BILL ANALYSIS Ó SENATE GOVERNANCE & FINANCE COMMITTEE Senator Lois Wolk, Chair BILL NO: AB 261 HEARING: 6/29/11 AUTHOR: Dickinson FISCAL: Yes VERSION: 5/11/11 TAX LEVY: No CONSULTANT: Grinnell PROPERTY TAX: TAX DEFAULTED PROPERTY First ask the board of supervisors to rescind a tax sale before challenging it in court. Background and Existing Law I. Tax Sales. When a taxpayer is delinquent on property taxes, the tax collector first publishes the property and delinquent tax information. If the taxpayer does not pay the tax, interest, and penalties, the tax collector may then sell his or her residential property five years after the delinquency date, or non-residential commercial property after three years, in a tax sale if approved by the Board of Supervisors. The tax collector generally sells the property to a private party with the highest bid, or sometimes to state of local tax agencies by agreement, which then "redeem" the property. When a taxpayer redeems the property, he or she enjoys title of the property free of any previous encumbrances on the property, except: Any lien for installment of taxes or special assessments, which become payable after the sale. The lien for taxes or assessments imposed by tax agencies that did not consent to the sale. Easements of any kind. Unaccepted, recorded, irrevocable offers of dedication or recorded options on the property to the public or a taxing agency for a public purpose. Unpaid Mello-Roos special taxes and assessments imposed under the Improvement Bond Act of 1915 not satisfied by the sale. Internal Revenue Service liens. Currently, any person can challenge the validity of a tax sale within one year of the date of the execution of the AB 261 -- 5/11/11 -- Page 2 tax collector's deed. However, the Board of Supervisors can rescind a tax sale with the written consent of the county legal adviser and the purchaser of the property. The Board of Supervisors can also rescind the sale without the purchaser's consent in a public hearing and after providing notice to the purchaser. In either case, the County refunds to the purchaser the amount paid for the property plus interest. The California Association of Treasurer-Tax Collectors wants to make sure that counties aren't sued by parties not directly affected by tax sales long after the fact. II. Prescriptive Easements : Property owners sell "easements" to other parties in exchange for cash or other considerations. A holder of an easement allows the purchaser the right to perform a specific activity on the landowner's property, such as a utility company's easement to run transmission lines over grazing land. Most easements are recorded documents filed with the county recorder; however, unwritten easements are created when someone else continuously uses another's property without the owner's consent for at least five years, known as a "prescriptive easement." Prescriptive easements are not adverse possession because they are not exclusive, but similar in the way that the holder of the easement is hostilely using the owner's property. Prescriptive easements are often needed when the public or another owner cannot access a public space or his or her own property without trespassing on another owner's property. Property owners selling property have to disclose the existence of a prescriptive easement, but in a tax sale, there's no owner to disclose it. The California Association of Treasurer-Tax Collectors wants to clarify the law to ensure that property owners and easement holders know that such easements pass through to purchasers of property in tax sales. Proposed Law Assembly Bill 261 requires persons who challenge the validity of a tax sale to first petition the Board of Supervisors for a rescission within one year of the sale. If the Board rejects the petition, the person must commence the proceeding challenging the validity of the tax sale within one year of the rejection. The bill applies to tax AB 261 -- 5/11/11 -- Page 3 sales completed on or after January 1, 2012. The measure also clarifies that prescriptive easements also transfer to the purchaser of a property redeemed in a tax sale. State Revenue Impact No estimate. Comments 1. Purpose of the bill . According to the Author, "AB 261 is a simple measure intended to clarify current law with respect to prescriptive easements and to simplify and streamline dispute procedures arising from tax lien sales of real property." 2. Get off my lawn ! AB 261 responds to the curious case of Helen Lee and Catherine Santana v. Robert Lyles, Shirley Lyles, and the County of Sacramento, Sacramento Superior Ct., Case # 05AS01166. Lee and Santana sued the Lyles and the County to invalidate a tax sale of a 10ft. wide piece of property, which the County had six years prior sold to the Lyles after properly noticing Lee and Santana. Lee and Santana sued to invalidate the sale, stating they had adverse possession, and revealed at trial that they found it easier to park on the strip of land sold. The Court sided with the Lyles and the County, finding that the County followed the law, and that Lyles' owning the strip of land did not deny Lee and Santana of access to their property. The Court also found that Lee and Santana could produce no evidence of adverse possession as a result of parking there. Under AB 261, Lee and Santana could not wait six years to sue the purchasers and the County. Instead, they would have one year to petition the county board of supervisors to rescind the sale, then another year to file suit if the board declined their petition. Assembly Actions Assembly Revenue and Taxation 8-0 Assembly Appropriations 16-0 Assembly Floor 62-16 AB 261 -- 5/11/11 -- Page 4 Support and Opposition (6/21/11) Support : California Association of County Treasurers and Tax Collectors. Opposition : Unknown.