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Tax Lien Sales Prevent Tax Delinquencies from Spreading

Tax Lien Sales Prevent Tax Delinquencies from Spreading

December 20, 2023

 Referencing New Jersey Bills: S4142, S4048 & A5542

Jupiter, FL – For most people, the month of December is a time to shop and prepare for the holidays. But for many tax collectors, December means tax lien sales. Throughout the State of New Jersey, many municipalities sell their uncollected real estate taxes in the form of liens to third party investors. This process supports municipal budgets and prevents the service cuts and tax increases that would result from an inability to collect all taxes owed.

This process is currently under fire, however, due to some people’s expansive take on a Supreme Court case decided earlier in the year. That case, Tyler v. Hennepin County, declared it unconstitutional for a government to retain funds in excess of what they are owed following a tax lien foreclosure. The Justices determined that, in doing so, governments violate the 5th Amendment of the Constitution which bars the government from taking private property “for public use without just compensation.”

In their decision, which was specific to government tax lien foreclosures and did not address third party tax lien foreclosures, the Supreme Court upheld prior rulings that allowed for governments to retain surplus equity so long as the former owner is given an opportunity to claim it.

Despite this narrow ruling, some anti-tax organizations are pushing for an end to tax lien foreclosures as we know them, effectively pushing the burden of unpaid taxes onto the backs of those who already pay their fair share.

The Tyler decision does not mandate public auctions for every foreclosed property nor does it reference third party tax lien investors. Instead, it asserts that, where surplus exists, the government cannot keep it without granting the former owner a means to access it.

This is consistent with prior court rulings that “the meaning of the Constitution should not turn on the antics of tax evaders and scofflaws” and that “the self-created conundrum” of the former owner is not grounds for “imposing additional constitutional obligations on the State.”

The National Tax Lien Association urges immediate compliance with the Tyler ruling but urges caution about going too far. A competitive tax lien marketplace benefits taxpayers in New Jersey by reducing the rate of interest they pay on their unpaid taxes while preventing the impact of tax delinquency from spreading. Without a competitive tax lien marketplace, tax collection rates will fall and that will create budget holes that can only be made up through service cuts and tax increases.

Additional Info

Source : National Tax Lien Association

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