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M.D. Sass Municipal Finance Partners II, L.P. v. Teitelbaum

A-2272-03T2 (N.J. Super. App. Div. 2005) (Unpublished)

TAX SALES; INTEREST — A municipality properly charges 8% interest on the first $1,500 of delinquent taxes in each tax year and not only on the first tax year of delinquency.

An owner appealed from a lower court’s setting a “redemption amount in [a] tax sale foreclosure.” The subject property was leased by a nursing home. It failed to pay taxes (and subsequent interest) on the property for one year, and this resulted in a tax sale. The owner claimed that she never knew of the nursing home’s default. A buyer “successfully bid upon and obtained a tax sale certificate on the property.” The sale was “subject to redemption on repayment of the amount of the sale ... together with interest ... and the costs incurred by the purchaser as defined by statute.” The buyer filed a foreclosure action two years later, and then submitted the tax sale certificate and “applied for an order of redemption.” The owner opposed the buyer’s application, “claiming that the redemption amount” was incorrect because it “included ‘interest on interest’; utilized ... an unauthorized interest rate; and included unauthorized penalties. Thereafter, the lower court fixed the redemption amount at that which was claimed by the purchaser. The owner subsequently appealed against that amount.

The Appellate Division found that the municipality had authorized “the imposition of penalties as permitted by” New Jersey statutes and thus “the redemption amount correctly include[d] a calculation of interest at 18% on that part of the delinquency that exceeded $1,500.” The Court additionally held that “the first $1,500 of the delinquency accrued no interest because” the tax sale certificate purchased by the purchaser “did not generate any interest when the redemption amount was determined.” Further, the Court held that “there is only one ‘first $1,500,’ with regard to any redemption amount;” thus, the owner’s “argument that the 8% rate should be applied to the first $1,500 of each tax year ... [was] simply wrong.” The “8% rate would apply only to the first $1,500 of the entire delinquency.”

Finally, the Court held that New Jersey law seeks “to insure the payment of taxes to the municipality, which can only be accomplished, when a taxpayer is delinquent, by making it worthwhile for another, such as [the purchaser] to pay the taxes through the purchase of a tax sale certificate.” Thus, the owner’s argument that “a penalty may be included in a redemption amount only when the tax sale certificate holder had actually paid a penalty” was without merit. The Court held that since the legislature, by adopting the principles set forth, “has provided an incentive for a tax sale certificate holder to pay the taxes due on ... property” the owner’s argument “a nonsensical and inaccurate reading of” the New Jersey statute pertaining to redemption penalties.

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