A2878

An Act concerning electronic tax lien sales, supplementing P.L.2001, c.160 (C.54:5-19.1), and amending various parts of the statutory law.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. (New section) The Legislature finds and declares that:

a. Each of New Jersey’s 565 municipalities is required to conduct a sale at least once every year in an effort to recoup the value of liens filed for delinquent property taxes and for unpaid fees involving municipal services, such as water and sewer services and garbage collection.

b. Tax sales involve the auction of tax liens. Tax lien auctions have generated controversy in recent years because the interest rates associated with liens from unpaid residential taxes and municipal fees are sometimes exorbitant and unfairly burdensome. Moreover, electronic tax lien sales authorized under a 2001 pilot program have been criticized because they lack oversight, transparency, and accountability, and are therefore vulnerable to bid rigging and other forms of manipulation.

c. Concerns over improprieties in the administration of tax lien auctions—particularly with regard to electronic tax lien sales—prompted the State Commission of Investigation (“SCI”) to investigate the integrity of the process.

d. SCI’s investigation discovered that the Department of Community Affairs never publicly sought any applications, issued any requests for proposals, or sought any competitive bids, to select a vendor to conduct electronic tax lien sales. A lone vendor received State approval to conduct electronic tax lien sales, and the department’s rules allowed municipalities to contract with that vendor without being subject to the public bidding requirements of the “Local Public Contracts Law,” P.L.1971, c.198 (C.40A:11-1 et seq.). The department approved the vendor, its partner, and subcontractors, without checking the firms’ professional references and inquiring into the firms’ ownership structure.

e. Loose administration and oversight by the State, a lack of competition, and limited monitoring and control over the fees charged by the vendor, have left local governments vulnerable to unreasonable cost escalations and abuse.

f. SCI recommended significant reforms in order to ensure the integrity of the electronic tax lien sale system and to safeguard the best interests of the State, its local government units, and the taxpayers at large.

g. It is appropriate for the Legislature to adopt some of the recommended reforms proposed by SCI to bring about a high level of integrity for the electronic tax lien sale system.

2. (New section) a. Within 30 days of the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill), the Department of Community Affairs shall solicit proposals from nationally recognized electronic municipal tax lien services in order to create a list of qualified vendors from which municipalities may select a vendor to conduct electronic tax lien sales pursuant to section 1 of P.L.2001, c.160 (C.54:5-19.1). The department shall select at least five nationally recognized electronic municipal tax lien services to conduct electronic tax lien sales. The department may periodically solicit additional nationally recognized electronic municipal tax lien services to conduct electronic tax lien sales, in accordance with this section, as the department determines to be necessary or desirable.

b. The Department of Community Affairs shall solicit quotations from nationally recognized electronic municipal tax lien services in the following manner:

(1) A notice requesting quotations shall be published on the Internet website of the department. In its request for quotations, the department shall require vendors to demonstrate experience providing some form of tax lien-related services within New Jersey, and nationwide experience in the electronic publication of tax lien sale notices, electronic auctions, electronic payment for purchased liens, and digital signature validation. The request for quotations shall require that vendors demonstrate the ability to offer software for conducting electronic tax lien sales with the following functions:

(a) The ability for users to create a list of favorite properties subject to a tax lien sale on which they may want to bid;

(b) An interactive mapping tool for locating properties subject to a tax lien sale;

(c) A detailed listing for each property subject to a tax lien sale which shall include, but not be limited to, the street address of the property, the assessed value of the property, the property tax bill from the prior tax year to which the property was subject, and the use for which the property is zoned; and

(d) A method for users to bid by proxy through which a user can select a minimum interest rate that the user is willing to offer or maximum premium that the user is will to pay for multiple properties on which the user wants to bid.

Vendors shall have at least 20 days to respond to the department’s request.

(2) Each interested vendor shall submit a quotation, which shall include all the information required by the request for quotations. Failure to meet the requirements of the request may result in the department disqualifying the vendor from further consideration.

(3) Each interested vendor shall submit a statement of corporate ownership pursuant to section 1 of P.L.1977, c.33 (C.52:25-24.2) at the time specified by the department for the receipt of quotations. If the department selects a vendor, then that vendor shall continue to provide the department with updated corporate ownership statements for as long as the vendor remains on the department’s qualified list of vendors established pursuant to this section.

(4) The department shall evaluate all quotations in accordance with the methodology described in the request. After the department has evaluated all quotations, the department shall prepare a report evaluating and recommending a list of qualified vendors suitable to conduct electronic tax lien sales pursuant to section 1 of P.L.2001, c.160 (C.54:5-19.1) and capable of providing an application with the functions described in paragraph (1) of this subsection. The report shall list the names of all potential vendors with the requisite experience who submitted a quotation and shall summarize the quotation and corporate ownership of each vendor. The report shall rank vendors in order of evaluation, shall select all qualified vendors, and shall be clear in the reasons why the department selected the vendors. The report shall be made available to each municipality in the State and shall be published on the department’s Internet website.

c. (1) Within 60 days of the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill), the Director of the Division of Local Government Services in the department shall release a Local Finance Notice providing guidance to municipalities related to contracting with vendors to conduct electronic tax lien sales, including, but not limited to, suggested contract terms and durations, permissibility of assignment to another vendor, fees, indemnification, warranties, disclosure of any subcontractors, and language assuring that vendors and their principals do not participate as bidders in tax lien sales conducted by the vendor or any related entity.

(2) The director shall release, as the director deems appropriate, Local Finance Notices providing recommendations related to general bidding rules that should be enforced during actual electronic tax lien sales, including, but not limited to, protocols to ensure only legitimate bidders register; obtaining non-collusion affidavits that are consistent with federal and State antitrust laws; prohibitions against bidders actually or effectively bidding against themselves; and the actual operation of the sale, such as the process for selecting winners, sale duration, and whether bidding should be transparent or blind.

d. The department shall adopt additional rules and regulations, in accordance with the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), as may be necessary to effectuate the provisions of this section.

3. (New section) a. A municipality may, without advertising for bids, contract with a vendor selected and approved by the Department of Community Affairs pursuant to section 2 of P.L. , c. (C. ) (pending before the Legislature as this bill) to conduct electronic tax lien sales pursuant to section 1 of P.L.2001, c.160 (C.54:5-19.1).

b. A municipality shall receive a statement of corporate or partnership ownership pursuant to section 1 of P.L.1977, c.33 (C.52:25-24.2) for each of the vendor’s significant subcontractors. For the purpose of this subsection, “significant subcontractor” means an entity expected to receive 25 percent or more of estimated contract revenue.

4. (New section) Within 90 days of the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill), the Director of the Division of Local Government Services in the Department of Community Affairs, in consultation with the Director of the Division of Taxation in the Department of the Treasury, shall report to the Governor and the Legislature, pursuant to section 2 of P.L.1991, c.164 (C.52:14-19.1), on the efficacy of electronic tax lien sales. The report shall include an assessment of the pilot program established in subsection c. of section 1 of P.L.2001, c.160 (C.54:5-19.1), including an evaluation of the performance of any vendor receiving approval from the department to conduct electronic tax lien sales under the pilot program;

5. Section 1 of P.L.2001, c.160 (C.54:5-19.1) is amended to read as follows:

1. a. Any provision of law to the contrary notwithstanding, a municipality may satisfy requirements of the "tax sale law," R.S.54:5-1 et seq., electronically through the use of any nationally recognized electronic municipal tax lien service, including, but not limited to, electronic publication of tax lien sale notices, electronic auctions, electronic payment for purchased liens, digital signature validation, or any other matters necessary for the conduct of electronic tax lien sales in accordance with rules, regulations and procedures promulgated by the Director of the Division of Local Government Services in the Department of Community Affairs in accordance with the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.).

b. Any tax sale notices required to be sent to a property owner or lienholder shall continue to be made by mail pursuant to the "tax sale law," R.S.54:5-1 et seq.

c. [The director may authorize "electronic tax lien sale" pilot programs on a case-by-case basis upon application of individual municipalities prior to the director's promulgation of rules,

regulations and procedures pursuant to subsection a. of this section.] (Deleted by amendment, P.L. , c. (C. ) (pending before the Legislature as this bill)

(cf: P.L.2001, c.160, s.1)

6. R.S.54:5-25 is amended to read as follows:

54:5-25. a. After completing the list or sections thereof the collector shall give public notice of the time and [place] physical or electronic location of sale, stating the description of the several lots and parcels of land and the owner's name as contained in the list, together with the total amount due thereon respectively as computed to the date of tax sale and stating in substance that the respective lands will be sold to make the amounts severally chargeable against them on said date as computed in the list, together with interest to the date of sale, and the costs of sale. [No other statements need be included in the notice] The notice shall be provided with a description of how the owner can pay off the tax lien and a clear disclosure of the consequences of the tax lien sale, including any delinquency interest or other fees the owner may incur.

b. After completing a sale, the lien holder shall notify the owner that a lien on the owner’s property has been sold. The notice shall be provided with a description of how the owner can pay off the tax lien and a clear disclosure of the consequences of the tax lien sale, including any delinquency interest or other fees the owner may incur. The Department of Community Affairs shall create a standard notice form for lien holders to use in notifying an owner that a lien on the owner’s property has been sold.

(cf: P.L.1991, c.75, s.45)

7. R.S.54:5-27 is amended to read as follows:

54:5-27. When the owner's name appears in the list and his post-office address is known, the collector shall mail to him at that address, postage prepaid, a copy of the notice. The notice shall be provided with a description of how the owner can pay off the tax lien and a clear disclosure of the consequences of the tax lien sale, including any delinquency interest or other fees the owner may incur. Failure to mail the notice shall not invalidate any proceeding hereunder.

(cf: R.S.54:5-27)

8. R.S.54:5-28 is amended to read as follows:

54:5-28. At the time and [place] physical or electronic location fixed for the sale and from time to time thereafter the collector may adjourn the sale in his discretion, either for want of bidders or at the request of persons interested, or for any other reason satisfactory to him, from day to day or from week to week, on making public announcement thereof, and noting the adjournment on the list. Adjournments shall not be made for more than eight weeks in all, after which new public notice shall be given as hereinbefore provided if further sale is to be made.

(cf: R.S.54:5-28)

9. Section 1 of P.L.1962, c.161 (C.54:5-30.1) is amended to read as follows:

1. Whenever the governing body of a municipality shall by resolution determine that a particular parcel or parcels of real estate, scheduled to be sold at public auction pursuant to the tax sale law, would be useful for a public purpose, it may authorize and direct a municipal official to attend the auction or participate electronically, as applicable, and bid for such parcel or parcels at such sale on behalf of the municipality in the same manner as any other bidder.

(cf: P.L.1962, c.161, s.1)

10. R.S.54:5-31 is amended to read as follows:

54:5-31. At the time and [place] physical or electronic location specified in the notice of sale, or adjournment, the collector shall sell at public auction each parcel of real property which has been so advertised, upon which the municipal liens remain unpaid, unless an error is found requiring readvertisement. The sale shall be made for the amount for which the parcel was advertised, unless that amount is found to be in excess of the correct amount, and then for the correct amount together with the interest thereon unless such interest has already been included in the notice of sale and the costs of sale.

(cf: P.L.1991, c.75, s.46)

11. R.S.54:5-90 is amended to read as follows:

54:5-90. Where judgment is taken against unknown owners or claimants as provided by Rules of the Supreme Court, their equity of redemption shall be foreclosed and barred without further publication upon their failure to redeem the lands affected by the action, but notice of the date limited for redemption, the place to redeem and the amount necessary to redeem shall be posted upon the lands at least twenty days before the date so fixed. The notice shall be provided with a description of how the owner can pay off the amount necessary to redeem and a clear disclosure of the consequences of the judgment that will be entered against the owner, including any fees the owner may incur. No such judgment, after it has been entered for more than five years, shall be attacked on the ground of insufficient inquiry for the identity, name or address of any defendant, his heirs, assigns or personal representatives, even though the same might have been ascertained by such inquiry.

(cf: P.L.1953, c.51, s.43)

12. This act shall take effect immediately.

STATEMENT

This bill is in response to an investigative report issued by the State Commission of Investigation (“SCI”), dated June 30, 2015, concerning questionable contracting in electronic tax lien sales. Concerns over improprieties in the administration of tax lien auctions—particularly with regard to electronic tax lien sales—prompted SCI to investigate the integrity of the process.

This bill would implement some of SCI’s recommendations in order to reform the electronic tax lien sale system. Under the bill, the Department of Community Affairs (“DCA”) would evaluate and select vendors to conduct electronic tax lien sales. The bill requires DCA to publish on its website a request for quotations from nationally recognized electronic municipal tax lien services. The request for quotations will require that vendors demonstrate the ability to offer software for conducting electronic tax lien sales with the following functions:

· The ability for users to create a list of favorite properties subject to a tax lien sale on which they may want to bid;

· An interactive mapping tool for locating properties subject to a tax lien sale;

· A detailed listing for each property subject to a tax lien sale which shall include, but not be limited to, the street address of the property, the assessed value of the property, the property tax bill from the prior tax year to which the property was subject, and the use for which the property is zoned; and

· A method for users to bid by proxy through which a user can select a minimum interest rate or maximum premium for multiple properties on which the user wants to bid.

Vendors seeking selection would be required to disclose their corporate or other ownership and to submit other information required by DCA. After evaluating the quotations submitted by interested vendors, DCA would create a list of at least five qualified vendors from which municipalities may select a vendor to conduct electronic tax lien sales.

Under the bill, a municipality may, without advertising for bids, contract with a vendor selected and approved by the Department of Community Affairs pursuant to this bill to conduct electronic tax lien sales. To contract with a municipality, a vendor must provide the municipality with a corporate disclosure form for its significant subcontractors. The bill defines “significant subcontractor” as any entity expected to receive 25 percent or more of estimated contract revenue.

The bill also requires the Director of the Division of Local Government Services in the Department of Community Affairs, in consultation with the Director of the Division of Taxation in the Department of the Treasury to report to the Governor and the Legislature, within 90 days of the effective date, on the efficacy of electronic tax lien sales. The report must include an assessment of the pilot program established in P.L.2001, c.160 (C.54:5-19.1), including an evaluation of the performance of the vendor receiving approval from the department to conduct electronic tax lien sales under the pilot program;

The bill amends the notice requirements concerning tax lien sales. At each stage of the tax lien process, the owner of the property subject to the lien must receive a notice that includes a description of how the owner can pay off any outstanding debt and a clear disclosure of the consequences of the tax lien sale. The bill also requires lien holders, after the completion of a tax lien sale, to notify the property owner that the lien on the owner’s property has been sold. The notice would be provided with a description of how the owner can pay off any outstanding debt and a clear disclosure of the consequences of the tax lien sale, including any delinquency interest or other fees the owner may incur.

Lastly, the bill facilitates the establishment of electronic tax lien sales by eliminating the pilot program status of such sales, as recommended by the SCI report.