All owners of real property are required to pay both
property taxes and any other municipal charges. In New Jersey, property taxes
are a continuous lien on the real estate in the full annual amount as of the
1st of the year. But taxes are payable
in four installments on February 1, May 1, August 1, and November 1. Municipal liens for real estate taxes and
other assessments are paramount to all prior and subsequent liens, except for
subsequent municipal liens.
When taxes remain unpaid, the municipality has a right to
“sell” the unpaid taxes. When that
happens, the municipality issues a Tax Sale Certificate.
Why Tax Sale Certificates?
Real estate taxes are the key part of every municipal
budget. When taxes go unpaid, the
municipality – that includes you, the property owner – lose that money. The budget suffers and municipal services are at risk. In
order for municipalities to collect missing tax money, they are allowed by
state law to sell or assign the unpaid taxes.
This is done through a “tax sale” and the issuance of a tax sale
certificate.
New Jersey law requires all 565 municipalities to hold at
least one tax sale per year. How does it work?
Prior to actually conducting the sale, the tax collector
mails notices of delinquent taxes to the property owner. The collector also publishes the list of
unpaid taxes in local newspapers several times.
If the taxes are not paid, the tax sale is conducted by the tax
collector. It’s a public process.
Third parties bid on the tax sale certificate (let’s call it
the “TSC”). At the auction, bidders bid DOWN the interest rate that will be
paid by the owner for continuing interest on the certificate amount. If the
interest is bid down to 0%, a “premium” is bid up until the bidding stops, to
obtain the tax sale certificate.
At the conclusion of the sale, the highest bidder pays the
outstanding taxes and becomes the holder of the lien which is represented by a
TSC issued by the municipality. The TSC will then be recorded with the County
Clerk to establish the lien against the real estate.
If no one bids on the tax lien, the municipality becomes the
owner of the TSC.
 |
| Typical form of Tax Sale Certificate |
Despite the language of the TSC, the holder of a TSC does
not own the property. Rather, the TSC holder owns a lien against the property
in the amount paid for the TSC plus interest which continues to accrue.
As owner, you have the right to redeem the TSC. It is strictly governed by statute. In addition to the owner, only certain enumerated persons or parties
with interests in a property may redeem the TSC. They include the owners,
trustees for the owners, heirs of the owners, holder of any prior tax sale
certificates, mortgagees and any legal occupant.
The amount required to redeem must be requested from the tax
collector who relies on a certification of the TSC holder as to all amounts due
and owing. Once the amount is paid, the Certificate should be cancelled of
record.
Note, the foregoing is not intended to be an exhaustive
treatment of real estate tax liens and tax sale certificates. Always seek competent legal advice when you
are dealing with a tax sale certificate,
We are the New Jersey title insurance agent that does it all for you.
For your next commercial real estate transaction, house purchase, mortgage refinance, reverse mortgage, or home equity loan, contact us, Vested Land Services LLC. We can help!
Stephen M. Flatow, Esq.
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