Johnson v. City of East Orange

Can the government take your property, benefit from a foreclosure system that bars all but a few specific defenses to foreclosure, and then keep your property by arguing that you should have raised a previously unavailable defense? The Liberty Justice Center filed an amicus brief in Johnson v. City of East Orange to argue against such an abuse of government power. The case is before the Supreme Court of New Jersey, and it concerns whether a municipality may keep the surplus equity from a foreclosed property.

The case arises from the City of East Orange retaining tens of thousands of dollars in surplus equity that belonged to homeowner Lynette Johnson after foreclosure. East Orange argues that Johnson’s claim is now barred because it could have been raised during the foreclosure proceedings that concluded in 2018.

The Liberty Justice Center’s amicus brief explains that, before Tyler v. Hennepin County was decided by the U.S. Supreme Court in 2023, New Jersey property owners had no meaningful opportunity to bring a surplus equity takings claim in tax foreclosure proceedings. In 2018 when Johnson’s foreclosure concluded, New Jersey recognized only narrow defenses to tax lien foreclosures challenging the validity of the lien itself or challenging the proceedings at which the tax lien was sold. Had Ms. Johnson raised a takings defense for surplus equity in her 2018 foreclosure, that defense would have failed.

The brief also argues that East Orange’s warnings about fiscal instability are overstated. The City claims that allowing Johnson’s case to proceed would unleash a wave of unexpected liability against municipalities across New Jersey. However, a review of foreclosure dockets suggests there is no “tsunami” of claims waiting to emerge. In fact, the available record indicates that East Orange itself is unlikely to face additional liability from similar cases because of an ever-shrinking period within the statute of limitations and its own changes in how it handles tax liens.

The Liberty Justice Center urges the New Jersey Supreme Court to affirm the Appellate Division’s decision and ensure that municipalities cannot keep ill-gotten windfalls by relying on “technical” procedural arguments. Property rights protected by the United States Constitution and the New Jersey Constitution do not disappear simply because the law took time to catch up with the injustice.

“Municipalities should not be allowed to invoke imaginary fiscal crises to avoid returning equity in property they were never entitled to keep,” said Jesse Leon, Litigation Fellow at the Liberty Justice Center. “There is no looming deluge of claims, only a property owner seeking compensation that East Orange owes under the Fifth Amendment.”

Johnson v. City of East Orange is about the rule of law. The Liberty Justice Center stands ready in New Jersey and across the country to protect people from government overreach.