What Happens If I Don't Pay Property Taxes in New Jersey

People who own real property have to pay property taxes. The government uses the money that these taxes generate to pay for schools, public services, libraries, roads, parks, and the like. Typically, the tax amount is based on a property's assessed value. If you have a mortgage on your home, the loan servicer might collect money from you as part of the monthly mortgage payment to later pay the property taxes. The servicer pays the taxes on your behalf through an escrow account. But if the taxes aren't collected and paid through this kind of account, you must pay them directly.

When homeowners don't pay their property taxes, the overdue amount becomes a lien on the property. A lien effectively makes the property act as collateral for the debt. All states have laws that allow the local government to sell a home through a tax sale process to collect delinquent taxes. Accordingly, in New Jersey, once a tax lien is on your home, the collector (on behalf of the municipality) can then sell the property at a public auction, subject to your right of redemption (see below). (N.J. Stat. Ann. 54:5-31). After the sale, the purchaser receives what's called a "certificate of sale." (N.J. Stat. Ann. 54:5-46). (If no one buys the home at the sale, the municipality gets the certificate of sale.)

But the person or entity that gets the certificate of sale can't get ownership of your home right away; you'll get some time to get caught up on the overdue amounts before this happens. You'll most likely eventually lose the property permanently, though, if you don't pay off the debt during what's called a "redemption period" after the sale. If the owner doesn't pay up, the purchaser gets the right to foreclose to get title (ownership) of your home.

How the New Jersey Tax Certificate Process Works

At the public auction, the property is sold, subject to the right of redemption, to the person who offers the lowest interest rate on the tax debt, which can't exceed 18%. But if at the sale a person offers a rate of interest less than 1%, or at no interest, that person may, instead of an interest rate, offer a premium over the tax amount due, including assessments and charges, and the home is sold to the bidder who offers to pay the tax amount, plus the highest amount of premium. (N.J. Stat. Ann. § 54:5-32).

Notice of a Tax Certificate Sale in New Jersey

Before the sale takes place, the tax collector must generally provide you with notice by mail, publication, and posting.

• Notice by mail. The collector must mail you (the property owner) notice about the sale unless the collector doesn't have your current mailing address for some reason. (N.J. Stat. Ann. § 54:5-27).
• Notice by posting. The collector must post the notice in five public places in the municipality. (N.J. Stat. Ann. § 54:5-26).
• Notice by publication. The collector must also publish the notice in a newspaper once a week for four weeks or publish it for two weeks and mail you a notice by regular or certified mail. (N.J. Stat. Ann. § 54:5-26).

How to Stop a Tax Sale in New Jersey

At any time before the sale, the taxpayer may pay the amount due plus interest and costs and stop the sale. (N.J. Stat. Ann § 54:5-29).

The Purchaser (or Municipality) Must Foreclose Your Right of Redemption to Get Your Home

To get ownership of your home, the purchaser that bought the property, or the municipality if no one else bids, must foreclose your "right of redemption." The right of redemption is the right to pay off the debt and prevent the loss of the property.

How to Redeem Your Property

Many states give delinquent taxpayers the chance to pay off the amounts owed and keep the home. This process is called "redeeming" the property.

How the Right to Redeem Usually Works

In many states, the homeowner can redeem the home after a tax sale by paying the buyer from the tax sale the amount paid (or by paying the taxes owed), plus interest, within a limited amount of time. Exactly how long the redemption period lasts varies from state to state, but usually, the homeowner gets at least a year from the sale to redeem the property.

In other states, though, the redemption period happens before the sale.

Right to Redeem the Property In New Jersey

In New Jersey, unless the property is abandoned, the redemption period is usually at least:

• two years after the sale, if someone bought the certificate, or
• six months after the sale if the municipality got the certificate of sale. (N.J. Stat. Ann. § 54:5-86).

How the Lien Purchaser Gets Title to Your Home If You Don't Redeem

After the redemption period expires, the purchaser or municipality can begin a foreclosure by filing a complaint (a lawsuit) with the Superior Court. (N.J. Stat. Ann. § 54:5-86). The court will eventually enter a judgment, which eliminates the right to redeem. (N.J. Stat. Ann. § 54:5-86, § 54:5-87).

Does a Mortgage Survive a Tax Sale in New Jersey?

Property tax liens almost always have priority over other liens, including mortgage liens and deed of trust liens. (For purposes of this discussion, the terms "mortgage" and "deed of trust" are used interchangeably.) Because a property tax lien has priority, if you lose your home through a tax sale process, mortgages get wiped out. So, the loan servicer will usually advance money to pay delinquent property taxes to prevent this from happening. The servicer will then demand reimbursement from you (the borrower).

The terms of most mortgage contracts require the borrower to stay current on the property taxes. If you don't reimburse the servicer for the tax amount it paid, you'll be in default under the terms of the mortgage, and the servicer can foreclose on the home in the same manner as if you had fallen behind in monthly payments.

Your Servicer Might Set Up an Escrow Account

After demanding repayment of the amount it paid for the taxes, penalties, plus interest (and assuming you repay this tax debt), your servicer will probably set up an escrow account for the loan. Each month, you'll have to pay approximately one-twelfth of the estimated annual cost of property taxes—and perhaps other expenses, like insurance—along with your usual monthly payment of principal and interest. This money goes into the escrow account. The loan servicer then pays the cost of the taxes and other escrow items on your behalf through the escrow account.

The downside to having an escrow account is that you'll have to make a bigger payment to the servicer each month. On the positive side, having an escrow account saves you from having to come up with a large amount of money when tax bills, and perhaps other bills, are due.

Getting Help

If you're having trouble paying your property taxes, you might be able to reduce your tax bill or get extra time to pay. If you're already facing a property tax sale in New Jersey and have questions or need help redeeming your property, consider talking to a tax lawyer, or real estate lawyer.