Tax lien certificate sale

New Jersey: FDIC consent required for tax sale certificate foreclosure

A judgment of foreclosure obtained by the holder of a tax sale certificate was vacated and the certificate holder was required to recommence a foreclosure action on the New Jersey property tax sale certificate because the Federal Deposit Insurance Corporation (FDIC) held a mortgage interest in the property and the foreclosure was obtained without the FDIC's consent. The subject property was sold to a municipality for delinquent property taxes and then assigned by the municipality to the tax sale certificate holder, who foreclosed on the certificate. Although the original mortgagee was named in the foreclosure proceeding, it had become insolvent and the FDIC, as receiver, assumed ownership of its assets. The FDIC subsequently sold the mortgage to a third party who discovered the tax certificate foreclosure judgment.

Federal law provides that an involuntary lien may not attach to FDIC property. However, under New Jersey law, a property tax lien attaches to the realty. Therefore, tax liens may attach to real property in which the FDIC holds only a mortgage interest as security for a loan. Federal law also provides that property of the FDIC may not be subject to foreclosure or sale without the FDIC's consent. Thus, state and local taxing authorities may not foreclose against property in which the FDIC holds a mortgage interest without protecting that interest. A tax lien may not be foreclosed without FDIC consent during the term of its receivership. When the mortgage is sold by the FDIC to a third party, the mortgage is sold burdened by the tax lien that has attached to the realty.

With regard to the subject property, the foreclosure judgment obtained without the consent of the FDIC had no effect on the FDIC mortgage interest and that interest remained in effect when it was transferred to a third party. However, where, as here, the interest was transferred after a tax sale, the third party takes the mortgage interest subject to the tax liens. Under federal law, local tax liens have priority over a federal mortgage lien if the local tax lien is entitled to priority in accordance with state law over a nonfederal mortgage holder. (S & R Associates, New Jersey Superior Court, Appellate Division, Nos. A-1920-99TI and A-1934-- 99TI, March 23, 2001.)