SENATE COMMUNITY AFFAIRS COMMITTEE

STATEMENT TO

SENATE COMMITTEE SUBSTITUTE FOR

SENATE, No. 1091

STATE OF NEW JERSEY

DATED: JUNE 24, 1996

      The Senate Community Affairs Committee reports without recommendation a Senate Committee Substitute for Senate, No. 1091.

      Senate Committee Substitute for Senate, No. 1091 is intended to give municipalities a great deal of flexibility in dealing with their reserves for uncollected taxes.

      Specifically, section 1 of the committee substitute would amend R.S.54:4-65 to require that notice be given to property taxpayers, on or with the tax bill, whenever a municipality changes its delinquent interest rate or the end of the year penalty for nonpayment of taxes. Current law does not require that such notice be given. Sections 2 and 3 would amend the law to establish that the property owner always has priority to pay the taxes owed on a property up to and including the payment date for each quarter when third party tax liens exist against the property. These amendments are intended to clarify that a tax collector is required to accept payment from the property owner, if payment is tendered up to and including the payment date for each quarter, when both the property owner and the holder of a tax sale certificate both attempt to pay quarterly taxes due.

      Section 4 would amend R.S.54:4-67 to permit a municipality to establish either a single delinquency interest rate or a two-tier rate, as current law permits. This section would require that in any year when the governing body changes the delinquency interest rate or the end of the year penalty, notice would have to be provided either with the tax bill or before the date taxes are next due. The section states that the purchaser of a total property tax levy would be entitled only to the rate of interest charged by the municipality for delinquencies and that a taxpayer's delinquency would remain, notwithstanding the payment of delinquent tax by the levy purchaser. Furthermore, the purchaser of a total property tax levy would not be entitled to collect an amount greater than that which is paid to the tax collector and could not collect delinquent interest collected by the tax collector prior to the time that the total property tax levy purchaser makes the levy payment to the municipality.

      Section 5 of the committee substitute would amend R.S.54:5-19 to permit tax lien sales to occur after the eleventh day of the eleventh month of the fiscal year of the municipality. Currently, tax lien sales may not be held before April 1 of the fiscal year next following the fiscal year when the taxes became in arrears. This provision would permit municipalities to realize funds from a tax lien sale in the year in which the taxes are due, rather than having to wait until April 1 or October 1 of the following fiscal year.

      Section 6 of the substitute would amend R.S.54:5-26 to provide that copies of the notice of tax sale must be set up in five of the most public places in the municipality and that a copy of the notice must be published in a newspaper circulating in the municipality once a week for the four weeks prior to the day of the sale; however, in lieu of two of the publications, the property owner may be provided notice by mail.

      Section 7 of the substitute would amend R.S.54:5-49 to provide a mechanism for the issuance of tax sale certificates for properties in bankruptcy to a levy purchaser. Under this provision, no certificate would be issued until the conclusion of the bankruptcy proceedings or as otherwise directed by the bankruptcy court.

      Section 8 of the substitute would amend section 1 of P.L.1990, c.90 (C.54:5-52.1) to provide a mechanism for the duplication of a tax title certificate that has been lost or destroyed after issuance by the municipality.

      Section 9 would amend R.S.54:5-58 to specify how interest is calculated on the amount required for redemption of a tax sale certificate.

      Section 10 would amend R.S.54:5-60 to clarify what is included in the amount required for redemption of a tax sale certificate that a municipality does not hold.

      Sections 11 and 12 would set forth the actual means by which a municipality may reduce its reserve for uncollected taxes when it sells its total property tax levy. The anticipated proceeds from a sale concluded in the final month of the fiscal year would be treated as receipts from delinquent taxes.

      Section 13 would require the certified financial officer or registered municipal accountant of the municipality to provide the governing body with a fiscal analysis of a proposed tax levy sale, showing, among other things, the effect on the reserve for uncollected taxes in the current and subsequent fiscal year. This report would be a public record. This section would permit the Director of the Division of Local Government Services in the Department of Community Affairs to promulgate a standard form for this report.

      Section 14 of the committee substitute states that a taxpayer would remain delinquent if he or she did not pay the taxes when due, despite the sale of the total property tax levy and the payment of any taxes, assessments, or charges by the levy purchaser.

      Section 15 contains the operative language that would permit a municipality to sell its total property tax levy at public sale to the highest responsible bidder. The substitute would require that a municipality advertised notice of the sale at least fourteen days before the date of the public sale. The section also would provide that the sale may be concluded in the final month of the fiscal year.

      Section 16 of the substitute contains the minimum terms and conditions that would be required to be stated in a contract for the sale of the total property tax levy. Subsection a. of that section would require the municipality to set a minimum bid, a premium to be paid upon award of the levy purchase contract. The premium would be a dollar amount that would be computed by multiplying the amount of the budgeted revenue "interest and cost on taxes" as actually collected in the last full fiscal year preceding the first year of a tax levy sale times 75%; however premiums may be bid in excess of the required minimum calculation. Additionally, the successful tax levy purchaser would be required to pay the municipality an administrative service fee equal to the number of tax line items certified on the delinquency list divided by the total number of tax line items stated in the last extended duplicate, multiplied by the amount budgeted for the tax collection department, and then multiplied by 15%.

      Subsection b. of section 16 of the substitute would require a successful bidder to provide an irrevocable letter of credit or bond to the municipality before the sale becoming effective. The amount of the letter of credit or bond initially required for a regular levy sale would be for not less than 105% of the amount of the uncollected taxes levied and payable as of the last day of the prior year or 105% of the amount actually paid by a levy purchaser for taxes levied and payable in the prior year, whichever is greater. This amount would be able to be reduced proportionately throughout the year as the payment obligation by the levy purchaser is satisfied.

      Subsection c. would specify the time that payment would be due to the municipality from the levy purchaser and would permit the levy contract to specify a penalty not to exceed three times the maximum delinquent rate of interest if payments were made late. Subsection d. addresses the issue of the repayment of funds to the levy purchaser upon collection of tax delinquencies, municipal liens or charges, and certificate redemptions by the municipal tax collector or chief financial officer. The subsection would permit the municipality and levy purchaser to set forth a schedule for repayment in the levy sale contract.

      Subsection e. states that the collection and enforcement of taxes would remain the right and obligation of the tax collector. Subsection f. provides that the levy purchaser would have to provide such reports as the municipality requests. Subsection g. would permit the bid specifications to require a levy purchaser to pay all subsequent taxes, liens, and other charges on each property for which a tax sale certificate would have been issued to the levy purchaser, until redemption of the certificate or completion of foreclosure of the right of redemption, whichever occurs first.

      Subsection h. would permit the bid specifications and levy sale contract to require that, in the event that the total property tax levy purchaser acquires a tax sale certificate from the municipality as payment for monies advanced by the purchaser on a specific property and the taxpayer has filed a tax appeal resulting in a reduction of the assessed value of the property, the lien acquired by the purchaser will be reduced accordingly, but the purchaser will not be entitled to a refund. In this case, the purchaser would assign the certificate back to the municipality, the municipality would void the certificate, and a new certificate would be issued for the correct amount reflecting the tax reduction.

      Subsection i. would provide that the bid specification and contract may permit the municipality to conduct a public tax sale and reimburse the total tax levy purchaser from the proceeds of the sale.

       Subsection j. would provide that the account of the municipality with the total property tax levy purchaser would have to be credited with the total face amount of the certificate as of the date of its issuance. This provision is intended to ensure that the municipality would be able to recover the costs of advertising the tax sale of a particular property.

      Section 17 of the committee substitute would permit the Director of the Division of Local Government Services in the Department of Community Affairs to issue rules and regulations to effectuate the purposes of this committee substitute.