Tax lien laws in New Jersey give the state and local governments the authority to levy taxes on properties in the state as a way of generating revenue to then carry out various functions and services. Property taxes levied automatically become liens. If the property owner fails to pay the real estate property tax that is due within a certain time period, the taxes are declared delinquent. A court-ordered sale of the property may be enforced in order to pay the overdue taxes. Investors bid on these properties, and the winning buyer is given a tax sale or tax lien certificate.
In the state of New Jersey, unpaid property taxes that are delinquent six months after the end of the fiscal year may result in a tax sale of the property. The municipality is required to post advance notices of the tax sale in five locations. Tax lien laws in New Jersey also require the placement of advertisements in local newspapers for a period of four weeks. In addition, the property owner is to receive a notice of the proposed tax sale by mail. If he does not receive the notice, the sale still meets the statutory requirements and cannot be voided.
The property is sold by auction to the winning bidder, who offers the lowest interest rate and bids the highest premium. The winning bidder pays the delinquent taxes and other costs. If the owner does not redeem the property, the tax lien certificate buyer can collect, on top of interest, a bonus of two percent of the value of the certificate if it is more than $200. If the certificate is $5,000 or more, the certificate buyer can earn four percent of the value paid for the tax certificate. If the tax certificate is higher than $10,000, the rate is six percent. Some New Jersey counties may charge an additional six percent year-end penalty for certificates over the amount of $10,000, which could bring the total penalty to as much as 12 percent.
Under the tax lien laws in New Jersey, the interest rate tax lien certificate investors can earn is capped at a maximum of 18 percent per year. The tax lien certificate is generally awarded to the bidder offering the property owner the lowest interest rate for redemption of his or her property. As a result, the interest rate may be bid down to as low as zero percent. In cases where the winning bidder offers an interest rate that is lower than one percent, the certificate buyer may also bid a premium in addition to the amount of the certificate and other costs.
For example, if the total amount of the tax lien certificate is $3,675, the interest rate is zero percent and the premium bid is $1,500. The buyer would collect $5,175 if the owner redeems the property within the first year.
The winning bidder is awarded a tax lien sale certificate. He does not receive title to the property, nor can he take possession of or use the property in any way. If the certificate buyer is a municipality, the municipality may legally take possession of the property within six months after the tax lien sale. This is assuming that the property owner does not pay the delinquent taxes and other costs within the redemption period.
Private parties who purchase the tax certificates must wait two years, which is the redemption period allowable for property owners to regain their property. Property owners must pay costs that include legal fees as well as interest on the delinquent taxes. If the owner does not redeem the property within the designated period, the certificate buyer may gain clear title to the property by going through the foreclosure process. The buy has up to 20 years to claim the property.
If the owner does not redeem his or her property within the redemption period, the certificate buyer can initiate foreclosure proceedings to gain title to the property. Tax lien laws in New Jersey allow certificate holders that are municipalities to initiate the foreclosure process after a six-month redemption period. Private buyers who are tax lien certificate buyers must wait two years before they can start the foreclosure process.
The court has the authority to clear all encumbrances and liens from the property with the exception of municipal liens that are placed after the tax certificate sale. The foreclosure action by the court is determined to be final.
- Essential of New Jersey Real Estate; Edith Lank, Joan M Sobeck, 2004
- The Tax Lien Broker