Vacant and Abandoned Properties: Addressing Blight in New Jersey Cities through Special Tax Sales
Thursday, June 20, 2019
Posted by: Carly Cahur
By: Robert Keyser, NTLA President; Partner, Taylor & Keyser
New Jersey municipalities have an issue with properties that are not being maintained by their owners. These properties, referred to as “vacant and abandoned” under New Jersey Statutes and local ordinances, create significant problems. First, they are an eyesore, reducing the desirability and value of neighboring properties. They can be a haven for illegal activities, and a breeding ground for all manner of vermin. Lastly, these properties produce no tax revenue. The sum of accrued taxes may even equal or exceed the market value of the property.
Faced with this issue, several years ago the State passed enabling legislation, permitting the municipalities to adopt local ordinances to address vacant and abandoned properties, using the tax lien sale process. These sales are referred to as “special tax sales”—special because the process differs significantly from the normal sale of tax liens. In a “normal sale,” where a municipality sells its tax liens at open auction, the bidding involves an interest rate “bid-down,” starting at 18%, and going as low as 0%. Once the rate is at zero, the bids turn to premiums paid above the face amount of the certificate, with the highest premium bidder acquiring the certificate at zero percent. The amount of the outstanding taxes, water, sewer, and other municipal charges must be paid by the bidder.
Special tax sales are a whole different animal. After several statutorily required notices to owners and other interested parties, a property is put on the “abandoned property list” by the construction official or other municipal authority. The test for “abandoned” is non-payment of taxes for at least two quarters, plus any number of other indicators that the property is not being maintained. These may be exterior maintenance issues, including structure. It may also be the lack of active utilities to the property.
Once on the list, ordinances adopted in Paterson, Elizabeth and Irvington (and perhaps more) permit the scheduling of a special sale of the tax liens on the property. An auctioneer is appointed, the list published and advertised extensively, and on a date completely unrelated to the normal tax lien sale, these certificates are exposed to auction sale. The owners of the properties are notified of the process, and again given the opportunity to redeem the liens, and have the property removed from the list—provided that they establish with the City the economic ability to rehabilitate the property, and post a bond or other form of security for the cost of rehabilitation, along with plan for the rehabilitation. There is no automatic right of an owner to redeem the lien without the financial commitment to correct the problems and restore the property.
Rather than an interest bid down, pre-qualified bidders bid up the amount that they will pay for the lien. This may be more or less than the outstanding taxes. The certificate is awarded to the highest bidder.
The successful bidder enters into an agreement with the municipality that requires immediate foreclosure, using a special, expedited procedure, followed by the rehabilitation of the property. There is no two-year redemption period, as there is with New Jersey tax sale certificates acquired at a normal sale.
These special sales have been extremely well attended, and the bidding has been spirited. The auction bids have produced considerable revenue to the municipality. The purchasers of the certificates have been rehabbing the properties, returning them to the market. Those lien purchasers and their buyers have paying the taxes on properties that had previously not been generated tax revenue. Lastly, the noticing of the abandoned property tax sales to property owners has motivated a number of those owners to return to their properties, pay the taxes, and enter into rehabilitation agreements.
Vacant and abandoned properties have been a scourge of some of New Jersey’s municipalities. With the aid of creative legislation, the tax sale process, and local entrepreneurs, this blight is beginning to be addressed, to the benefit of those municipalities and their residents.