NJ Tax Liens -- What's the law say?

Question

Hey All!  I am interested in investing in tax liens.  Several years ago I read Michael Pellegrino's book on Tax Liens but unfortunately I cannot find it anywhere in my home!  I *think* I remember that in the book, he stated that in NJ, when tax liens aren't sold at the auction and are subsequently purchased on assignment (or "OTC"), the redemption period shrinks from 2 years to 6 months from the date of the **auction**.  I also *think* I recall him also stating that if the property is abandoned, there is no redemption period.  I searched through the NJ laws governing tax liens and sales (NJSA 54:5) and I cannot confirm any of this.  Does anyone know if what I think I remember from the book is accurate??

Josh Carr · Answer

@Kaiya H. You may be able to send a self addressed stamped envelope to the municipality of your choice and ask for after the auction unsold liens listing.  They will send you the list and you can make your offers to the municipality.  You will be receiving 18% interest on your liens which does not happen until the second year of the premium bid tax liens.   As previously mentioned some of the tax lien certificates will go for 120K on a 30K tax bill.  The township will open a trust for the overage in your behalf and then if the certificates does not get redeemed after the two year redemption period you could gain a property for that price.  It's a good strategy.   A judicial foreclosure state which will first require a complaint filed with the Supreme Court.  There will be a 30 day period in which the owner may respond to the complaint.  If there is no response then the foreclosure will proceed.  Of course, you will want to hire a lawyer to complete the foreclosure.  Here is the info from real auction that holds several of the NJ online auctions:

"A tax sale is the sale of tax liens for delinquent municipal charges  on a property.  At a tax sale, title to the delinquent property itself  is not sold.  What is sold is a tax sale certificate, a lien on the  property for delinquent outstanding municipal charges due.

Municipal Charges include but are not limited to:

1) Property Taxes 2) Water Charges 3) Sewer Charges 4) Special Assessment Charges 5) Added/Omitted Assessments 6) Property Maintenance Charges

Types of Tax Sale There are 2 types of tax sales in New Jersey.  The standard tax sale is  held within the current year for delinquent taxes of the prior year.   The accelerated tax sale is held prior to the end of the year for that  year's tax delinquencies.

Owner Notification Property owners are notified that a lien on their property is up for  sale.  The notifications can be sent via quarterly delinquent notices,  an official notice of tax sale and/or newspaper advertisements. The  notifications list information relevant to the property included in the  sale:  block, lot, last assessed owner, location, type of debt, and  balance to be sold.

New Jersey requires at least 4 weeks of notice be given the property  owner immediately prior to the week of the sale.  Failure to mail the  notice or failure for the homeowner to receive notification does not  invalidate any tax sale proceeding.

Prior to Tax Sale Prior to the actual sale, the property owner may pay to avoid having a  lien sold at auction. To do so, the past year’s charges must be paid, as  well as ALL the interest – for all years - and costs. Only certified  checks, money orders or cash is accepted once the official notice is  mailed. For a municipality that accepts credit card payments, no such  payment may be accepted on delinquent accounts 50 days prior to the tax  sale.

Tax Sale Process Anyone can bid on the property except the actual property owner or an agent thereof.

Auction:
When the tax sale is held (as specified in the notice of sale), the Tax Collector sells at public auction each parcel of land (if still delinquent) which has been properly advertised. The sale is made in the amount that was advertised or less if a partial payment has been made prior to the sale; however, the property cannot be sold for more than the amount for which it was advertised.

Bidding:
Prior to the day of sale, the Tax Collector will require every bidder to register to participate in the tax sale. Registration will contain information regarding their address, how he/she wishes to receive their tax sale certificate, their Federal Tax ID number and the signature of the person bidding. Often there are deadlines on when bidders may register. Deadlines are set at the Tax Collector’s discretion.

Tax sale certificates can earn interest between 0% and 18%.  Bidders bid  down the interest rate that will be paid by the owner upon redemption,  for continuing interest on the certificate amount.  Bid parameters are  set by the Tax Collector, and may be in whole, half or quarter  percentage points.

At 0% interest, a bidder may then bid a dollar value which is known as a  premium.  A premium is offered for the privilege of purchasing the  certificate, and can go as high as any one bidder is willing to pay.  Premiums may be offered by hundreds, fifty, etc.

Therefore the certificate is sold at the lowest percentage of redemption interest bid, or at the highest premium bid.

The winning bidder is the one who bids the lowest percentage of interest  or bids the highest premium.  At the close of the sale, the winning  bidder must immediately pay (pursuant to local restrictions) the  municipality the advertised amount (or less); in exchange, the  municipality will prepare a tax sale certificate in the name of the  successful bidder.

***If there are no bidders on a parcel for sale, then the Tax Collector  must strike it off in the name of the municipality at a redemption  interest rate of 18%.***

After the Tax Sale Tax Sale Certificates: After the sale, the Tax Collector will deliver tax sale certificates to  the winning bidders within 10 days of the close of sale. It is the  responsibility of the bidder to record their lien with the county after  they receive the certificate.

Subsequent Payments:
After the tax sale certificate has been issued, the lien holder now has the right to pay any delinquent municipal charges that have not gone to sale. These are known as subsequent payments.

The lien holder has the right at any time a payment falls delinquent, to  pay the delinquent charges due to the municipality. These payments are  added to the tax sale certificate provided affidavits are filed pursuant  to NJSA 54:5-61.

Redeeming Tax Sale Certificates Redemption: Once a lien has been placed on a parcel, the only person(s) able to  redeem that lien are:  the owner, his/her heirs, the holder of a prior  open tax certificate, mortgage holder, or legal occupant of property;  and may only redeem until the right to redeem has been cut off.

Payment to redeem a lien must be made in full by cash or certified  funds, through the Tax Collector's office. Once the redemption has  occurred; the Tax Collector will notify the lien holder of payment. They  will return the original certificate back to the collector endorsed for  cancellation. Upon receipt of the cancelled certificate, the redemption  funds will be released to the lien holder.

When the Tax Collector receives the certificate endorsed for  cancellation, they will send it to the party that redeemed the lien. It  is the redeeming party’s responsibility to have this lien removed from  the records at the county office.

Un-redeemed Liens:
After two years, a lien holder can begin proceedings in Superior Court to foreclose on the certificate in an effort to obtain title/possession of the property. If foreclosure is granted, then the name on the deed is changed to that of the lien holder who then can take possession of the property.

If the certificate was not purchased by an outside lien buyer at the tax  sale, the municipality would become the lien holder and may begin the  foreclosure process in as little as six months from the tax sale date."

Here is the code for New Jersey where you can read up on the state statutes

http://statutes.laws.com/new-jersey/title-54/secti...

If you are purchasing from the accelerated sale you will not be able to purchase the subsequent taxes on the following years.

Good luck and happy hunting.  New Jersey has much to offer.

Peter Tverdov · Answer

I just finished his book. To answer OPs question, you are generally correct.

To answer the second persons question, they pay a high premium because then they have a "prior" on the lien and buy the next liens at 18%. So essentially they average up their return from 0%, to 6%, 12%, etc as they buy more liens.

I also went to my first tax lien auction a few weeks ago and competed with people bidding three times the tax lien value for premium. I made one bid on the only property I was there for,. I didn't get it and left. It was cool but 90% of those liens were premium bids. A few guys bid 17% on some water liens but even those were going premium.

Joe Martella · Answer

The OTC sale doesn't always happen.  It depends on the municipality.  Usually the properties left over are unwanted plots of land.  i assume you have not had an opportunity to go to a live auction.  There is stiff competition during the auctions.  Banks, hedge funds and other big players are paying huge premiums.  At a couple of recent sales, a $196.00 sewer tax bill went for a $1,000 premium.  That was the high side.  The low premium was $600.  You don't even get the 2% penalty.  When the sewer bills were over $200 the premiums were $1,200 -  $1,300.  A small property tax bill of $90.00 (mind you there is usually a cost of sale factored into it if $65) was getting premiums of $2,200.  a $30,000 tax bill went for a premium in excess of $120,000 (that is not a typo).

I have been investing in tax liens for almost four years now and  each year the premiums have increased.  Be prepared to have this money locked away for long periods of time.  Foreclosing after 2 years isn't the easiest and is a gamble.  I have a couple of liens that are beyond the 2 year mark.  The legal advice I have is to just hold it and collect the 18%.  Someone is going to buy the property sometime.  Then again, this is all relative to how much in taxes you owe and the value of the property.

I don't understand the premiums and why the banks/hedge funds are willing to pay so much for them.  I invite anyone on her to please explain via post or PM.  Thanks.

Joe Martella · Answer

Hello all,

I am curious to know if anyone is still investing in liens?  I know this is a 4 year old post, but I am curious to know if any progress was made by any of you.

John Baptist · Answer

Not to revive this, but the banks are securitizing the liens.  That is why they have no problem putting in big premiums and they need volume to make the investment work.  Plus they usually get it all back unless the property is worthless.

On the assignments from municipalities: make sure you find out why the lien didn't sell.  Usually the lot isn't buildable, hazardous waste on the lot, or the unit isn't worth the foreclosure legal fees.  On the last one be very careful going after those "easy" or cheap liens.  If its a $200 tax lien and the unit is worth 25k and the taxes are $300/yr, sure you may get it at foreclosure, but more often than not (like 98%) the owner will redeem before final judgement.  If your legal costs are 4-5k (uncontested) or more (contested) then you're losing money.  Maybe you make $500 on interest, but you're out $2000-3000 in legal fees (you can only get back $500 in lawyer fees from the court).

Buying the liens is the easy part.  Foreclosing is the pain.  Buyer beware!

Kaiya H. · Answer

Thanks @Josh Carr!

Kaiya H. · Answer

Thanks for the input Joe and Peter!  The municipality from which I'd like to buy liens only holds online sales, so there is no opportunity for me to attend a live auction.  I am aware of the "big dogs" out there, but I'm committed to doing my due diligence, being patient, and investing what I can.  In my target municipality, they had 3000+ liens up for sale and tons left over - and they weren't all junk!  In fact, in the target neighborhood I'm looking at, I've got about a half-dozen decent prospects that weren't sold.  I was actually able to verify the provision in the law that allows for In Rem foreclosures when purchasing liens after the auction from the municipality (N.J.R.S.54:5-86).  My next task is reaching out to the city to find out their process for assigning the unsold liens, as I know they don't hold separate sales for them.  I appreciate the input as I think about strategy going forward!

NJ Tax Liens -- What's the law say?

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