BILL ANALYSIS Ó
AB 1090
Page 1
Date of Hearing: May 2, 2011
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 1090 (Blumenfield) - As Introduced: February 18, 2011
Majority vote.
SUBJECT : Taxation: property tax deferment.
SUMMARY : Establishes the County Deferred Property Tax Program
for Senior Citizens and Disabled Citizens (County Deferred PTP)
and allows each county to elect to participate in the program.
Specifically, this bill :
1)Allows a treasurer, or other official responsible for the
funds of a local agency, upon the adoption of a resolution by
the governing body, and with the consent of the county
treasurer, to deposit excess funds in the county treasury for
the purpose of investing the funds in the newly created
Property Tax Deferral Fund (Fund).
2)Requires the county treasurer to follow certain rules and
procedures relating to the investments in the Fund.
3)Defines "claimant" as an owner of a residential dwelling, as
specified, who applies to a participating county for deferment
of property taxes, and meets all of the following
requirements:
a) Has a household income that does not exceed $35,500;
b) Has attained eligibility for full Social Security
benefits as of the last day of the filing period for that
fiscal year (FY), or is blind and disabled, as defined,
except in the case of retroactive deferment, as specified,
in which the age of eligibility shall be 62 years old; and,
c) Has equity value of at least 20%, meaning the amount by
which the fair market value of a residence exceeds the
total amount of any liens or other obligations against the
property.
4)Allows a participating county to require a claimant to provide
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an appraisal by a licensed or certified appraiser in support
of the application, and provide for an alternate appraisal
method in specified circumstances.
5)Provides that only one claimant per residential dwelling may
have property taxes deferred pursuant to the provisions of
this bill, at any one time.
6)Allows the treasurer or treasurer-tax collector to require a
claimant to furnish evidence of the claimant's ongoing
eligibility in order to continue participation in the program
in a subsequent year.
7)States that if the claimant fails or refuses to furnish any
information requested in writing by the county, or files a
fraudulent claim, the claimant's application shall be null and
void, and any record of a deferment payment on the tax roll
shall be canceled, the tax or assessment shall be a lien as
though no payment had been made, and the amount of the lien
shall be increased by any penalties and interest resulting
from property tax delinquency.
8)Authorizes a county to elect to participate in the County
Deferred PTP by adopting a resolution indicating the county's
intention to participate in and to administer the program, and
provides that a participating county may defer a claimant's
property taxes retroactively, for taxes due on or before
February 20, 2011, and prospectively, as provided by this
bill.
9)Requires a county treasurer or county tax collector to review
the claimant's application for program eligibility, upon
receipt of a claim for property tax deferment that is
submitted within the filing period.
10)Allows the county treasurer or tax collector, if the claimant
is eligible to participate in the program, and if there are
sufficient funds within the county's Fund, to do all of the
following:
a) Defer the property taxes due on the claimant's
residential dwelling for that FY;
b) Issue a subvention payment equivalent to the amount of
the deferred property taxes, from the county's Fund to the
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county to be processed in the same manner as all other
property tax payments;
c) Direct the county auditor to apportion the subvention
payment in the same manner as if the property taxes had
been paid; and,
d) Provide a letter or other written notice to the claimant
with the relevant FY of participation for use as written
confirmation of participation.
11)Specifies that if the claimant's property taxes are deferred,
the participating county shall not charge the claimant any
penalties, or undertake any collection actions with respect to
taxes deferred.
12)Requires that the amount of property taxes deferred, plus any
interest accrued thereon, be secured by a county property tax
lien against the claimant's residential dwelling.
13)Requires the county recorder to index the lien according to
the names of each record owner and the county.
14)Provides that the filing period for a claimant to apply under
the program shall be from October 1 to December 10 of each
year, but allows a county to grant a reasonable extension for
filing a claim if it determines that good cause for the
extension exists. No extension may be granted beyond the
termination for the FY for which deferment is requested.
15)Provides for other specified requirements applicable to the
county treasurer, the county assessor, the county tax
collector and participating counties, in order to implement
the provisions of the bill.
16)Specifies the circumstances under which all amounts owned by
the claimant become due immediately.
17)Authorizes a participating county to charge a claimant an
application fee upon that claimant's submission of an
application to participate in the program, and requires the
application fees derived from all claimants in a participating
county to offset that county's costs incurred in administering
the program.
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18)Requires a participating county to charge claimants interest
on the amount of property taxes deferred and sets the
effective annual interest rate at 7% or the rate of effective
annual yield earned in the prior FY by the Pooled Money
Investment plus 2%, whichever is higher, rounded to the
nearest full percent.
19)Prohibits a lender from requiring a borrower to maintain an
impound, trust, or other similar type of account with regard
to property taxes, once the borrower has deferred these taxes
pursuant to this bill, and has submitted to the lender
evidence of tax deferment, except in specified circumstances.
20)Forbids a lender or other person authorized to take sale on
real property to file a notice of default based solely on a
borrower's failure to pay property taxes, if the borrower
provides evidence of participation in the property tax
deferment program.
21)Defines the terms "household income," "income," "owner of a
residential dwelling," "participating county," "property
taxes," "residential dwelling," as specified.
22)Makes legislative findings and declaration regarding the
importance of the Senior Citizens and Disabled Citizens
Property Tax Postponement (PT Postponement) Law and its
suspension in February 2009.
EXISTING LAW :
1)Establishes the Senior Citizens and Disabled Citizens PT
Postponement Law, the Senior Citizens Tenant-Stockholder PT
Postponement Law, the Senior Citizens Mobilehome PT
Postponement Law, and the Senior Citizens Possessory Interest
Holder PT Postponement Law in the Revenue and Taxation Code,
all of which allow the State Controller (SC) to pay property
taxes to county tax collectors on behalf of individuals over
the age of 62 or disabled persons making less than $39,000 in
income per year.
2)Requires a claimant to repay the SC upon sale of the home,
which secures the PT loan made by the SC. The loan does not
have a "super-priority" status.
3)Suspends the PT Postponement program as part of the budget
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reductions to the state's general fund (GF) programs and
prohibits individuals from filing new claims for PT
Postponement, and the SC from accepting applications, in the
2009 calendar year and thereafter.
FISCAL EFFECT : Unknown. Committee staff, however, estimates
that this bill may result in moderate costs to the GF due to the
provision allowing county tax collectors to cancel delinquent
penalties and interest, for K-12 schools under Proposition 98.
In addition, the SC's Office notes in its analysis of this bill
that granting locally operated property tax liens priority over
existing SC's Office loan liens would result in GF losses since
some SC's Office loan liens may become uncollectible.
COMMENTS :
1)Author's Statement . The author states that, "The Senior and
Disabled Citizens Property Tax Postponement Program was
suspended with no warning in 2009, leaving program
participants no time to find alternative funding to pay
property taxes. AB 1090 will help elderly and disabled
Californians stay in their homes and grants previous program
participants extra time to find vital property tax financing
by establishing a 5-year moratorium on foreclosures and
impound accounts. This mirrors the existing county waiting
period for tax sales. As a county opt-in program, AB 1090
provides a way for counties to care for their most vulnerable
citizens."
2)Arguments in Support . The proponents of this bill state that
this measure provides a "needed alternative to the state
property tax postponement program" and will "help thousands
disabled individuals and older Californians remain in their
homes by permitting counties to defer their property taxes."
The proponents cite their own research showing that 28% of all
foreclosures or delinquencies involved homeowners age 50 and
older, and argue that AB 1090 will help reduce foreclosures
for older and disabled Californians. The proponents also
maintain that counties "strongly endorse the priority lien as
a long-standing practice for collecting local taxes and
assessments."
3)Arguments in Opposition . The opponents object to the
provision in this bill that "grants super lien status in favor
of a participating county." They believe that the granting of
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super-priority lien status is unnecessary, because of this
bill's requirement that program claimants maintain a minimum
of 20% equity in their properties, and the measure's 7%
interest rate on deferred amounts. They argue that the
creation of a super lien status for the payment of delinquent
property taxes against the underlying property would cause the
County Deferred PTP participants to violate the terms of their
mortgage contracts. The opponents state that AB 1090 would
limit the ability of a lender/servicer "to enforce performance
of the contract by precluding the commencement of non-judicial
foreclosure through the filing of a notice of default," and as
such, would impair the obligation of the mortgage contract in
violation of the state and federal constitutions. Finally,
the opponents believe that this bill would negatively impact a
County Deferred PTP participant's ability to "seek future
financing secured against the residential real property," and
would likely result in defaults, compelling counties to
foreclose in order to recover the debt.
4)The Purpose of this Bill . According to the author, as the
result of the PT Postponement program's suspension, many
senior and disabled homeowners are delinquent on their
property taxes. Many of those homeowners have mortgages on
their houses and are concerned that the lenders will start
initiating foreclosure proceedings. While the number of
foreclosure proceedings is unknown, a number of former PT
Postponement participants are currently being pushed out of
their houses by their lenders. AB 1090 is intended to create
a uniform County Deferred PTP program that is modeled after
the suspended state program but with tighter eligibility
requirements and a new source of funding for the County
Deferred PTP loans. It is designed to help seniors and
disabled individuals as well as to alleviate the negative
impact of the program suspension on local government revenues.
5)The Existing PT Postponement Law and the Suspension of the PT
Postponement Program . California has several property tax
programs benefiting the elderly and disabled individuals,
including property tax reappraisal relief, property tax
assistance, and PT Postponement. Unlike the property tax
assistance program that refunds a percentage of property taxes
paid, the PT Postponement program allows eligible homeowners
to defer payment of all, or a portion of, the property taxes
on their residences. The program was enacted in 1977, after
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the passage of a constitutional amendment authorizing the
postponement of property taxes (California Constitution,
Article 13, Section 8) and is administered by the SC's Office.
The constitutional amendment was in response to concerns that
senior homeowners on fixed incomes could lose their homes
because of the inability to pay rising property tax bills.
Originally designed for persons over 62 years of age, the
program is now also available to eligible blind and disabled
persons, regardless of age. The claimants must also meet
other criteria, including having 20% equity in their homes and
annual household income of $39,000 or less.
Claimants are required to file applications annually with the
SC's Office, between May 15th and December 10th of each
calendar year for the FY beginning July 1 of that year. The
SC may grant a reasonable extension for filing, but no later
than the end of the FY for which postponement is claimed.
Once the application has been approved, the Controller sends
two certificates of eligibility beginning in November for that
FY that act as vouchers for payment of property taxes.
Certificates are made out in the name of the claimant and the
county tax collector, and may be used to postpone all or part
of the property taxes on the home. The term "property taxes"
includes everything on the claimants' secured property tax
bill, including special assessment, charges, and user fees, in
addition to ad valorem taxes. However, special assessments
levied independently of the county tax bill are not eligible
for postponement.
The PT Postponement program is a loan program from the state to
eligible property owners. Each year, the state imposes
interest on the amount it pays to the county on behalf of the
taxpayer. The loan is secured by the property and is repaid,
with interest, when the taxpayer dies, sells the home, moves,
or allows a "senior lien" to become delinquent. There is no
maximum amount of postponed property taxes that can be
accumulated under the program. Over the last 30 years, the PT
Postponement program has provided assistance to more than
200,000 homeowners. Nearly every county has at least one
program participant, and most counties have several dozen
participants. Los Angeles County accounts for 21% of program
participants. San Diego, San Bernardino, Riverside, and
Orange counties have 28%, and the nine San Francisco - Bay
Area counties have about 19% of the program participants.
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On February 20, 2009, the PT Postponement program was
indefinitely suspended as part of the budget reductions to the
state's GF programs. ÝSB x3 8 (Ducheny), Chapter 4, Statutes
of 2009]. The funding for the program was eliminated and the
SC was prohibited from accepting any new applications after
February 20, 2009. Consequently, the SC's Office notified the
counties and each claimant who was approved for postponement
in FY 2008-09 that their application could not be accepted.
Most applications submitted by claimants in FY 2008-09 were
processed before the suspension became effective.
6)The Impact of the Suspension on Program Participants and
Counties . The PT Postponement program helped thousands of low
and moderate income elderly, blind and disabled individuals to
remain in their homes. Historically, the loan repayments,
with few exceptions, have equaled or exceeded the annual
program expenditures and administrative costs. The SC's
Office reports that, over the long-term, the program is
self-supporting. Even though in 2007-08 FY and 2008-09 FY,
the SC's Office collected less money than it disbursed in
loans, the overall fiscal impact of the program has been
positive: the PT Postponement program collected $41 million
more in PT Postponement loan repayments than it disbursed in
PT Postponement loans. The program has allowed participants
to remain in their homes, reduced county property tax default
rates and increased county tax collection revenues.
According to the survey conducted by the SC's Office, the
program suspension has had a direct negative impact not only
on the program participants but also on the counties. The
suspension of the PT Postponement program, coupled with the
elimination of the Franchise Tax Board's Homeowners and
Renters Assistance program, has created a tremendous financial
hardship for low-income senior, blind, and disabled
homeowners. The program participants have expressed fear of
losing their homes to tax-default sales and foreclosures by
lenders because of the failure to pay property taxes directly
or through an impound account initiated by the lender. They
are also concerned with becoming homeless or dependent on
family members and not being able to afford basic necessities.
Many claimants have been in the program for over 20 years and
have been counting on the loan program to pay their property
taxes. More than 50% of the program participants are 75 years
of age or older, and 208 claimants approved for FY 2008-09
were older than 90 years of age.
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Furthermore, the counties have also been negatively impacted by
the program suspension. The county tax collectors reported a
decrease in revenue due to higher delinquencies rates, an
increase in related workload, including the number of
properties that the counties are forced to sell as
tax-defaulted, and an increased strain on county services by
displaced homeowners.
7)The Proposed "County Deferred PTP" Program . The suspended PT
Postponement program was funded exclusively by GF moneys. In
contrast, the County Deferred PTP program, proposed by AB
1090, would be self-financing and not reliant on an annual GF
appropriation. It would be funded by a participating county
through a Fund to be established within its treasury. Upon
adoption of a resolution by the county's governing body, and
with the consent of the county treasurer, excess county funds
would be deposited in the Fund for the purpose of providing PT
Postponement loans to qualified claimants. AB 1090
establishes uniform statewide eligibility criteria for the
claimants and certain rules and guidelines for a County
Deferred PTP program. The counties are authorized to charge
claimants a specified interest rate on the property tax loans
and an application fee, which will be used exclusively to
cover the costs of administering the program. Furthermore,
counties are allowed to grant retroactive relief for
individuals who could not obtain deferment when the
Legislature de-funded the original PT Postponement program in
2009.
Under the County Deferred PTP program, the property tax loans,
i.e. the amount of property taxes deferred, plus interest
accrued, would be secured by a tax lien against the underlying
residential dwelling, with the same super-priority status as
other property tax liens. In the case of a residential
dwelling that is taxed as part of a larger unit, the lien
shall be against the entire tax parcel. The lien will
constitute constructive notice to subsequent purchasers,
lessees, and other lienholders. The county auditor would
continue to allocate the county revenue to other local
agencies - cities, special districts, and school districts -
as if the tax had been paid until the house is sold and the
lien can be satisfied.
The amount secured by the lien will be reduced by the amount of
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any payment, and will be increased to reflect interest accrual
or subsequent deferral for the claimant. Payments shall be
applied to the oldest deferral amount in order of lien
recordation date. If the lien is paid in full, the county tax
collector is required to record a release, evidencing the
satisfaction of all amounts secured by the lien, and remove
specified information from the secured roll and assessment
records required when property taxes are postponed. The
property taxes will be immediately due and payable if the
claimant (a) ceases to own the building due to sale,
conveyance, or condemnation; (b) ends his/her permanent
residence dwelling; (c) experiences a fall in equity value
below the program's eligibility criterion; (d) refinances
existing loans on the property; or (e) was erroneously granted
deferment because he/she did not meet eligibility criteria.
Finally, similarly to the suspended PT Postponement program, AB
1090 precludes lenders from requiring a borrower to maintain
an impound, trust, or other type of account with regard to
taxes established after 1978, if the borrower chooses to
postpone taxes, unless required by federal law or if the
prohibition would impair the express obligations of a loan
agreement. AB 1090 also prohibits a mortgagee, trustee, or
other person authorized to take sale on real property because
of the mortgagor or trustor's failure to pay property taxes
from filing a notice of default, if the borrower shows
evidence of participation in the County Deferred PTP program.
In summary, this bill provides a county with an option to defer
property taxes for homeowners residing within the county, but
may leave many low-income homeowners without assistance in
counties that choose not to participate in the program.
8)"Super Liens ." There are many differences between the former,
state-run program and the county-run program proposed by this
bill, the most significant of which is the lien priority given
to PT Postponement loans.
Under existing law, a county may issue a tax lien against
property when an owner is late on paying property taxes.
Generally, tax liens are payable in the order in which they
are recorded. The tax lien is removed when the property tax
is paid or the property is sold to satisfy the lien. Upon
sale, tax liens are paid out of proceeds in the order
recorded. For instance, if the Internal Revenue Service files
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a lien against a home for a taxpayer who is delinquent on
income taxes, the lien is repaid after the lien filed by the
mortgage company if the property owner fell behind on his/her
mortgage payments first. However, property tax and special
assessment liens have priority over all other liens,
regardless of the time of its creation, so -called
"super-priority" lien status. This preferred status ensures
that the county will be repaid first when the house is sold.
This bill confers a similar favorable treatment to liens that
would secure a claimant's deferred property taxes under the
proposed County Deferred PTP program.
9)Are "Super Liens" Problematic ? The suspended PT Postponement
program was operated by the SC's Office, which is still
required to collect on outstanding PT Postponement loans.
Under that program, PT Postponement loans were assigned
"judgment lien" status, which placed them in line to be paid
off relative to other liens on the property, based on the date
they were recorded relative to the other liens. In other
words, they were in line to be paid off after the liens
recorded before them, but before the liens recorded after
them. As noted in the SC's analysis of this bill, currently,
the SC's Office manages approximately 8,000 PT Postponement
accounts, with about $95 million in outstanding PT
Postponement loans. These PT Postponement liens would be
subordinate to the new County Deferred PTP liens. Arguably,
the 'super-priority" status of the new liens would put many of
the SC's Office PT Postponement loans at risk and may
potentially result in GF losses. The SC's Office suggests
that, in order to minimize the risk to GF, repayment of PT
Postponement loans granted by the SC's Office be given
priority over repayment of any locally operated County
Deferred PTP loans.
The opponents of this bill also are concerned with the
super-priority lien status of new County Deferred PTP liens,
because they believe that it will force a violation of many
mortgage contracts and pose constitutional contract impairment
issues. They assert that standard mortgage contracts require
the borrower to promptly discharge any lien that has priority
over the mortgage. Uniform mortgage instruments used by
Fannie Mae and Freddie Mac specifically require the borrower
to pay all taxes, assessments, charges, fines, and impositions
attributable to the property, which can attain priority over
the mortgage. Arguably, by creating a super-priority lien
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that is statutorily assigned priority over a homeowner's
primary mortgage or deed of trust, this bill would place
borrowers in violation of their mortgage contracts. But at
the same time, this bill would prohibit financial institutions
from recording a notice of default, due solely to a borrower's
failure to pay property taxes and, as such, may violate
Article 1, Section 9 of the California Constitution and
Article 1, Section 10 of the United States Constitution that
prohibit the enactment of laws that impair the obligation of
contracts.
10)Application Fee . This bill requires a payment of an
application fee upon submission of the claim for property tax
deferment. Under the suspended PT Postponement program, the
fee was paid only upon approval of the claim. As pointed out
by the SC's Office in its analysis of this bill, the
homeowners applying for property tax assistance are
low-income, and requiring a payment of the fee upon submission
of the application may deter many needed applicants from
applying for deferment. The Committee may wish to consider
amending this bill to provide that the application fee may be
charged only upon approval of the application.
11)Technical Amendment .
On page 5, line 25, strike out "Code. Except" and insert
"Code, except"
On page 10, line 14, strike out "they"
12)Related legislation .
AB 1718 (Blumenfield), introduced in the 2009-10 legislative
session, was identical to this bill. AB 1718 was vetoed by
Governor Schwarzenegger.
REGISTERED SUPPORT / OPPOSITION :
Support
AARP
California State Association of Counties
California Senior Legislature
California Association of Realtors
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Opposition
California Bankers Association
California Escrow Association
California Financial Services Association
California Land Title Association
California Taxpayers Association
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098