In its 2023 decision in Tyler v. Hennepin County, the U.S. Supreme Court unanimously held that government violates the Takings Clause when it takes more property than necessary to cover a tax debt.[1] On January 9, 2025, the New Jersey Supreme Court decided 257-261 20th Ave. Realty, LLC v. Roberto, which addressed the state’s tax sale law.[2] In its opinion, the court ruled on Tyler’s application in New Jersey, its implications for ongoing tax foreclosure actions, and the extent to which private tax investors may be liable as state actors.[3]

Between 2010 and 2016, Alessandro Roberto missed three sewer tax payments on his property totaling $606.[4] The property itself was worth approximately half a million dollars.[5] A private investor purchased the tax lien certificates at a public auction.[6] By the time the investor filed a foreclosure action in June 2021, the total amount needed for redemption of the liens had ballooned to $32,973.15.[7] Two months after the trial court entered a judgment of foreclosure, Roberto posted $40,000 in escrow and moved to vacate the judgment under New Jersey Court Rule 4:50-1.[8] The trial court granted his motion under Rule 4:50-1(f), a catch-all provision permitting vacatur for any “reason justifying relief,” based on the substantial equity remaining in Roberto’s property and his ability and willingness to pay the redemption amount plus attorney fees.[9]

While the investor’s appeal from that decision was pending, the U.S. Supreme Court issued its ruling in Tyler. The Appellate Division upheld the trial court’s vacatur on its own merit and further held that Tyler “separately mandates grounds” to affirm.[10]

The New Jersey Supreme Court affirmed unanimously on modified grounds (with Justice Pierre-Louis abstaining),[11] focusing on the effect of Tyler.[12] It observed that New Jersey law had “long recognized a property right to surplus equity in different contexts,” such as in the foreclosure of mortgages or security interests, and in private sales and public auctions of pawned property.[13] Analogizing to Tyler’s reasoning with respect to Minnesota law, the court held that “property owners in New Jersey have a recognized property right to surplus equity.”[14]

The court next held that private lienholders could be considered state actors under the Fourteenth Amendment and, by extension, the Takings Clause.[15] This holding is in line with the Nebraska Supreme Court’s decisions in Nieveen v. TAX 106[16] and Continental Resources v. Fair,[17] the only other state high court cases to address the liability of private lienholders under Tyler. To determine that the private investor’s action was “fairly attributable” to the state, the court used the two-part test found in the U.S. Supreme Court’s decision in Lugar v. Edmondson Oil Co.[18] Under Lugar, where (1) the deprivation of rights is caused by the exercise of some right or privilege created by the state, and (2) the party charged with the deprivation has acted together with or obtained significant aid from state officials, a private action may be attributed to the state.[19] Given that purchasers of tax lien certificates in New Jersey act in tandem with the government while taking advantage of a statutory scheme, the court found the test satisfied.[20]

The court also rejected an argument by the investor that the Takings Clause was not implicated because, to the extent any equity was taken, it was taken for private and not public use.[21] The court found this argument “self-defeating,” given that a purely private taking would be void ab initio.[22] Regardless, it held that even where equity is captured by private investors, foreclosure nevertheless serves the public purpose of enabling municipal tax collection.[23]

Having resolved the case under the federal Takings Clause, the court declined to consider the extent to which the New Jersey Constitution provides independent protection.[24] Nor did the court address an issue raised by amici about the nature of Tyler’s retroactive application. The Appellate Division below had ruled that Tyler applies only with “pipeline retroactivity to pending tax sale foreclosures involving a property owner’s surplus equity.”[25] This seemed to rule out post-Tyler claims based on pre-Tyler foreclosures. The high court noted that because the claim at issue “is on direct review . . . we need not determine whether full retroactivity is warranted in other cases.”[26] It therefore neither addressed nor adopted the Appellate Division’s retroactivity analysis.[27]

Finally, the opinion did not address the revisions to the state’s Tax Sale Law that were adopted after the court granted certification in the case.[28]

 

[1] Tyler v. Hennepin Cnty., 598 U.S. 631, 647 (2023).

[2] The decision addresses only the version of the Tax Sale Law that was in effect before it was amended in 2024. 257-261 20th Ave. Realty, LLC v. Roberto, 327 A.3d 1177 (N.J. Jan. 9, 2025); see N.J. L. 2024, c. 39.

[3] Roberto, 327 A.3d at 1182–83 (N.J. 2025).

[4] Id. at 1183.

[5] Id. at 1182.

[6] Id.

[7] Id. at 1183. The record suggests that the investor had “paid other taxes and potentially some other charges along the way[,]” but “contains no details” about these payments.

[8] Id.

[9] Id. at 1187.

[10] 257-261 20th Ave. Realty, LLC v. Roberto, 307 A.3d 19, 37 (N.J. Super. Ct. App. Div. 2023).  

[11] Roberto, 327 A.3d  at 1195.

[12] The court declined to adopt a ruling as to the underlying (pre-Tyler) merits of the trial court’s vacatur, noting that it was a close question. Id. at 1187–88.

[13] Id. at 1191.

[14] Id.

[15] Id.

[16] 10 N.W.3d 365, 371 (Neb. 2024).

[17] 10 N.W.3d 510, 523–24 (Neb. 2024).

[18] 457 U.S. 922, 937 (1982)

[19] Roberto, 327 A.3d at 1192.

[20] Id.

[21] Id. at 1193.

[22] Id.

[23] Id.

[24] Id.; see N.J. Const. art. I, ¶ 20.

[25] Roberto, 307 A.3d at 35.

[26] Roberto, 327 A.3d at 1190 n.3.

[27] Id.

[28] Id. at 1194. See N.J. L. 2024, c. 39.

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