Investors in tax sale certificates have been increasingly using a legal provision that permits them to move quickly and obtain title/ rehab properties in NJ that are deemed “abandoned”. This allows stale, non-performing properties to be returned to community quickly – which is a much needed service in many urban areas of our State.
We all know that tax sale certificates are integral for the efficient operation of NJ municipalities. Delinquent property owners place cash-strapped municipalities in a precarious position by remaining delinquent because municipalities cannot operate a deficit: they must continue to pay their teachers, pave their roads, collect trash, and provide all essential police, fire and other public services. How can the municipalities afford to do so when property owners fail to pay their property taxes? They cannot. So the Legislature designed the NJ Tax Sale Law to act as a strong incentive for property owners to remain current on their taxes. If the taxes fall into delinquency, a Tax Sale is held and a “tax sale certificate” (often referred to as a tax lien) is sold to the highest bidder by the municipal tax collector. It is not a conveyance of land; but rather it is a lien against the property that "can" result in an outright title interest if not timely repaid. The tax lien generally earns 18% interest (plus costs and fees) under statute. And if the tax lien is not timely redeemed (paid in full back to the tax lien holder with interest, fees and costs), then the owner loses title to the property! The mortgage company can redeem the taxes, but if they do not then the mortgage lien is stripped from the title. Prior tax lien holders can redeem, too. But if they do not then the tax lien is stripped. Essentially, if the procedures are followed and everything is done correctly, then all interests are removed and title is cleansed for the property. The new owner can rehab and then return the property to the active, performing rolls. It again contributes to the betterment of the community. (This is a simplistic summary of the Tax Sale Law, and there are exceptions; but for purposes of this article the procedures set forth above are generally applicable.)
Historically, the “timing” of such actions has been lengthy. Tax lien holders must wait TWO YEARS after the Tax Sale before they can even start their action to obtain and clear title, and then rehab. And the Tax Sale does not usually occur until several quarters (sometimes a whole year) of taxes become delinquent. This means that sometimes 3 years pass of delinquency before the property even qualifies to have such action reach the “start” line. The action itself can take another year or two depending on the complexity of title interest and service of process upon all such parties.
This is problematic when you are faced with abandoned properties. This has occurred in bulk for the past 6 years in New Jersey in many shore towns, especially after Hurricane Sandy wiped out many properties and owners just walked away. And the problem is not new. Abandoned properties are not only eye sores that creates health and safety hazards to a community, but they also draw down property values and simultaneously increase municipal costs for extra policing and for public workers to cut grass/ weeds, board the windows, etc.
So the law provides that a tax lien holder can move “faster” than 2 years if the property is deemed “abandoned”. It is not subject to the 2 year waiting period. Abandonment is defined within the law as a property that has not been legally occupied for 6 months (and those 6 months can include the time prior to the Tax Sale) and meets one of the additional criteria set forth: it is in need of rehab and no rehab has occurred in 6 months; construction was initiated but discontinued thus leaving the property unsuitable for occupancy; taxes are open and unpaid; or the property is deemed a nuisance by the town. The law permits a tax lien holder to start the process immediately in such instances without a 2 year waiting period.
There are two paths available to having this "abandonment" determination made. The first is to obtain a sworn statement from the tax collector or the construction official in the municipality that the statutory conditions of abandonment are met. The second path is to obtain that statement yourself, and then go to Court and ask the Court to deem it abandoned based upon your proofs (pictures, documents, statements of construction officials). There is still an open question of whether the tax lien holder gets fees/ costs under the second path if the taxes are redeemed before the Court reaches this determination. Query: If the owner redeems the taxes after the action is started but before the Court makes the abandonment determination, is the tax lien holder entitled to his court filing fees? This answer is ambiguous at the current time. But what is known is that these tax lien holders can move quickly on their investments – much earlier than 2 years – to get title in their name and then start rehabbing when it previously took them many years to do so. This is good for the municipalities and for the investors.
Anthony L. Velasquez, Esq.