A tax sale certificate creates a lien on the property subject to the property owner’s right of redemption

Law Lessons from JNH Funding Corp v. Ayed, N.J. Super. Ch. Div. (Sarkisian, J.), Docket No. HUD-F-008704-14, March 21, 2017:

A tax sale certificate creates a lien on the property subject to the property owner’s right of redemption under N.J.S.A. 54:5-54. As noted by the Appellate Division:

A tax sale certificate is not an outright conveyance. It creates only a lien on the premises and conveys the lien interest of the taxing authority. Furthermore, the interest of the holder of the tax sale certificate is entirely subordinate to the statutory right of redemption of the property owner. This right of redemption can be exercised up to the date fixed by the court barring the right of redemption.

Savage v. Weissman, 355 N.J. Super. 429, 436 (App. Div. 2002).

Public policy encourages foreclosure of tax sale certificates. Under N.J.S.A. 54:5-85, the tax certificate foreclosure statutes “shall be liberally construed as remedial legislation to encourage the barring of the right of redemption by actions in the Superior Court to the end that marketable titles may thereby be secured.” As a general rule, the public policy in New Jersey favors the foreclosure of these liens so as to assist municipalities in the collection of delinquent taxes. See, !tit, Lonsk v. Pennefather, 168 N.J. Super. 178, 182 (App. Div. 1979) (“[T]he public policy in this State is to encourage tax sale foreclosure so as to assist municipalities in the collection of delinquent taxes.”); Caput Mortuum, LLC v. S&S Crown Services, Ltd., 366 N.J. Super. 323, 334 (App. Div. 2004). The tax sale certificates are sold so that municipalities may “generate funds owed by delinquent taxpayers because ‘[m]unicipalities depend on the collection of property taxes and other assessments to fund the many services provided to residents.”‘ Caput Mortuum, LLC, supra, 366 N.J. Super. at 335. Thus, “[iJt is in the public interest to encourage parties to purchase tax liens to enable municipalities to receive their lost tax revenues.” Id.

At the same time, however, despite the important public policy considerations underlying the sale of tax sale certificates, “[t]he Legislature and the courts have looked with disfavor on those described as ‘intermeddlers’; ‘title raiders’; or ‘heir hunters’.” Cherokee Equities, L.L.C. v. Garaventa, 382 N.J. Super. 201, 206 (Ch. Div. 2005) (citing O & Y Old Bridge Dev. Corp. v. Cont’! Searchers, Inc., 120 N.J. 454 (1990); Wattles v. Plotts, 120 N.J. 444, 444 (1990); Bron v. Weintraub, 42 N.J. 87, 87 (1964); and Savage v. Weissman, 355 N.J. Super. 429 (App. Div.2002)).

“In order to effectuate the remedial objectives of the statute, the Legislature made municipal liens paramount to prior claims and set forth a detailed procedure for the sale, redemption, and foreclosure of such liens.” Caput Mortuum, LLC, supra, 366 N.J. Super. at 334-35. When a property owner fails to pay property taxes or other municipal assessments on a property, a first priority lien is created. N.J.S.A. 54:5-6 to -9. The lien attaches to the property and does not become a personal liability of the taxpayer. N.J.S.A. 54:5-6. Thereafter, when a lien remains in arrears, the tax collector must “enforce the lien” by selling the lien as a tax sale certificate. N.J.S.A. 54:5-19. After two years from the date of the sale of the tax sale certificate, the purchaser of the tax sale certificate may commence a tax sale foreclosure proceeding to bar the right of redemption. N.J.S.A. 54:5-86. The property parties to this action “are the property owner and the holders of existing interests in the property.” Savage, supra, 355 N.J. Super. at 436. However, the parties identified in N.J.S.A. 54:5-54 may redeem the tax sale certificate up until final judgment is entered barring the right to redemption. See id.; N.J.S.A. 54:5-87 (providing that a judgment may give full relief “to bar the right of redemption and 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”). Accordingly, “(t]he effect of a final judgment of foreclosure under the Tax Sale Law is to vest title to the property in fee simple.’1 Cherokee Equities. LLC v. Garaventa, 382 N.J. Super. 201, 208 (Ch. Div. 2005) (citing N.J.S.A. 54:5-87).

The redemption of tax sale certificates is governed by N.J.S.A. 54:5-54, which provides, in full:

Except as hereinafter provided, the owner, his heirs, holder of any prior outstanding tax I/en certificate, mortgagee, or occupant of land sold for municipal taxes; assessment for benefits pursuant to R.S.54:5-7 or other municipal charges, may redeem it at any time until the right to redeem has been cut off in the manner in this chapter set forth, by paying to the collector, or to the collector of delinquent taxes on lands of the municipality where the land is situate, for the use of the purchaser, his heirs or assigns, the amount required for redemption as hereinafter set forth.

The tax collector shall provide to any party entitled to redeem a certificate pursuant to this section two calculations of the amount required for redemption within a calendar year at no cost. The governing body of a municipality may, by ordinance, require a fee not to exceed $ 50 for each subsequent calculation requested of the tax collector. A request for a redemption calculation shall be made in writing to the tax collector.

(emphasis added). Accordingly, a property owner, holder of a prior outstanding tax lien certificate, mortgagee, or occupant of the land may redeem the tax sale certificate at any time.

New Jersey courts have construed this provision narrowly, limiting the power to redeem a tax sale certificate to that limited group of individuals. See,~. Caput Mortuum, supra, 366 N.J. Super. 323 In 1994, the language of the statute was amended to its current form, eliminating a provision that allowed any other person having an interest in land sold for municipal liens” to redeem as well. Id. at 331. As noted by the Appellate Division:

The plain language of the statutory amendment demonstrates a clear legislative intent to eliminate the rights of those persons who did not have a sufficient interest in the property to warrant extension of the right of redemption to them in favor of more protection for the owner of the property, as well as the holder of the certificate.

Id. at 331-32. Accordingly, with this in mind, courts have determined that judgment creditors, who do not rise to the level of “owner” of the subject property, have no right of redemption.[The Appellate Division, in Caput Mortuum. LLC, noted that judgment creditors do not acquire the status of an owner until it purchases the property at an execution sale and that judgment creditors are not included under the aegis of mortgagees permitted to redeem as a mortgagee ‘has a contractual security interest in the property but no claim against eh person absent a note or other personal obligation,ยท and a judgment creditor, who could obtain a personal judgment and satisfy its judgment in a number of ways, does not have the same interest in property that a mortgagee does. Caput Mortuum, LLC, supra, 366 N.J. Super. at 333-34.] Id. at 333-34.

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