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Legal Q & A


Tax Liens and Foreclosure

Deborah M. Kole
League Staff Attorney
Deborah M. Kole, League Staff Attorney

Q What are my rights as the holder of a tax lien against the estate of an insolvent debtor? There are no other municipal liens outstanding against this estate, but I am concerned that other claims against the estate may take priority over mine in distributing the proceeds from the property, which constitutes the bulk of the estate.

A Under the facts you have presented, your lien will be satisfied right after funeral and administration expenses are paid. The New Jersey Appellate Division reversed the Probate Court and held that municipal tax liens have “super priority” over all other liens against property. In the case of In the Matter of Edith Pryor, 366 NJ Super. 545 (2004), the Court found that such municipal liens retain this “first lien” status against all but “ …subsequent municipal liens” (N.J.S.A. 54:5-9). Even Medicaid and Public Guardian liens do not supersede the priority of municipal tax liens against an insolvent estate. Other liens are to be paid pro rata after the municipal tax debt is satisfied. In the Court’s view, only funeral and administration expenses should be paid out of the estate before the municipal lien is satisfied.

This ruling was an important victory for municipalities as well as lien holders, both in terms of collecting overdue taxes directly and, of course, in encouraging the purchase of tax liens. To quote the Court, it was “… consistent with the public policy of New Jersey to encourage and assist municipalities in the collection of delinquent taxes as expressed in the Tax Sale Law..."






Q I have heard that a recent United States Supreme Court case changes the notice required for tax foreclosure. Is this true?

A In Jones v. Flowers, 547 U.S. ______ (2006), an Arkansas case, the United States Supreme Court held that, when a mailed notice of a tax sale is returned unclaimed, a state cannot simply ignore that information in proceeding to take and sell the owner’s property. It is required to take additional reasonable steps to attempt to provide notice to the property owner before selling the property, if it is practicable to do so.

In this case, Jones, the property owner, separated from his wife and moved elsewhere in the same city. His wife continued to live in the home. When the taxes went into arrears, the taxing authority mailed Jones a certified letter (which required a signature) at his last known address as contained in the Commissioner’s records, the property’s address. This letter advised that unless the taxes were paid and the property redeemed, it would be subject to a tax sale in two years. That letter was returned marked “unclaimed.” Two years later, the Commissioner published a notice of public sale in a local newspaper, and a private sale was subsequently negotiated with the buyer, Flowers. Before the sale, the Commissioner mailed another certified letter to Jones at the property address, which was also returned unclaimed.

The Court found it was unreasonable of the Commissioner not to follow up and take other steps to notify Jones, but declined to specify the form of service or notice that would be adequate. The negligence of Jones in failing to provide an updated address to the taxing authority did not relieve the state of its constitutional obligation to provide adequate notice.

How does this affect tax foreclosure notice in New Jersey? New Jersey Court Rule 4:64-7(c) requires that service be made both by certified mail and by ordinary mail in these matters. However, if the response to the required notice indicates that the owner no longer lives there, the United States Supreme Court decision suggests that a New Jersey municipality would have to take a reasonable step further. For example, the court said that a notice could be posted on the front door or the mail could be readdressed to “occupant.” The court rejected the argument that the municipality would be required to locate the new address for the owner in the phone book. Therefore, attorneys representing municipalities in New Jersey in in rem foreclosures will have to do additional mailing or posting in order to meet the due process standard set forth in Jones

This column is for informational purposes only, and is not intended as legal advice.

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