Enhancing Capacity to Repurpose New Jersey’s Vacant Properties

This brief is a product of the New Jersey Land Bank Launch Initiative.

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The competition for land (with and without structures) is being felt acutely across the Garden State. Since the pandemic, many New Jersey communities have seen markets flip almost overnight, with an influx of new residents who had been priced out of the New York City market. Much like in communities across the country, the housing supply does not meet the needs of residents at most income levels and the commodification of housing is rapidly attracting corporate and institutional investors, often targeting neighborhoods with high populations of Black residents. Even New Jersey communities that just five years ago had struggled to address large inventories of vacant and deteriorated properties are now seeing record real estate sales. As communities seek to respond to the housing affordability crisis, it is more important than ever to evaluate existing opportunities to use land to meet residents’ needs.

These market changes have inevitably led to a decrease in vacancy in most New Jersey communities—an overall positive trend, given that vacant properties cause significant harm to neighbors and neighborhoods and strain municipal budgets. However, these recent market changes require local governments and their partners to think differently about addressing vacant, abandoned, and deteriorated properties (VAD) properties and historic community disinvestment.

While reducing vacancy is good for neighborhood stability, these upward market trends bring new challenges like involuntary displacement and affordability gaps, particularly for low-income households. Communities that still have even a limited inventory of VAD properties must think strategically and with urgency on how to acquire or compel the transfer of these properties to mission-aligned partners to meet critical community needs.

Tools to Address Vacancy in New Jersey

Up until the last few years, many urban centers across New Jersey struggled with large-scale vacancy, symptoms of decades of racist and unjust policies and intentional disinvestment. A statewide coalition, led by the Housing and Community Development Network of New Jersey (HCDNNJ), sought to equip local leaders with new, impactful tools to address systemic vacancy. The coalition, among other policy priorities, successfully advocated in 2019 for the passage of the New Jersey Land Bank Law, which authorized local governments to create land banks.

Land banks are public or nonprofit entities with a unique purpose to put vacant, abandoned, and deteriorated properties back to productive use according to community goals. They can have profound positive impact in the communities they serve, including stabilizing neighborhoods and property values of neighboring homes, addressing safety concerns, leveraging economic investment, furthering racial equity and social justice, and creating lasting affordability. Shortly after the passage of the state-enabling land bank legislation, Newark established the first land bank in New Jersey. As of November 2024, it remains the only operational land bank in the state.

Community Progress and HCDNNJ embarked on a two-year engagement to increase knowledge about land banks across the state and help New Jersey communities explore the value and utility of creating a local land bank to address widespread vacancy and disinvestment. In our complimentary Land Banking in New Jersey brief, we described the functions and process for establishing land banks in the state.
However, through this work we also made a key observation: land banks may be useful to a smaller pool of communities than originally anticipated given the rapid appreciation of real estate markets and the change in VAD property inventory from being widespread to scattered.

It is crucial for local governments to prevent VAD properties from causing further harm to neighbors, and to reactivate them to meet community needs, like affordable housing. In communities where a land bank would not be useful, this will require leveraging existing legal tools in a targeted approach. The problem is, few New Jersey communities can immediately acquire these properties because they lack staff, legal, and operational capacity to use these existing policy tools.

This brief offers additional guidance to local governments and partners on alternative approaches to tackling a far more limited and scattered inventory of VAD properties—and recommendations on how to address the barriers to implement more effective approaches.

Challenges to Acquiring VAD Properties in New Jersey

The delinquent property tax enforcement system is one of local government’s strongest legal tools to address VAD properties by compelling their transfer to new, responsible owners. In communities with high levels of vacancy, a land bank that is integrated into the tax enforcement system is often the optimal approach to neighborhood stabilization and revitalization. The land bank can be a temporary public steward that thoughtfully and predictably directs vacant, tax-foreclosed properties to new responsible owners.

Unfortunately, New Jersey state law requires local governments to offer tax certificates for sale to private buyers, weakening communities’ ability to use the property tax enforcement system to address VAD properties. This practice transfers the local government’s right to collect and foreclose on the unpaid debt to a private party.

Most tax certificate purchasers want to collect as much interest and fees from the delinquent owner as possible. Some buy the tax certificates hoping the owner does not pay and they can then foreclose and either flip the property for a sizable profit or speculate and let the property sit vacant for years. Whatever the outcome, the sale of tax certificates denies local governments the chance to play an active role in neighborhood stabilization and equitable revitalization. This practice is a significant barrier for local governments to predictably and cost-effectively access VAD properties and transfer these liabilities to a land bank.

Despite this state law—and even without land banks—local governments and mission-aligned partners historically used the property tax enforcement system to acquire properties for community use in the following ways:

• Purchasing Tax Certificates: Affordable housing developers and community-based nonprofits have successfully bid and acquired tax certificates at the tax certificate sale. In the weaker pre-pandemic market, many distressed vacant properties at auction were underwater in value and unappealing to investors. Affordable housing nonprofits often successfully purchased tax certificates for nominal costs. After a two-year redemption period, these affordable housing entities could foreclose on the outstanding tax certificate and take ownership of the property. Listening sessions across the state revealed this had been a common and cost-effective acquisition strategy for years.
• Acquiring Tax Certificates by Default: When a tax certificate is offered for sale and receives no bid, it defaults to the local government. State law allows local governments to initiate a foreclosure action after a shortened six-month redemption period and subsequently take ownership of the property. Local governments are permitted to then sell or transfer the property at minimal cost to mission-aligned partners. Listening sessions across the state found that this was also a common practice, particularly for communities with a high count of vacant properties.

However, the hot real estate markets have made the tax certificate sale more competitive. Affordable housing developers and community-based nonprofits are being outbid by cash-rich private investors. Virtually all properties are now receiving bids at the auctions and few, if any, are defaulting to the local governments. In many communities, the portfolio of surplus properties accumulated over years from tax certificates that defaulted to the local government is either quickly dwindling or gone altogether.

In addition to the appreciating market, the legal landscape related to tax foreclosure has changed due to the Supreme Court ruling in Tyler v. Hennepin County (2023). The Tyler decision determined that local governments can recover only what they are owed in a tax foreclosure. This decision requires that property owners have a mechanism to recover any surplus—the value in the property that exceeds the amount owed. New Jersey Governor Phil Murphy signed a reform bill (A-3772/S-2334) in response to the Tyler decision, which provides property owners or their heirs the ability to claim surplus by requesting their property be sold at a judicial sale or online auction. We do not fully know how this legislation will impact local governments and their mission-aligned partners’ ability to acquire properties, but it will almost certainly make acquiring tax-delinquent VAD properties more costly.

Download the brief to learn how local governments and their partners can address vacant properties in New Jersey.