A new legislative proposal in New Jersey could eliminate?the tax lien investors from the tax sale process.
There is a legislative proposal in the New Jersey State Legislature that would end tax lien investing in the state as we know it. The proposed legislation would give municipalities the option to do away with tax lien sales and take over the tax lien. In addition to taking over the lien they would also foreclose the property and own it if the lien is not redeemed within the 2 year redemption period. With this system the municipality would fund tax receivables with a short-term bond or note.
Tax Lien Lady’s Comments On The Proposed Legislation:
Although this is alarming to the tax lien investor because it would do away with tax sales in New Jersey, I think that it would also be bad for New Jersey homeowners and taxing district in New Jersey as well. It would be bad for property owners because without the interest rate being bid down at the tax sale, they will always have to pay the maximum interest rate on their delinquent taxes (18%).? And it is not so good for the municipality because I believe it will take them longer to get the delinquent tax money needed to make their budget.
If this legislation is passed, it does not mean that each municipality has to do away with tax sales. It simply gives them the option to do so. I am hoping that the bill does not pass because I don’t see the benefit here to anyone. If it does pass I hope that most municipalities in New Jersey see the folly of doing away with the tax lien auctions, and do not adapt it, but keep things as they are.
There is one very big problem I see with this legislation. If a municipality has a lot of unsellable property that is delinquent and they take the liens to these properties, selling a bond??to pay the delinquent taxes on these properties, and they eventually foreclose the liens and take possession of the properties.???Who will pay the?interest and the principal on that bond? Where will the money come from?
I am not an attorney nor am I a financial expert, but does anyone else see a problem with this? Most states either sell the tax lien or the tax deed to get the money from their delinquent tax roll. Is anyone familiar with a state that does not do this – that takes over the properties and then either keeps them or resells them? And how is that working?
By Jason July 11, 2011 - 5:56 pm
Yes California is a Tax Deed state that takes possession of the property after five years of delinquent taxes. So imagine what would be owed after five years of non payment with penalties can easily reach into the tens of thousands of dollars. Then the state auctions off the property to the highest bidder usually starting around the 90% mark of full market value.
By Joanne July 12, 2011 - 9:59 am
Hi Jason
California actually sell properties in a deed sale once they are 3 years delinquent. It may take 5 years by the time the property is actually in the tax sale, but they are allowed to sell the property after the taxes are unpaid for 3 years not 5. Also they do not take the property and then sell it. Also even though properties might sell at 90% of market value, most counties do start the bidding at what’s owed for back taxes and penalties. You may be confusing the tax sale with a sheriff’s sale.
They sell the property in a deed sale, so this is different than what NJ is proposing. The only state that I can think of that does this is Massachusetts, they take over the property and then sell it in what is known as a “taking” sale.
By Peter July 11, 2011 - 5:48 pm
The other big problem with the securitization / bond offering is the issuing municipality doesn’t receive the full amount of the taxes owed.
New York City does a tax lien securitization – and the NYCTL 2010-A Trust issued in July 2010 netted New York City $73.43 mm for $110.98mm in delinquent taxes.
The City doesn’t receive the full amount like NJ municipalities do so that the issued bonds have a AAA rating.
The bond issuers (in this case, JP Morgan) makes money.
The bond servicers – MTAG Services and Xspand (part of JP Morgan) makes money.
The bond trustees, issuing special entity managers, collateral agents and custodians, etc. all make money.
It is New York City that pays for all of this.
The same thing is going to happen in New Jersey. Instead of the individual investors profiting from doing due diligence and putting their money at risk, the companies running the bonding will make money – while the current batch of investors are excluded and the NJ municipalities receive less back compared to the sales.
By Joanne July 11, 2011 - 5:55 pm
Thanks Peter,
Thanks for the information. My hope is that if it is passed, the municipalities will keep the “status quo” and not make use of it. The bill would give them the option to take over the liens instead of selling them in a tax sale, but they don’t have to do that. I’m hoping that the townships will see that the best way to get the delinquent tax money is to continue to have their tax sale. This legislation does nothing to help the homeowner, or the municipality, and does harm to the investor.
By Greg July 9, 2011 - 2:26 pm
>Is anyone familiar with a state that does not do this ? that
>takes over the properties and then either keeps them or
>resells them?
Alaska perhaps?
It sounds like the municipalities hold the certs and then foreclose to get a deed which they can dispose of as they please.
http://www.professorprofits.com/states/state.php?name=Alaska
I can’t say for certain but I suspect that states/counties
will make more money if they take title to properties and then
sell them in an orderly manner that includes features like
ability to list properties with a realtor, access to the properties
for potential buyers, etc… So I’m not convinced that this
is bad for counties. A counter argument that some use is that
counties face much more political backlash when they do things
like foreclose on properties for back taxes then do private entities
and so they may choose to not foreclose or to be unreasonably lenient
(leading to less property tax revenue, unproductive properties, blight, people intentionally choosing to not pay their taxes when they have the means to, etc…) So perhaps the investor’s service to the county is really to be the ‘bad guy’ who initiates the foreclosure in a way that causes it to actually occur and with minimal political backlash.