New Jersey tax-foreclosure proceedings can put a property owner’s equity at risk. P.L. 2024, c.39, effective July 10, 2024, created procedures through which eligible owners or heirs can request a sheriff-conducted sale to preserve available equity. A pending case and a case in which final judgment has already entered require different analysis.
How Tax Sale Foreclosure Differs from Mortgage Foreclosure in NJ
In New Jersey, there are two primary types of foreclosure that can result in the loss of a home: mortgage foreclosure and tax sale foreclosure. Understanding the difference is critical if you believe surplus funds may be owed to you.
In a mortgage foreclosure, a lender forecloses on a property because the homeowner has defaulted on mortgage payments. The property is sold at a sheriff’s sale, and if the sale price exceeds the total debt owed — including the mortgage balance, interest, fees, and costs — the excess constitutes surplus funds. The distribution of these surplus funds is governed by N.J.S.A. 2A:50-37.
Tax sale foreclosure operates differently. When a property owner fails to pay property taxes, the municipality sells a tax lien certificate to an investor at a tax sale. If the property owner does not redeem the lien (pay off the delinquent taxes plus interest and costs) within the statutory period, the lienholder can file a foreclosure action. Historically, tax sale foreclosures in New Jersey were conducted as “strict foreclosures,” meaning the lienholder obtained title to the property without a public sale — and therefore no surplus was generated.
A Landmark Change: Tyler v. Hennepin County and New Jersey’s Response
In 2023, the United States Supreme Court decided Tyler v. Hennepin County, Minnesota, 598 U.S. 631 (2023), a case that fundamentally altered the legal landscape for tax sale foreclosures nationwide. The Court held that a county’s retention of surplus equity from a tax foreclosure sale — beyond what was owed in taxes, interest, and costs — constituted an unconstitutional taking under the Fifth Amendment’s Takings Clause.
Following Tyler, New Jersey enacted P.L. 2024, c.39. The amendments include notice and sale procedures designed to preserve available equity in qualifying tax-foreclosure proceedings, including N.J.S.A. 54:5-87(b) and 54:5-98.1 and provisions governing municipal in-rem proceedings.
What the New Law Provides
In the applicable statutory proceeding, an eligible owner or heir must make a written request for the sale before entry of final judgment. The sale may produce surplus after payment of amounts and claims entitled to priority. Abandoned-property proceedings and other statutory exceptions require separate analysis.
The law does not establish a universal, automatic payment of appraised market value minus the tax lien after title has transferred. Whether sale proceeds or another remedy are available depends on the proceeding and the facts.
How to Claim Surplus from a Tax Sale Foreclosure
For a pending case, promptly review the notices and court deadlines and determine whether a written sale request is available before final judgment. If judgment has already entered, counsel must separately assess the judgment, dates, notices, property status, procedural remedies, and any constitutional claim. Recovery should not be assumed, and the pre-judgment sale procedure should not be presented as automatically available afterward.
Given the complexity and novelty of this area of law, it is strongly advisable to work with an attorney experienced in New Jersey foreclosure and surplus funds law. An attorney can evaluate your specific situation, determine whether a claim is viable, and navigate the legal process on your behalf.
Contact Friscia & Associates to Determine Your Eligibility
If you have lost a property through tax sale foreclosure in New Jersey and believe surplus equity may be owed to you, contact Friscia & Associates for a case evaluation. We stay current on the evolving legal landscape, including the new provisions under P.L. 2024, c.39, and can advise you on whether you have a viable claim.
Call us today at (973) 500-8024.
This page is for informational purposes only and does not constitute legal advice.