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Attention Tax Foreclosure Investors: Understanding the Impact of Recent Supreme Court Rulings

Updated: Mar 29



If you're involved in tax foreclosures or considering purchasing a property with a tax foreclosure in its history, it's crucial to grasp the implications of a significant legal development: the Supreme Court's ruling in the Tyler Case.


In May 2023, the Supreme Court delivered a landmark decision in Tyler v. Hennepin County, 598 U.S. 631 (2023). Essentially, the Court determined that holders of tax sale certificates are not entitled to any surplus equity remaining after satisfying the tax debt through foreclosure. This ruling, applicable to both in personam and in rem proceedings, stemmed from a case where Hennepin County, Minnesota sold a property belonging to Ms. Tyler for $40,000 to settle a $15,000 tax bill, but retained the excess $25,000. Ms. Tyler contested this as an unjust taking of property without compensation, a stance upheld by the Supreme Court.


New Jersey, with a tax sale foreclosure procedure akin to Minnesota's, is similarly affected. Building upon the Tyler decision, a recent New Jersey case, 257-261 20th Avenue Realty, LLC v. Roberto 2023 (App. Div. 2023), echoed the Supreme Court's stance. The NJ Appellate Court ruled that seizing excess equity is unconstitutional and declared the Tyler decision to have "pipeline retroactivity," applicable to ongoing cases at the time of its issuance. Moreover, the court addressed the potential application of New Jersey Court Rule 4:50-1(f), asserting that the unjust seizure of equity constitutes an abuse of discretion, with implications possibly extending indefinitely.


In response to these legal developments, several bills have been introduced in both the NJ Senate and Assembly aiming to protect property owners' surplus equity post-tax sale foreclosure. However, as of now, none of these bills have passed either legislative chamber.


While the possibility of an appeal to the New Jersey Supreme Court lingers, the implications of these rulings are clear: tax foreclosure investors and property purchasers must navigate a shifting legal landscape, cognizant of their rights and obligations under the law. Stay informed and prepared for potential legislative changes as this issue continues to unfold.


As Title Insurers contend with these legal developments, the following exception to the title insurance policy will be added for both a lender's and owner's title insurance policy.


Consequences of the exercise of the right of redemption for a period of three months from the recording of the final judgment in the office of the county recording officer, pursuant to N.J.S.A. 54:5-104.67, or reopening or vacating of the final judgment pursuant to N.J. Ct. R. 4:50.


Please note that this is a change from historical underwriting practices that only excepted for a reopening or vacating of the final judgment pursuant to Rule 4:50 for only one year.

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