N.J. residents sue to reclaim equity in foreclosed homes

The U.S. Supreme Court last year ruled governments cannot retain more money from tax sales than a resident owes. (Photo by Spencer Platt/Getty Images)

A trio of New Jersey residents lodged a class action lawsuit Tuesday seeking to reclaim equity in foreclosed homes that far exceeded the unpaid property taxes they owed.

The suit is the latest to challenge New Jersey’s Tax Sale Law since the U.S. Supreme Court in Tyler v. Hennepin County ruled governments that retained more money from tax sales than a resident owed were committing an unconstitutional taking barred by the Fifth Amendment.

“Home ownership is a core pillar of the American dream,” said Daniel Suhr, an attorney for the plaintiffs. “When governments take these victims’ homes and steal their equity, they are also stealing their dignity. By taking these properties and, in many cases, the life savings of these homeowners, they are not only grossly disrupting their lives, but also violating the Constitution.”

In New Jersey, governments can sell liens on properties with delinquent property taxes or unpaid utility bills to private holders or other governments at annual tax sale auctions.

The Tax Sale Law does not require municipalities or private investors to return surplus equity, though legislators are drafting legislation to bring the statute into compliance with Tyler.

In court filings, the three plaintiffs — Dorothy Thompson, Barry Seward, and Trude Sherrod-Polan — said they lost a combined $490,000 in excess home equity when their properties were foreclosed following sheriff sales. Together, the three owed $49,485.79 in back taxes and interest, according to the filing.

The suit is the second class action lodged over the state’s tax sale law. Three residents in December sued state officials to reclaim surplus equity in foreclosed homes. The newest suit additionally lists Trenton, Hazlet, and Lawrence as defendants.

New Jersey courts have already decided some cases based on the Tyler decision. While none of those cases have so far set precedent, a three-judge appellate panel in December warned applying the decision retroactively could prove unworkable.

But state courts elsewhere have disagreed. In Minnesota, where the Tyler case began, officials in March agreed pay $109 million to settle with homeowners of roughly 6,000 properties spanning seven years of foreclosures.

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