Don’t Lose Your Home for a Real Estate Tax Lien
In New Jersey, could you really lose a $300,000 house for not paying a $1,000 real-estate tax lien?
Unfortunately, the answer is still yes-- despite recent decisions of the United States Supreme Court and the New Jersey Supreme Court. The New Jersey Legislature in 2024 passed a new tax-lien law, P.L.2024, c.39, which continues to allow speculators to seize your home, and to award your $300,000 equity to the speculator, unless you request a Sheriff Sale in writing before a deadline. Consumers League of New Jersey thinks the new law is unconstitutional-- a taking of property without just compensation-- because the State continues to allow a speculator to take your entire property for a lesser debt, if a Sheriff sale is not requested.
How tax liens work: in New Jersey, if you do not pay your real estate taxes on time, a speculator pays the taxes and receives a “tax-sale certificate.” The speculator often pays a premium on top of the taxes, essentially paying for the right to a foreclosure windfall. The tax certificate is a lien. After two years, if the homeowner has not paid the taxes, the speculator sues the homeowner for foreclosure. The N.J. Superior Court sets a deadline to pay the taxes and interest. If that deadline is missed, the Judge transfers ownership of the entire house to the speculator! Under the old law, there was no Sheriff sale, and only one party, the speculator, had a right to foreclose and seize your house. After tax foreclosure judgment, the homeowner is then evicted, and loses $300,000 in home equity for a $1,000 debt. The problem often arises among senior citizens, who have trouble paying their taxes on a Social Security income, and who have built up a lifetime of equity in their home.
The Unites States Supreme Court, in Tyler v. Hennepin County, MN, 598 U.S. 631 (2023), held that the Minnesota tax-lien law resulted in an unconstitutional “taking” of the homeowner’s equity, without just compensation, violating the Fifth Amendment, because that law seized the homeowner’s equity, far in excess of the taxes owed. “The taxpayer must render unto Caesar what is Caesar’s, but no more.”
The New Jersey Supreme Court likewise held that N.J.’s former tax-lien law was unconstitutional. 257-261 20th Avenue Realty, LLC v. Alessandro Roberto (N.J. 2025).
Unfortunately the N.J. Legislature passed a law, P.L.2024, c.39, which still allows speculators to take the $300,000 house for the $1,000 tax payment. In order to prevent this forfeiture, the homeowner must affirmatively request a Sheriff Sale in writing. Unlike tax lien forfeiture, a Sheriff Sale is open to the public, and could in theory have more than one bidder, but is unlikely to bring full market value. But the new law’s requirement for the homeowner to request Sheriff sale (else waive your right to the surplus) is a cruel psychological trick. The homeowner wants to keep the home if possible. To request a Sheriff sale is the last thing a desperate homeowner is likely to do. If there is no Sheriff Sale, the Judge then hands the house over to the speculator, just like under the old, unconstitutional law. CLNJ believes that New Jersey’s new tax lien law is unconstitutional, because it conflicts with the Fifth Amendment protections of Tyler and Roberto.
What can the homeowner do to save your home?
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The homeowner should get an attorney, as soon as possible, to explore all options.
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Persons with modest income may qualify for free legal services from your local Legal Services
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Consult a Bankruptcy attorney to see if a Chapter 13 payment plan is feasible. A bankruptcy Chapter 13 Plan could pay the tax debt in monthly installments. Another Chapter 13 Plan could sell the house to pay the tax, but in bankruptcy the homeowner keeps the equity instead of the speculator.
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The homeowner always has the right to pay missed taxes, interest and costs to the tax collector before the deadline.
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Refinancing your house may be an option if you can afford to pay a mortgage, real estate taxes, heat, electricity, homeowner insurance, etc.
Seniors of age 62 might qualify for a reverse mortgage, which has no mortgage payments, provided they can afford the other expenses of homeownership (taxes, heat, utilities, homeowner insurance) going forward. AARP has information explaining reverse mortgages.
Financial assistance may be available from the State of New Jersey’s Emergency Rescue Mortgage Assistance (ERMA) program.
List the property for sale with a real estate broker—selling it yourself means you receive your equity, instead of losing everything to the speculator. A broker will produce a market analysis which will tell you what your property is worth.
Consumer and civil rights attorneys might consider whether to file suits under civil rights statutes, and under the U.S. and N.J. Constitutions, for the “taking” without just compensation of the monetary value of lost home equity, under color of state law.
The following Chapter 13 Bankruptcy decisions have helped homeowners save their homes by providing a second chance to pay a tax-lien debt:
Gunsalus v. County of Ontario, New York, 37 F.4th 859, 866 (2d Cir.), cert. denied, 214 L. Ed. 2d 254, 143 S. Ct. 447 (2022)(Bankruptcy Code section 548 permits payment of NY tax lien after
foreclosure);
DuVall v. County of Ontario, 83 F.4th 147 (2d Cir. 2023)(NY tax foreclosure reversed and taxes paid
via bankruptcy section 548)
In re Hackler & Stelzle-Hackler, 938 F.3d 473, 475 (3d Cir. 2019)(Bankruptcy Code section 547 permits payment of NJ tax lien);
In re Douglas J. Heidt, Debtor. Douglas J. Heidt, Plaintiff, v. BV001 Reo Blocker LLC; (U.S.
Bankruptcy Court, D.N.J., Adv. Pro. 19-2294, 2023, Hon. Rosemary Gambardella, U.S.B.J.)
(Debtor, who had lost his house in a N.J. tax-foreclosure judgment, was able to recover his house
as a “fraudulent conveyance” in bankruptcy, and then sell it in a Chapter 13 Plan where the
speculator received reimbursement, but the homeowner received back his lost equity)
Virella v. TLOA of NJ, LCC, (U.S. Bankruptcy Court, D.N.J. 2024, Adversary Pro. No. 24-1084 June
18, 2024)(Fifth Amendment Takings Clause and the New Jersey Constitution provide debtors in
bankruptcy cases with the opportunity to set aside the effects of a final judgment in foreclosure
and to pursue their Takings claims in their bankruptcy cases.)
In the opinion of the Consumers League of New Jersey, Bankruptcy Chapter 13 payment plans may be useful to save your home equity from tax lien foreclosure.
It is important for homeowners to take prompt action. Procrastination will limit your options. Some of these options, e.g. state ERMA assistance, reverse mortgages, refinancing, take a long time to get a decision. Consult a bankruptcy attorney well in advance of foreclosure deadlines. It takes some time to produce documents, analyze a person's finances and get a real estate broker opinion on the fair market value of the home.
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Legal Services of New Jersey also has a useful guide to avoiding tax lien foreclosure: "Property Tax Foreclosure- the Legal Process and Your Rights."
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Posted in February 2025. Please consult a bankruptcy attorney to keep up-to-date with the latest cases and statutes. CLNJ here expresses its opinions on the law and public policy. CLNJ does not provide legal advice in individual cases and does not have the resources to provide attorneys to represent consumers in individual cases.
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