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In Re Pryor

In Re Pryor, 366 N.J. Super. 545, 841 A.2d 943 (App. Div. 2004)

TAX LIENS; ESTATES; PRIORITY—Municipal tax liens, including those incorporated in tax sale certificates, have “first lien” status in the settlement of a decedent’s estate.

A homeowner was late paying the taxes on his home. An individual purchased the resulting tax sale certificate and paid the taxes for the year. The property was sold eight years later, with the holder of the tax sale certificate claiming that he had invested a large amount of money in the property, including several hundred dollars in taxes and water and sewer bills. At the time of the homeowner’s death, she was a ward of the Public Guardian. After her death, Medicaid submitted a notice of lien claim against the estate. There were other claims against the estate, including court-ordered fees to attorneys and bills owed to hospitals, a bank, and utility companies.

The administrator of the estate moved to declare the estate insolvent and to determine the priority of payments to the creditors. Upon finding the estate insolvent, the motion judge ordered the creditors to be paid according to N.J.S.A. 3B:22-2, which requires that if the assets of an estate are insufficient to pay back all claims in full, they should be made in the following order: 1) funeral expenses; 2) costs and expenses of administration; 3) debts and taxes; 4) medical and hospital expenses; 5) judgments against the decedent; and finally, 6) all other claims. No preference is given to the payment of any claim over another in its same class. Thus, the order directed that the various attorneys’ fees be paid first as an administrative cost. The lower court also found that the tax sale certificate was a lien against the property, rather than against the property owner, and that it was therefore not comparable to taxes.

On appeal, the municipality and the holder argued that the lower court erred in failing to give the municipal tax liens priority over all other liens pursuant to N.J.S.A. 54:5-6, 9, which state that “[t]axes on lands shall be a continuous lien on the land on which they are assessed and all subsequent taxes, interest, penalties and costs of collection which thereafter fall due or accrue shall be added to and be a part of such initial lien,” and that “[e]very municipal lien shall be a first lien on such land and paramount to all prior or subsequent alienations and descents of such land or encumbrances thereon, except subsequent municipal liens.” The Court agreed that it was well established that municipal tax liens attach to the land and not against the property owner, who does not have personal liability for property taxes. Taxes are assessed against the individual properties and, if unpaid, become liens against them. Collection can be enforced by the sale of a tax lien, giving the purchaser the same rights as a municipality to foreclose. The Court also held that municipal tax liens have a “super priority” over other liens, consistent with the public policy of the State to encourage and assist municipalities in the collection of delinquent taxes.

The municipality and the lien holder also argued that the lower court erred in ordering the sale of the real property and distribution of the proceeds without first ordering payment of the municipal tax liens. The Appellate Division agreed with them, holding that municipal liens must be paid before sale. Additionally, the Court agreed that the lower court exceeded its authority when it subordinated the tax sale certificate to other personal debts of the estate. It held that the holder was entitled to the sum paid for the certificate, plus interest, and added that there was no statutory provision for partial redemption, as had been ordered by the lower court.

In sum, the Court held that municipal tax liens, including those incorporated in tax sale certificates, had “first lien” status under N.J.S.A. 54:5-9, and were to be paid prior to any other claims against an estate.

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