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New Jersey municipal taxes aren’t as simple as they may initially seem. They are nuanced and can contain hidden pitfalls that may impact your real estate closing. They can lead to deficient escrow funds, redemption issues, missed liens/registration fees or issues with private agreements between sellers and municipalities. The first step to understanding tax issues that may negatively impact your closing is to educate yourself and your team on how to identify and address them. No one likes surprises at the closing table and/or after escrow has been settled. This article hopes to provide a baseline understanding so you can avoid some of the potential landmines that exist in the NJ real estate tax world.

6% Year-End Penalty:

While it is only relevant at the very end of the year, the 6% Year-End Penalty could be felt in January and influence the amount due to a municipality for a simple tax delinquency or a lien redemption. This is how it would play out: a settlement agent receives a redemption amount from a municipality calculated to December 28th, the date of the scheduled closing. The funds are immediately mailed but, the municipality does not receive them until January 2nd. The settlement agent is notified that the redemption is deficient because of the additional 6% year-end-penalty because the redemption was received after the end of the year. The municipality is within its rights to demand payment even though this year-end penalty was not actually due on December 28th. Some New Jersey municipalities have a year-end penalty which isn’t due until the first day of the New Year given certain requirements, which include:

  • There must be delinquency for over $10K, which is only for a single year (the delinquency cannot spread over more than one year).
  • In some instances, a third-party lienholder may be entitled to the 6% year-end penalty if they meet the eligibility guidelines. If this lienholder pays in excess of $10k for delinquencies, they are then eligible to collect this year-end penalty.

Some Municipalities must calculate their redemption worksheets to their Governing Body meeting dates or another date (with a valid reason) of which the settlement agent is unaware. It is recommended you contact the municipality and confirm no Governing Body approval is required for the redemption.

Vacant Property Registration:

The Vacant Property Registration fees continue to be a challenge for title professionals in New Jersey. While there is no statutory allowance that provides for these registration fees to become a lien, they have become an issue at closing for some Settlement Agents. Keith Bonchi, Esquire, Legal Counsel for the Tax Collector’s and Treasurers Association of New Jersey, maintains that Vacant Property Registration fees are not a lienable charge (Visit https://www.charlesjones.com/blog/ uploads/2017/09/K-Bonchi-vacantprop-reg-fees-for-TCTANJ.pdf to view his legal opinion). They are, however, treated like landlord registration fees or other non-lienable charges a municipality could levy but not include in a tax sale. Most tax information providers continue to report these same vacant property registration fees on searches, when made available.

 

Vacant Property Maintenance and Cut/Clean Fees:

While the Vacant Property Maintenance and Cut/Clean Fees title is like the Vacant Property Registration fees noted above, they are handled differently in the Tax Collection process. These are lienable charges in New Jersey and are covered by various State statutes.

P.I.L.O.T.:

Payments in lieu of taxes (P.I.L.O.T.) are inherently unique by design. They are a contractual agreement between the landowner/developer and the municipality. Billing and payment information is reported on your Tax Search. However, the title examiner should fully review the specific P.I.L.O.T. contract as part of their title examination to ascertain if it is still in place and whether it can be assigned to the new owner. Most underwriters have specific requirements and exceptions which are recommended when land is the subject of a P.I.L.O.T. contract.

Abatements:

Abatements are a reduction in an assessed value with a specific phase in time assigned to the parcel. Like P.I.L.O.T.’s, these are agreements/ contracts between the property owner and the municipality. While your Tax Search should indicate the existence and status of the abatement, these agreements/contracts should also be examined to ascertain duration and assignability to the new owner(s).

By understanding these issues, you will be in a better position to serve your customer and avoid related post-closing headaches. If you have a question, or concern about a municipal tax issue not covered by this article, please feel free to reach out to me and to then discuss with your underwriter.

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The above information is for informational purposes only and is not intended to provide legal advice.

By Cynthia A. McBride

Cynthia A. McBride, a New Jersey State Certified Tax Collector for over 30 years, employs a lifetime of tax collection expertise as the Government Relations Specialist for Charles Jones LLC. She also serves as Tax Collector for the City of Lambertville and has served as an Adjunct Professor for the Tax Collection Program at Rutgers Center for Government Services.

Article previous appeared in the Summer 2019 Issue of the New Jersey Land Title Association’s the Advocate.

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