If your New Jersey property was lost through tax sale foreclosure, you may be entitled to surplus funds representing the equity above what was owed in taxes. A new law effective July 10, 2024 (P.L. 2024, c.39, codified at N.J.S.A. 54:5-98.1 and 54:5-98.2) now provides a statutory mechanism to claim this surplus — a right that did not exist before the U.S. Supreme Court’s decision in Tyler v. Hennepin County (2023).
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.
In response to the Tyler decision, New Jersey enacted P.L. 2024, c.39, which became effective on July 10, 2024. This law created new statutory provisions — N.J.S.A. 54:5-98.1 and N.J.S.A. 54:5-98.2 — specifically addressing the right of former property owners to claim surplus equity in tax sale foreclosure proceedings.
What the New Law Provides
Under N.J.S.A. 54:5-98.1 and 54:5-98.2, when a tax sale foreclosure results in the transfer of property to a tax lien certificate holder, the former owner may now have a right to recover the difference between the fair market value of the property and the amount of the tax lien (including all interest, penalties, and costs). This represents a significant departure from the prior strict foreclosure framework, which left former owners with no legal mechanism to claim any surplus equity.
The new law establishes procedures for determining the amount of surplus owed and the process for making a claim. Because this law is relatively new, the case law interpreting its provisions is still developing.
How to Claim Surplus from a Tax Sale Foreclosure
If your property was subject to a tax sale foreclosure on or after July 10, 2024, and you believe the property’s value exceeded the total amount of the tax lien and associated costs, you may be entitled to surplus funds. The process for claiming these funds requires a careful assessment of the property’s fair market value at the time of foreclosure, the total debt extinguished by the foreclosure, and the procedural requirements of the new statute.
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.