A process that started out with 217 parcels when the tax sale was announced ended with 69 parcels that were up for what is called a tax sale last Tuesday. In the upstairs conference room of Borough Hall, the municipal tax collector, Rachel Pompeii sat with a list of available parcels in front of a room of about 20 bidders and conducted the annual tax sale for the Borough of Roselle Park. In 30 minutes, the municipality collected a total of $69,724.28 to satisfy 2009 delinquent taxes.
Calling out lots and blocks, Ms. Pompeii announced the outstanding amount due the municipality for 2009 taxes and/or sewer bills and listened for the bids. The amount due included the previous year’s outstanding taxes, interest on said taxes, the amount due on the sewer utility (if any), interest on said utility (if any), and related costs. Bids started out, by law, at 18% interest then, contrary to most auctions, would go down to 0%. It was then that the bidding began to increase with a premium dollar amount.
The resulting tax lien certificate was awarded to the bidder with either the lowest interest rate or highest premium. A process then begins where, in order for a homeowner to redeem the certificate, they need to pay the cost of the sale, the tax lien itself, and interest. If there is a premium, then no interest is due for that initial amount. However, any subsequent taxes that were paid by the lien holder for 2010, from the day they are paid till the day that the homeowner redeems it, the homeowner ends up paying 18% interest on the subsequent taxes to the lien holder.
In cases where a bidder is willing to pay a premium, this amount is returned to the lien holder at the time of redemption which is held by the municipality in a ‘collector’s account’ with no interest being collected by the lien holder. The lien holder has the option to pay the subsequent taxes – in this case, 2010’s outstanding taxes. They get that tax attached to the lien at 18% interest till the day of redemption. Ms. Pompeii stated the incentive for bidders to pay cash for a lien certificate, “That’s why they want it and that’s why they put a premium up.”
Another incentive bidders have is that if there is $10,00 or more due on a property or subsequent taxes that are paid by a lien holder are in excess of $10,000 by the end of the year, they get an additional 6% penalty.
A misconception regarding tax sales is that some people believe the winning bidder owns the property – they do not; what is owned is simply a tax lien on the property. Another misconception that Ms. Pompeii wanted to correct was that the tax sale was for the current year, “These were 2009 taxes,” she explained, referring to the tax sale held on November 23, 2010, “To close out 2009 to collect revenue for the prior year taxes.”
If within two (2) years the property owner does not redeem the lien, then the lien holder has the opportunity to foreclose on the property. Although the lien holder has the option to foreclose on a property, Ms. Pompeii stated that in her 15 years working for the municipality, she only recalled one property that went into foreclosure, “The property was really abandoned.”
She added that in the current economy, things might change.
“It’s a sure way of people making money because there’s no place you could get any interest on your money, period,” Ms. Pompeii said, explaining the possible reasoning for the success of tax sales, “For a small investor, it’s not a bad deal.”
The tax collector went on to say that although not required, she would send a delinquency notice to the homeowner monthly while most tax collector would send a quarterly notice. She also sent a letter to them stating that there was going to be a tax sale and a notice that the property was going to be listed in the newspaper.
“They have been notified beyond ‘notified’,” she declared with respect to her handling of a serious mater. She added that, in the end, she does this to do what she can to help the property owner, “I want the taxpayer not to go to tax sale.”