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NJ Title: Important Information re: Redemption of Tax Sale Certificates

         Redemption of tax sale certificates [“TSCs”] can present difficulties for buyers and sellers, as well as for their attorneys and title companies. N.J. Title Practice, §101.17 (4th Ed. 2016) discusses issues relating to the redemption of TSCs. The process was made more complex as a result of the decisions of the New Jersey Supreme Court in Simon v. Cronecker, 189 N.J. 304 (2007); Simon v. Rando, 189 N.J. 339 (2007); and Malinowski v. Jacobs, 189 N.J. 345 (2007). As noted therein, the statutory scheme envisions that, regardless of whether a “TSC” is municipally- or privately-held, redemption is to be made through the tax collector. It is important to bear in mind that the amount necessary to redeem a privately-held TSC includes subsequently-accruing taxes paid by the holder thereof. The amount needed to redeem a municipally-held certificate includes unpaid subsequently-accruing taxes. Many title companies thus believe it is advisable to add a notation to this effect to the title commitment in order to avoid future misunderstandings.
         Nevertheless, redemption statements prepared by tax collectors sometimes contain errors. If the TSC is municipally-held, the computation may not consider subsequently-accruing taxes. If privately held, the tax collector may neglect to include post-TSC taxes paid by the certificate holder. Thus, if the certificate is privately-held, it is advisable to confirm the amount due with the TSC holder, rather than simply relying on the redemption statement obtained from the municipal tax collector. In either case, an erroneous redemption statement is likely to be the source of a future difficulties, so every effort should be made to verify the accuracy of the information provided by the tax collector. 
         Who may redeem a TSC? Under N.J.S.A 54:5-54 (as amended), redemption is restricted to: (1) the landowners or their heirs; (2) holders of prior TSCs; (3) mortgagees; or (4) occupants of the land. Thus, the TSC holder may reject attempted redemption payments when tendered by entities other than those listed above. 
         In recent years, a TSC “industry” has developed, with individuals and firms purchasing large quantities of certificates. Because the face amount of a TSC is frequently much less that the value of the realty it encumbers, TSC purchasers seek to capitalize on their investment by successfully foreclosing the encumbered land and re-selling the same at a profit. At the same time, others seek to turn the process to their advantage by purchasing such properties at a discount or by acquiring a lien or interest therein, so that they can exercise (or attempt to exercise) the right of redemption. The differing interests of these two groups eventually led to the 2007 Supreme Court decisions cited above. 
         One section of the Tax Sale Law prohibits one who has acquired an interest in land “for a nominal consideration after the filing of the [TSC foreclosure] complaint” from exercising the right of redemption (subject to certain exceptions). N.J.S.A. 54:5-89.1. Another section apparently requires a party acquiring an interest in the property after the foreclosure has begun to intervene in the suit in order to exercise the right of redemption. N.J.S.A. 54:5-98. A third section (discussed above) permits redemption only by certain specified categories of persons. N.J.S.A. 54:5-54. Thus, when read together, these three sections – as construed by our Supreme Court in the cases referred to above — have the following effect:

  1. The right of redemption is limited to certain persons or entities (whether redemption occurs before or after the commencement of the foreclosure suit). 
  2. If one acquires an interest in land for nominal consideration after the suit has begun, he or she will not be permitted to redeem, even if he or she falls into one of the categories in No. 1 above.
  3. One who seeks to redeem after the suit has begun (and is not already a party to the suit) must first obtain a court order permitting intervention in the suit

         What constitutes “nominal consideration”? In the cases cited above, the court did not decide this issue directly, but suggested that it should be determined on a case-by-case basis. So, for example, depending on the circumstances, “nominal consideration” may be $1.00 in one case and $10,000 in another. Perhaps most significantly, the court held that once the foreclosure suit has begun, a purchaser of the property, because he pays money to the seller (which money is used – in whole or in part — to redeem the TSC), is in effect redeeming the TSC for his own benefit. Thus, the purchaser must successfully intervene in the suit (in accordance with Rule No. 3 above) in order to redeem the TSC, whether directly or through payment of the purchase price to the seller. Because the court stated that it was not announcing new rules of law, but rather construing existing statutes, its holdings in these cases are apparently applicable both retroactively and prospectively. 
         Even prior to these decisions, TSC holders had expressed concern about so-called “title pirates” or “heir hunters” or speculators who acquired an interest in land encumbered by a TSC so that they could exercise (or attempt to exercise) the right to redeem. Accordingly, where the TSC holder believed that the party redeeming had acquired his interest for “nominal consideration”, it sometimes refused to accept the tender. Some TSC holders have demanded proof that redemption is being made as part of a bona fide transaction, requiring copies of closing statements and other closing-related documents before surrendering the TSC for cancellation. As a result of the decisions discussed above, it is likely that some TSC holders will refuse to accept the redemption unless the purchaser has successfully intervened in the suit. See N.J. Title Practice, §102.17 (4th Ed. 2016).
         When a title examination reflects the existence of a TSC, the same will be set up as an exception in the commitment. As suggested above, every effort must be made to ensure that the redemption statement is accurate. Accordingly, FNTG has issued guidelines to its policy-issuing agents requiring them to confirm the following, in cases where a privately-held TSC is currently the subject of a foreclosure suit: (a) the amount needed to satisfy the debt and cause the dismissal of the suit; and (b) that the TSC holder will accept the redemption money from the party tendering same; and (c) that the TSC holder will discontinue the suit and discharge the notice of lis pendens. If the TSC holder will not agree to accept the redemption, then the purchaser must make an application to the court for leave to intervene in the suit, in accordance with the case law cited above. 
         In cases where the foreclosure suit has not [yet] been commenced, the title commitment will require confirmation (a) of the amount needed to satisfy the debt; and (b) that the TSC holder will accept the redemption money from the party tendering same.