In New Jersey, unpaid property taxes become a lien (a legal claim for unpaid debt) against the property at 18% interest. If the property owner does not repay (redeem) the missed property taxes, the township can auction the lien. An investor or the township can bid for the lien at the auction. The lien purchaser becomes the lienholder. If the property owner does not do anything, the lienholder can eventually take ownership of the home and the full home value.

Many properties that go through property tax foreclosure are worth hundreds of thousands more than the tax debt. A home could be worth $200,000 and go into property tax foreclosure for $1,000 in tax debt. In 2023, the New York Times wrote an article about an Essex County property worth $750,000 that went through property tax foreclosure for $110,000 in debt. If the property owner does not take action, they can lose the entire surplus value of the property above the tax debt – under New Jersey law it all goes to the lienholder, even though they did not have a lien for the full value.

• If the township is the lienholder, a foreclosure lawsuit can be filed after 6 months.
• If an investor is the lienholder, a foreclosure lawsuit can be filed after 2 years (possibly sooner).

The foreclosure lawsuit process allows the lienholder to seek a court final judgment that transfers property ownership from the original owner to the lienholder. The foreclosure lawsuit is not a lawsuit against you for money. In most cases, after final judgment enters, the lienholder gets full ownership of the property and all of the home value.

Example - The home is worth $200,000 and the tax lien is $1,000. The lienholder can foreclose on the $1,000 tax lien debt and ask the court for a final judgment. When final judgment enters, the lienholder gets ownership of the home and gets the entire $200,000 home value. Under current New Jersey law, after final judgment the lienholder does not have to pay any money back to the original owner – the lienholder keeps the extra $199,000 in surplus home value. 

Property owners can prevent property tax foreclosure – it is important for property owners to know their rights and understand the legal process.

(1) The Process Before a Foreclosure Lawsuit is Filed

Know Your Rights: Before a foreclosure lawsuit is filed, owners have the right to repay the missed payments directly to the township tax collector. The owner usually must also pay interest on the tax debt. The repayment (redemption) will cancel the tax lien.

Owners are not required to request a sheriff’s sale in order to prevent foreclosure. Please read the section called “(3) Property Owner Rights” further below.

Step 1: Property owner falls behind on property tax payments.

If you miss property tax payments – including water and sewer tax payments – this becomes a lien against the property with interest.

Step 2: Township auctions the tax debt.

If the property taxes are not repaid, the township will auction the unpaid tax lien to a bidder. The auction usually occurs in the fall or the winter of the same calendar year. An investor can buy the lien, and in some cases they will pay extra money (a premium) to buy the lien. If an investor does not buy the lien, then the township may buy the lien. The township does not send any specific notice to the owners that a lienholder purchased the lien.

Step 3: The lienholder might send a Notice of Intention to Foreclose.

Sometimes, a lienholder send the owners a Notice of Intention to Foreclose at least 30 days before filing the foreclosure lawsuit. The notice informs owners of the amount due to redeem the tax lien. The notice may also inform owners that they can request a sheriff’s sale.

(2) The Process After a Foreclosure Lawsuit is Filed

Know Your Rights: After a foreclosure lawsuit is filed, owners may still have the right to repay the missed payments directly to the township tax collector and stop the foreclosure.

Owners are not required to request a sheriff’s sale in order to prevent foreclosure. Please read the section called “(3) Property Owner Rights” further below.

Step 1: Plaintiff files a foreclosure Complaint.

The legal foreclosure process formally begins when the Plaintiff (lienholder) files a foreclosure Complaint against you - the Defendant (property owner, owner’s heirs, or judgment creditors) – in court.

The foreclosure is not a lawsuit against you for money. The foreclosure Complaint allows the Plaintiff to ask the court for title to your home (through final judgment) in order to repay the lien with interest and lawful fees.

The Complaint lists all of the facts that give the Plaintiff the legal right to foreclose.

Step 2: Plaintiff serves you with a Summons and Complaint.

Usually the Plaintiff must attempt to hand-deliver (“personally serve”) you with a copy of the Summons and Complaint.

If the Plaintiff is unable to “personally serve” you or other Defendants, they can serve through regular and certified mail.

If the mail is returned or the Plaintiff cannot find a good address for you or other Defendants, it will ask the court for permission to serve by publication in a newspaper. If this happens, you may not receive important legal notices by mail. Instead, the notices will only be published in the newspaper.

Step 3: You May File an Answer. Your Rights at this Stage Should be Reviewed with an Attorney.

Your rights at this stage will vary depending on what type of foreclosure complaint was filed against you, and what your relationship is to the property.

If you cannot afford to hire an attorney, call Legal Services of New Jersey’s toll-free statewide Hotline at 888-LSNJ-LAW (888-576-5529). You may be eligible for free legal assistance.

• If the Plaintiff is a township, usually the case is “in rem” and you have the right to file an answer within 45 days of service. If you do not file an Answer or do anything within 45 days, the township can obtain final judgment soon after.
• If the Plaintiff is an investor, usually the case is “in personam” and you have the right to file an answer within 35 days of service. If you do not file an Answer or do anything within 35 days, in most cases the investor must file at least two more legal motions in the case before it can get a final judgment.
  
  In some cases, the Plaintiff is an investor and files an “in rem” case that may require you to take action very quickly in order to prevent final judgment from entering.

Legal defenses could prevent the foreclosure from going through to final judgment. Please speak with an attorney to find out what legal defenses and options may be available for you.

(3) Property Owner Rights

If you are a homeowner who is behind on property taxes, you have rights! You can potentially save the home from foreclosure, or at least recover the home value that exceeds the tax debt.

If the court HAS NOT entered a final judgment of foreclosure, you can:

• Redeem (repay) the tax debt plus interest and lawful fees in one of the following ways.
• Apply for a grant. Funds may be available through NJ ERMA (www.njerma.com).
• Apply for a regular bank loan – mortgage or line of credit. Be sure to work with a trusted lending institution. There are scam lenders who target people who are in foreclosure and try to steal their homes or their home equity value.
• Use savings, or ask for financial help from family and friends.
• Repay the tax arrears debt over 5 years in Chapter 13 bankruptcy.
• If you can’t afford to repay the tax debt, you can list the property for sale through a realtor to maximize the amount of home value you can recover. You should speak with an attorney to make sure that the Court is notified of the private sale and that there are no objections to the sale.
  
  
• Request a sheriff’s sale so that your property goes to an auction – but this will not guarantee your ability to recover the full home value. Please speak with an attorney.

If the court HAS entered a final judgment of foreclosure, you can:

• Speak to an attorney as soon as possible.
  
  You may have a right to demand that the Plaintiff repay you for any taken home equity value above the tax debt. Also, you may have a right to ask the court to “cancel” the final judgment and recover ownership of the property.

This information last reviewed: Oct 3, 2024