Bulletin: NJ2011002

Dear Associates: 

The state office has recently had an increased number of inquiries regarding insuring transactions where there has been a tax sale foreclosure. This bulletin serves as a reminder of Stewart’s requirements for insuring these transactions.

As you are aware unpaid taxes and municipal utility charges are a lien upon real property. If the taxes remain unpaid the municipality may sell a tax sale certificate to an investor to recover the unpaid taxes. The certificates may be sold to individual investors or to the municipality itself. Ultimately the certificates may be foreclosed. Unlike a mortgage foreclosure there is not typically a sheriff’s sale. It is the entry of the final judgment that will vest title in the foreclosing party. It should be noted that because of the summary nature of the proceeding federal liens will not be cut off absent a judicial sale.

Of particular concern when insuring transactions derived through a tax sale foreclosure is the property owner seeking to overturn the final judgment and redeem the certificate. Practitioners in this area will often refer to a three month right of redemption set forth by statute. However under NJ Court Rule 4:50-1 a party may seek to overturn the entry of a final judgment for up to a year. Because tax sale certificates are often purchased for a relatively small investment and the foreclosure action results in the property owner being divested of a highly valuable asset, courts have tended to be sympathetic to applications under this rule by foreclosed owners.

Accordingly, where less than 1 year has elapsed from the recording of the final judgment Stewart title will not insure title into a purchaser from the foreclosing entity or a subsequent resale.

If more than 1 year has elapsed from the recording of the final judgment, a chancery abstract must be reviewed to determine that all necessary procedures have been followed and that all parties being cut off have been given proper notice of the foreclosure.

Any open federal liens of record must be satisfied unless there has been a judicial sale and proper notice given.
 
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