BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                 AB 1090
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         ASSEMBLY THIRD READING
         AB 1090 (Blumenfield)
         As Introduced  February 18, 2011
         Majority vote 

          REVENUE & TAXATION  5-2                                         
          
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         |Ayes:|Perea, Charles Calderon,  |     |                          |
         |     |Cedillo, Alejo, Gordon    |     |                          |
         |     |                          |     |                          |
         |-----+--------------------------+-----+--------------------------|
         |Nays:|Donnelly, Harkey          |     |                          |
         |     |                          |     |                          |
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          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 








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              amount of any liens or other obligations against the 
              property.

         4)Allows a participating county to require a claimant to provide 
           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 








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              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 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 








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           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.

         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. 

          FISCAL EFFECT  :  Unknown.  Committee staff, however, estimates that 
         this bill may result in moderate costs to the General Fund (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 State Controller's (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  :  









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          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."

          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 this bill 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."

          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 
         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 this bill 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 








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         counties to foreclose in order to recover the debt. 

          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.  This bill 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.   

          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 this bill, 
         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.  This bill 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 








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         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 
         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 will be 
         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, this 
         bill 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.  This bill 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. 

          "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 








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         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 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.  

          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 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 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 are also 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, 








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         assessments, charges, fines, and impositions attributable to the 
         property, which can attain priority over the mortgage.  Arguably, 
         by creating a super-priority lien 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 I, Section 9 of the California Constitution 
         and Article I, Section 10 of the United States Constitution that 
         prohibit the enactment of laws that impair the obligation of 
         contracts.  

          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 in the SC's analysis, 
         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.

          Technical amendment  .  

           On page 5, line 25, strike out "Code. Except" and insert "Code, 
           except"

           On page 10, line 14, strike out "they"

          Related legislation  .  AB 1718 (Blumenfield), introduced in the 
         2009-10 legislative session, was identical to this bill and was 
         vetoed by Governor Schwarzenegger. 

          
         Analysis Prepared by  :    Oksana Jaffe / REV.  & TAX. / (916) 
         319-2098 


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