In 20th Avenue Realty, LLC v. Alessandro Roberto (A-29-23/088959) (Decided January 9, 2025), the New Jersey Supreme Court ruled that the version of the Tax Sale Law (TSL) in effect prior to the law’s 2024 amendment violates the Takings Clause of the Fifth Amendment to the extent it allows for the forfeiture of surplus equity without just compensation.
Facts of 20th Avenue Realty, LLC v. Roberto
Defendant Alessandro Roberto bought a property in Paterson in 1997; in 2022, a realtor estimated the property could be listed for up to $535,000. Roberto failed to pay three sewer tax bills on the property totaling $606. The City of Paterson placed tax liens on the property for that amount, and plaintiff 257-261 20th Avenue Realty, LLC, bought the corresponding tax sale certificates at public auction. Years later, plaintiff filed a tax foreclosure complaint. The trial court set the amount of redemption at $32,973.15. Roberto did not answer the complaint or pay the redemption amount, and the court entered a judgment in plaintiff’s favor.
Within two months of the final judgment, Roberto moved to permit redemption under Rule 4:50-1, arguing that he had posted $50,000 in escrow to redeem the property; that he had invested about $200,000 in improvements to the property since its purchase; and that, at age seventy-five, the “[p]roperty was crucial to [his] retirement because it ha[d] over several hundred thousand dollars in equity” beyond the amount of past taxes owed. The trial court ultimately vacated the judgment under Rule 4:50-1(f), which allows for judgments to be set aside in exceptional circumstances. Plaintiff appealed. While the appeal was pending, the Supreme Court decided Tyler v. Hennepin County, 598 U.S. 631 (2023). In that case, the Court held that a homeowner — faced with forfeiture of the surplus equity in her home under Minnesota’s tax foreclosure law — had plausibly alleged a taking in violation of the Fifth Amendment. According to the Court, although “[t]he County had the power to sell Tyler’s home to recover the unpaid property taxes[,] . . . it could not . . . confiscate more property than was due.”
The Appellate Division concluded that the Supreme Court’s decision in Tyler provided cause to vacate judgment and affirmed. It also held that, under New Jersey precedent, Tyler should be given pipeline — not full — retroactivity, and it separately found that the trial court did not abuse its discretion in granting relief under Rule 4:50-1(f).
NJ Supreme Court Decision in 20th Avenue Realty, LLC v. Roberto
The New Jersey Supreme Court affirmed. It held that the applicable version of the TSL in this case is unconstitutional to the extent it allows for the forfeiture of surplus equity without just compensation.
In reaching its decision, the New Jersey Supreme Court found that New Jersey recognizes a property right to surplus equity in real property, and because private lienholders act jointly with local government under the TSL to perform a traditional public function — the collection of taxes —- they may be considered state actors. As Chief Justice Stuart Rabner explained:
We hold that the applicable version of the TSL in this case is unconstitutional to the extent it allows for the forfeiture of surplus equity without just compensation. Certain principles underlie that holding. We find that New Jersey recognizes a property right to surplus equity in real property. We also conclude that because private lienholders act jointly with local governments under the TSL to perform a traditional public function — the collection of taxes — they may be considered state actors. And we reject the argument that the surplus equity initially foreclosed in this case was not taken for a public use. Under settled law, it could not have been taken for a private use. Plus, takings under the TSL are not for private use; they are designed to raise revenue for municipalities to operate.
The New Jersey Supreme Court went on to hold that the version of the TSL in effect before 2024 runs counter to the principles outlined in Tyler and violates the Takings Clause of the Fifth Amendment.“Lienholders are entitled to recover debts they are owed — the value of tax sales certificates they purchased at public auction along with interest and related costs. But they are not entitled to surplus equity in property that exceeds that amount,” Chief Justice Rabner explained. The New Jersey Supreme Court did not address whether the new law fully comports with Tyler. “We asked for additional briefing on the new law and note that it has no effect on this appeal. For that reason, we do not reach Roberto’s argument that the revised law is still unconstitutional,” Rabner wrote.