NJ's Forfeiture Statute Is A Taking Of Surplus Home Equity

By noemailnoemail-org-robert-thomas-inversecondemn on January 10, 2025

If you thought the issue of whether it is a Fifth Amendment taking for a state or local government to “keep the change” after satisfying a tax debt was settled by the U.S. Supreme Court in Tyler v. Hennepin County, 598 U.S. 631 (2023), you’d be right.

Then what was there left for the New Jersey Supreme Court to decide in 257-261 20th Avenue Realty, LLC v. Roberto, No. A-29-23 (Jan. 9, 2025)? Some interesting stuff, it turns out.

And before you conclude that this is just piling-on, remember — they wanted this: after Tyler, instead of reading the U.S. Supreme Court’s decision and the writing on the wall, some state and local governments, unhappy with being cut off from a source of easy money, tried to figure ways to avoid or negate the rule that if there’s money left over after you satisfy a tax debt, you gotta give it back.

After a Jersey owner of a mixed-use property failed to pay $606 in sewer tax bills, the city placed liens on the property. Under the authority of a state statute (the Tax Sale Law), a a private firm purchased the tax sales certificates, after which it filed a tax foreclosure lawsuit. The owner tried to redeem by offering $9,000 but the court held the amount owed was $33 grand. The owner didn’t answer the complaint, didn’t redeem, and the court entered final judgment in favor of the private lienholder. Later, after the owner posted $50k in escrow, he asked the court to vacate the judgment, allow him to redeem, and to restore title. The court said yes.

During the pendency of the lienholder’s appeal, the U.S. Supreme Court issued Tyler, and the NJ appellate division affirmed the judgment in favor of the owner, rejecting the lienholder’s argument that Tyler only applied when governments take surplus home equity, and that the ruling was not retroactive. The NJ Supreme Court agreed to review the case, after which many many amici jumped in (our firm, which represented the property owner in Tyler, included).

First, the court noted that local government rely on real estate taxes as their primary source of revenue, and that the Tax Sale Law’s foreclosure procedure allows municipalities to “collect a stream of revenue when property owners do not pay their taxes.” Slip op. at 10. The tax foreclosure process has been around in some form in New Jersey for a while (1886). And the TSL permits local governments to sell the lien to private parties.

The court next acknowledged that may be so, but also noted Tyler held that a good reason for the taking doesn’t relieve the obligation to take only with compensation, and that a state’s property law only can go so far in defining what counts as “private property” under the Fifth Amendment. And “Tyler, of course, is binding precedent of the United States Supreme Court.” Slip op. at 22. Indeed, we’d have pretty much the same result even without Tyler, because “New Jersey, similarly, has long recognized a property right to surplus equity in different contexts.” Slip op. at 26. Thus, “[a]s in Minnesota, therefore, property owners in New Jersey have a recognized property right to surplus equity.” Slip op. at 27.

The big issue the court resolved was whether Tyler was limited only to government actors, and whether the plaintiff here — a private outfit that purchased the tax lien from the city under the TSL — was immune. The court held no, the private actor’s actions were fairly attributable to the state, and “the purpose, structure, and practical application of New Jersey’s TSL demonstrate that private lienholders who execute tax foreclosures may be considered state actors.” Slip op. at 28. Collecting taxes is a traditional public function as is seizing properties to satisfy a tax debt, and the lienholder here acted under the authority of the TSL, “working in tandem” with local government.

A final thought: maybe instead of resisting the vibe of Tyler, state and local governments should be working to meet their constitutional obligations instead of trying to craft ways to get around the Supreme Court’s rulings? The whole “turn square corners” thing doesn’t seem like it’s too much to ask, does it?