder would have standing to appeal the tax assessment on the underlying property,  N.J.S.A. 54:4-67 was subsequently amended to prohibit any tax appeal from being heard if there is any tax lien on the subject property.  This, in effect, eliminated any opportunity for a tax lien holder to file a tax appeal.
Can I enter the subject property?
No.  A tax lien holder has no right to entry or possession of the property until the foreclosure in completed.  Any unauthorized entry onto the property could be considered trespass. It is possible under certain circumstances, however to apply to the Court for permission to enter a property.  You should discuss this option with your attorney if the property is abandoned and needs to be secured.
Can I have a rent receiver appointed?
There is generally no right to have a rent receiver appointed to collect rents prior to entry of Final Judgment.  We successfully applied for a rent receiver on at least one occasion under very limited circumstances.  The Court opinion was not published.
Can a tax lien be discharged in Bankruptcy?
No, but an “Automatic Stay” applies as soon as a bankruptcy petition is filed.  In such an instance, the foreclosure proceedings must stop until a Court Order is obtained allowing for the foreclosure to continue.
Can a lien holder enter into a payment plan to allow the property owner to pay off the tax lien over a period of time?

Generally, redemption must be made through a single payment to the tax collector’s office. This issue was recently addressed by the New Jersey Appellate and Supreme Courts, and it appears that private lien holders may enter into payment plans to cancel a tax lien under limited circumstances.  Legal consultation should be obtained before you even consider taking any payment.

Are there any limits as to who can purchase tax liens in New Jersey?

Generally, any individual, corporation, partnership, LLC, or other entity may purchase tax liens. The only limitation is that an owner or other entity which is already obligated to pay the taxes, may not benefit by obtaining a tax lien on the same property.

Can a replacement be obtained if the original tax sale certificate is lost?

Yes.  N.J.S.A. 54:5-52.1 provides municipalities may issue a “duplicate” tax certificate for a fee of up to $100. The replacement certificate must be labeled with the word “duplicate,” and most municipalities charge $100 for this service.

Glossary of Key Terms

REDEMPTION.  Paying off the tax lien.  Only the owner, mortgage holder, occupant, and prior tax lien holders may redeem the tax lien.  Over 95% of liens are redeemed.  Newer tax liens (a.k.a. “Subsequent liens”) may not redeem older tax liens.

SUBSEQUENT TAXES.  “SUBS” are taxes or assessments that become due after a tax certificate is issued.  The tax lien holder may pay the Subs and have the taxes added to the principal amount of the lien.  Subs accrue interest at 18% regardless of the interest rate stated on the tax certificate.  Foreclosure cannot be completed unless Subs have been paid through at least the date that the complaint was filed.

DEFAULT.  Default is a legal term meaning that a party has been served with the summons and complaint and has not filed an Answer.  Default can be requested  35 days after Service of Process is completed.

TITLE SEARCH.  A formal written report listing all recorded interests in the property such as the owners, mortgages, judgments and other liens.  Title searchers are human and occasionally make mistakes.  If a title search omits a recorded mortgage or other lien, the foreclosure will not result in clean title and re-foreclosure proceedings will have to be completed in order to obtain clear title.

THIRTY DAY LETTER.  Also known as a Pre-Action Notice. Certified letter to all persons with a recorded interest in the property.  If sent 30 days before complaint is filed, then redemption will include statutory fees and costs.

SERVICE OF PROCESS.  An authorized agent “serves” (hand delivers) the foreclosure complaint and summons to each defendant.  If someone cannot be served in person, then under certain circumstances service can be made by mail or publication.

ORDER SETTING TIME.  After all parties have been served, the Court issues an Order setting the  deadline for redemption.  The deadline is generally 2 – 3 months after the Order Setting Time is entered.

FINAL JUDGMENT.  Completes the foreclosure process.  In most cases, there is no Sheriff’s Sale  –  the Final Judgment is your new Deed to the property. If the federal government holds a lien on the property, however, then a Sheriff’s Sale must be scheduled.

RIPE TO FORECLOSE.  Generally tax liens cannot be foreclosed until 2 years after the tax sale. However, the waiting period is only 6 months for liens on abandoned properties and liens that are sold by assignment from the municipality as opposed to auction.

STATUTORY WAITING PERIODS. There are over 120 days of statutory waiting periods which slow down the foreclosure process to give the owner time to redeem.  The laws which govern the foreclosure process require these delays such as the Thirty-Day letter, Default,  and Order Setting Time which are described in this index.

GLOSSARY
OF TERMS

Redemption

Paying off the tax lien.  Only the owner, mortgage holder, occupant, and prior tax lien holders may redeem the tax lien.  Over 95% of liens are redeemed.  Newer tax liens (a.k.a. “Subsequent liens”) may not redeem older tax liens.

Subsequent Taxes

“SUBS” are taxes or assessments that become due after a tax certificate is issued.  The tax lien holder may pay the Subs and have the taxes added to the principal amount of the lien.  Subs accrue interest at 18% regardless of the interest rate stated on the tax certificate.  Foreclosure cannot be completed unless Subs have been paid through at least the date that the complaint was filed.

Default

Default is a legal term meaning that a party has been served with the summons and complaint and has not filed an Answer. Default can be requested 35 days after Service of Process is completed.

Title Search

A formal written report listing all recorded interests in the property such as the owners, mortgages, judgments and other liens. Title searchers are human and occasionally make mistakes. If a title search omits a recorded mortgage or other lien, the foreclosure will not result in clean title and re-foreclosure proceedings will have to be completed in order to obtain clear title.

Thirty Day Letter

Also known as a Pre-Action Notice. Certified letter to all persons with a recorded interest in the property. If sent 30 days before complaint is filed, then redemption will include statutory fees and costs.

Service of Process

An authorized agent “serves” (hand delivers) the foreclosure complaint and summons to each defendant.  If someone cannot be served in person, then under certain circumstances service can be made by mail or publication.

Order Setting Time

After all parties have been served, the Court issues an Order setting the  deadline for redemption.  The deadline is generally 2 – 3 months after the Order Setting Time is entered.

Final Judgment

Completes the foreclosure process.  In most cases, there is no Sheriff’s Sale  –  the Final Judgment is your new Deed to the property. If the federal government holds a lien on the property, however, then a Sheriff’s Sale must be scheduled.

Ripe to Foreclose
Generally tax liens cannot be foreclosed until 2 years after the tax sale. However, the waiting period is only 6 months for liens on abandoned properties and liens that are sold by assignment from the municipality as opposed to auction.
Statutory Waiting Periods

There are over 120 days of statutory waiting periods which slow down the foreclosure process to give the owner time to redeem.  The laws which govern the foreclosure process require these delays such as the Thirty-Day letter, Default,  and Order Setting Time which are described in this index.


Useful Links

Elements of Tax Sales in New Jersey – From the Division of
Local Government Service