by Jose D. Roman | Jan 25, 2025 | Consumer Advocacy, Legal Bulletin, NJ Supreme Court
On January 9, 2025, the New Jersey Supreme Court issued a decision addressing whether the state’s old Tax Sale Law (before it was amended in 2024) violated the Fifth Amendment Takings Clause by allowing the forfeiture of surplus equity from tax foreclosures without just compensation. In an opinion by Chief Justice Stuart Rabner, in 257-261 20th Avenue Realty, LLC v. Alessandro Roberto (A-29-23) (088959) the Court found the prior version of the Tax Sale Law to be unconstitutional. Relying on the U.S. Supreme Court’s 2023 ruling in Tyler v. Hennepin County, the Court held that property owners in New Jersey have a recognized right to surplus equity—the value of a property beyond the amount owed in taxes. The ruling clarified that private lienholders, acting jointly with municipalities to enforce tax foreclosures, are considered state actors subject to the requirements of the Takings Clause of the US Constitution.
Background of the Case
The case arose from a Paterson, NJ property owner’s failure to pay three sewer tax bills totaling just $606.00. The City of Paterson placed tax liens on the property, which were purchased by 257-261 20th Avenue Realty, LLC at a public auction. Years later, the company filed for foreclosure, and the property owner failed to respond, resulting in a judgment of foreclosure.
The property owner subsequently sought to vacate the judgment, arguing that the property —valued at over $500,000.00 — held significant equity vital for his retirement. He had invested $200,000.00 in improvements and had set aside $50,000.00 to pay the judgment. Despite these circumstances, the foreclosure judgment transferred the entire property, including its substantial surplus equity, to the lienholder without compensating the property owner for the value exceeding the tax debt.
The trial court vacated the judgment under NJ Court Rule 4:50-1(f), finding exceptional circumstances, and the Appellate Division affirmed, citing the U.S. Supreme Court’s decision in Tyler v. Hennepin County (2023), which held that forfeiture of surplus equity in tax foreclosures violates the Takings Clause.
Key Issues Addressed by the NJ Supreme Court
- Takings Clause and Surplus Equity: The Takings Clause of the Fifth Amendment prohibits the government from taking private property for public use without just compensation. The NJ Supreme Court, relying on Tyler, held that surplus equity—the value of the property exceeding the tax debt—is a protected property right. The pre-2024 Tax Sale L allowed the complete forfeiture of surplus equity to lienholders, a practice deemed unconstitutional.
- Lienholders as State Actors: The Court rejected the argument that private lienholders are not state actors and thus not subject to the Takings Clause. Tax foreclosure involves a public function—collecting taxes—and relies on a statutory framework created by the state. The Court determined that the collaboration between municipalities and lienholders renders the latter state actors for constitutional purposes.
- Public vs. Private Use: The Court dismissed the contention that the taking of surplus equity was not for public use. The Tax Sale serves a public purpose by enabling municipalities to collect taxes. However, the US Constitution requires that property taken for public use must be accompanied by just compensation, which the pre-2024 TSL failed to provide.
Significance of the Tyler Precedent
The NJ Supreme Court’s decision heavily relied on the U.S. Supreme Court’s 2023 ruling in Tyler v. Hennepin County. In Tyler, the Court held that a Minnesota tax foreclosure law allowing the forfeiture of surplus equity was unconstitutional. Similarly, the NJ Supreme Court found that property owners in New Jersey have a recognized right to surplus equity under both state and federal law. As Tyler is binding precedent, the NJ Supreme Court clarified that it did not need to rely on Rule 4:50-1(f)to vacate the foreclosure judgment but instead resolved the case on constitutional grounds.
Impact on Tax Foreclosure in New Jersey
This ruling has profound implications for New Jersey’s tax foreclosure system. Property owners now have a constitutionally recognized right to retain surplus equity in foreclosure proceedings. Municipalities and lienholders cannot confiscate more value than is necessary to satisfy the tax debt. This is a clear shift toward greater accountability and fairness in tax foreclosure practices. It is a major win for the average New Jersey property owner.
by Jose D. Roman | Jan 23, 2025 | Guardianship, Legal Bulletin, NJ Supreme Court
On December 11, 2024, the New Jersey Supreme Court issued its opinion for In the Matter of A.D., (A-30/31-23) (088942) addressing whether court-appointed attorneys and temporary guardians are entitled to fee awards from Adult Protective Services (APS) when an incapacitated person’s estate lacks sufficient funds. The Court held that fee awards are not available.
Case Overview
The case originated in June 2020, when the Sussex County Division of Social Services, Office of Adult Protective Services (APS), sought a plenary guardianship for “Hank,” an alleged incapacitated person. The court appointed Steven J. Kossup, Esq. to represent Hank and Brian C. Lundquist, Esq. as temporary guardian. Both attorneys took significant steps to stabilize Hank’s life, ensuring he had stable housing, financial aid, and medical care. Despite APS’s recommendation for a permanent plenary guardian, Kossup and Lundquist advocated for a limited guardianship. Their position was supported by an expert psychologist, retained at Lundquist’s expense, who opined that Hank required only a limited guardianship. The trial court ultimately agreed. Kossup and Lundquist then applied for compensation for their services, seeking to have their fees paid by APS, as Hank’s estate lacked sufficient funds. While APS did not contest the amount of the fees, it argued that paying such fees would compromise its ability to serve its clients. The trial court and the Appellate Division denied the fee applications, prompting an appeal to the New Jersey Supreme Court.
Supreme Court’s Analysis
In a unanimous opinion, the New Jersey Supreme Court affirmed the denial of the fee applications. The decision emphasized the following key points:
1. The American Rule and Limited Exceptions
New Jersey adheres to the “American Rule,” which requires litigants to bear their own legal costs unless explicitly authorized by statute or court rule. New Jersey Court Rule 4:42-9(a) provides eight exceptions to the rule, two of which were invoked in this case:
- Statutory Authorization: The Court found that neither the Adult Protective Services Act (APS Act) nor the statutes governing guardianships authorize fee awards against APS. Both statutes limit fee awards to the estate of the incapacitated person.
- Guardianship Rules: Rule 4:42-9(a)(3) and Rule 4:86-4(e) permit fees to be paid from the incapacitated person’s estate or “in such other manner as the court shall direct.” However, the Court clarified that this language does not authorize fee awards against APS.
2. Rejection of the DiNoia Precedent
The Court explicitly declined to adopt the holding in In re Guardianship of DiNoia (2019), where the Appellate Division upheld a fee award against APS. The court in DiNoia ordered APS to pay counsel fees because APS had “protracted the litigation” by failing to provide information in a timely manner, and court-appointed attorney made exceptional efforts on behalf of his client. The Supreme Court held that such reasoning does not align with the American Rule or the governing statutes and rules, and ruled that there is no basis to authorize fee awards against APS under any circumstances, even if it protracted litigation.
3. Pro Bono Service
The Court highlighted the longstanding tradition of pro bono service in guardianship matters, particularly when the incapacitated person’s estate lacks resources. It acknowledged the substantial burden this places on attorneys and urged trial courts to consider the equitable distribution of these assignments.
Practical Guidance for Future Cases
The Court offered several recommendations for handling guardianship matters:
- Clear Communication: Judges should inform attorneys and guardians at the outset if their service is expected to be pro bono.
- Court Oversight: Judges, not Surrogates, are responsible for appointing counsel, determining the need for temporary guardians, and addressing compensation.
- Expert Fees: Temporary guardians serving pro bono should consult the court before retaining experts, ensuring funds are available to cover fees.
Broader Implications
The ruling in In the Matter of A.D. establishes that APS providers cannot be held financially responsible for court-appointed attorney fees, even if APS causes delay and the need for the attorney to perform extraordinary work on the case. While this reinforces the American Rule, it raises questions about the sustainability of pro bono service in guardianship cases, especially given the increasing demand for such legal representation. The Court expressed gratitude for the exemplary work of Kossup and Lundquist but acknowledged the need for systemic changes to address the burdens of pro bono service. This may include increased funding for legal aid programs or other measures to ensure fair allocation of responsibilities. As the population continues to age and demand for guardianship services grow, the legal community and policymakers must work together to ensure equitable and sustainable solutions.