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New Jersey: Tax Liens, COD, and Docketed Judgments
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What’s the Deal with Tax Liens in New Jersey?
So, you’ve gotten a notice about a tax lien, huh? Don’t panic, but take a deep breath – we’re about to dive into the nitty-gritty of how these things work in the Garden State.First thing’s first, what exactly is a tax lien? Well, it’s basically a legal claim that the state or local government places on your property when you haven’t paid your taxes. Think of it as their way of saying, “Hey, you owe us money, and we’re putting a lien on your stuff until you pay up.”In New Jersey, property taxes are what’s known as a “continuous lien” on your real estate. Meaning, that lien is always there, just waiting to be enforced if you fall behind on your payments. Property taxes are due four times a year (February 1st, May 1st, August 1st, and November 1st), so missing even one of those installments could land you in hot water.Now, let’s talk about how these liens actually get enforced. By law, every single municipality in New Jersey has to hold at least one tax sale per year to auction off liens on properties with delinquent taxes or other unpaid municipal charges. Yep, you read that right – they literally sell the lien to the highest bidder.
Bidding Wars and Buying Liens
At these tax sales, private investors and even other government entities show up ready to bid on liens. And it’s not just a simple “I’ll take that one for $500” kind of deal. Oh no, there’s a whole process called “bidding down” where they compete to offer the lowest interest rate that you, the property owner, would have to pay if you want to get the lien off your property.It starts at the maximum 18% interest rate allowed by law. Then, each subsequent bidder has to go lower than the last until eventually, they’re bidding 0% interest. At that point, it becomes a premium bidding war, where they start offering cash premiums paid directly to the municipality on top of the delinquent taxes.The winner? The bidder offering the lowest interest rate or the highest premium. They get to pay off your debt to the town, and in exchange, they get that lien certificate. Basically, a legal claim to the amount you owe them, plus all that lovely interest if you don’t pay up quickly.Now, I know what you’re thinking: “But wait, they don’t actually own my house if they buy the lien, right?” You’re absolutely right! Buying that lien doesn’t give them ownership or any right to show up on your doorstep. It just means they’ve paid your debt to the town and are now owed that money by you instead.
Certificates of Debt and Docketed Judgments
But what happens if you just…don’t pay that debt to the lien holder? Well, that’s where Certificates of Debt (CODs) and docketed judgments come into play.In New Jersey, if you don’t settle up after the tax sale, the state can file a COD against you in the Superior Court. This puppy has the same legal force as a court judgment, and it allows the state to take some more aggressive collection actions.With a COD in place, the state can request a writ of execution, which allows them to do fun things like garnish your wages or put liens on your vehicles and bank accounts. Yeah, they’re not messing around at this point.If the COD doesn’t motivate you to pay up, the next step is for that debt to become an actual docketed judgment. This is a judgment entered into the court record for all to see, giving the world official notice that, “Hey, this person owes some serious cash.”From there, the state can kick its collection efforts into an even higher gear. We’re talking property seizures, foreclosures, you name it. All because you got behind on those property tax payments way back when.
The Foreclosure Threat
Speaking of foreclosures, let’s talk about what happens if you still refuse to pay up after all those lovely letters and liens. Well, the lien holder (whether that’s a private investor or the state itself) can begin foreclosure proceedings once two years have passed since that initial tax sale.Yep, two years is all it takes for them to potentially take your property away from you over that unpaid tax debt. And unlike some other states, in New Jersey, they don’t have to go through the whole rigmarole of trying to sell the property at an auction first.If the foreclosure is completed successfully, that lien holder’s name goes right onto the deed as the new owner. Crazy, right? All because you got behind on some tax payments.Now, let’s be clear – going through foreclosure is absolutely the worst-case scenario here. The state doesn’t actually want to take your house; they just want their money! So there are plenty of opportunities along the way to pay off that debt, plus interest and penalties, and make everything go away.
Protecting Yourself
But what if you’re in a tough financial situation and you legitimately can’t afford to pay that tax bill right now? Well, the first step is to get ahead of it. Don’t wait for that tax sale notice – be proactive!As soon as you realize you might miss a property tax payment, get on the phone with your municipal tax office. Explain your situation, see if you can work out a payment plan, and get all the details on exactly what you owe and what the consequences will be for missing payments.If you do end up with a lien or COD against you, pay close attention to all correspondence from the lien holder or state. There are strict time limits for paying off or contesting those debts, and you don’t want to miss any important windows.Most importantly, if you get a foreclosure notice, do not just ignore it and hope it goes away! That’s your last chance to protect your home and any equity you have in it. Hire legal representation immediately and explore all your options, whether that’s bankruptcy protection, trying to negotiate a settlement, or disputing the foreclosure itself.At the end of the day, the best way to avoid this whole mess is just to pay your property taxes on time, every time. But life happens, and financial hardships are all too real. So if you do find yourself staring down a tax lien or worse, know that you have rights and options. Don’t go it alone – get advice from qualified legal and tax professionals.
The Tyler Decision and Its Impact
Before we wrap things up, we have to talk about the recent U.S. Supreme Court decision in Tyler v. Hennepin County. In a nutshell, the Court ruled that it’s unconstitutional for states to seize a person’s home equity when foreclosing over an unpaid tax debt.This has huge implications for New Jersey’s tax sale system, which has historically allowed lien holders to foreclose on properties worth far more than the amount owed in taxes. In the wake of this ruling, New Jersey is scrambling to revise its laws to avoid running afoul of the Constitution.A proposed bill would require homeowners facing tax foreclosure to proactively file a claim in Superior Court within 45 days of receiving the foreclosure notice. If they don’t, the lien holder would be allowed to take the full property value, equity and all.Whether this “opt-in” system passes constitutional muster is still up for debate. Legal experts are already warning that it places too much burden on struggling homeowners and could still result in unconstitutional home equity seizures.The bottom line? The rules around tax lien foreclosures in New Jersey are very much in flux right now. If you have a tax debt that’s reached the foreclosure stage, get a qualified attorney involved ASAP. The landscape is shifting rapidly, and you’ll want guidance from someone who understands all the latest developments.
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