BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 1090| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 1090 Author: Blumenfield (D) Amended: 5/31/11 in Assembly Vote: 21 SENATE GOVERNANCE & FINANCE COMMITTEE : 9-0, 07/06/11 AYES: Wolk, Huff, DeSaulnier, Fuller, Hancock, Hernandez, Kehoe, La Malfa, Liu ASSEMBLY FLOOR : 75-0, 06/02/11 - See last page for vote SUBJECT : Taxation: property tax deferment SOURCE : Author DIGEST : This bill enacts the County Deferred Property Tax Program for Senior and Disabled Citizens and allows each county to elect to participate in the program. ANALYSIS : I. Property Tax Assistance Program . Current law establishes the Senior Citizens and Disabled Citizens Property Tax Postponement Law (PTP), which allows the Controller 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. The claimant must repay the Controller upon sale of the home, who secures the loan by recording a lien. Loans do not become due and payable if the claimant or the claimant's CONTINUED AB 1090 Page 2 spouse continues to occupy the home secured by the lien. The Controller's lien for a property tax postponement loan is not afforded "super priority" status, similar to liens recorded by county treasurer tax collectors for unpaid property taxes, which means that the county lien is paid before all others if the secured property is sold. PTP is distinct from the Senior Citizens Property Tax Assistance Program (PTAP), administered by the Franchise Tax Board, which is a direct grant program to income-eligible senior citizens. The state has not funded PTAP since the 2007-08 Budget, so the state has not paid claims more recently than those made in 2007. In 2009, the Legislature also prohibited persons from filing new claims for property tax postponement, and the Controller from accepting applications (SBX3 8, Ducheny, 2009). This bill enacts the County Deferred Property Tax Program for Senior Citizens and Disabled Citizens. Counties may elect to participate in the program by adopting a resolution indicating the county's intention to participate in the program. Eligible claimants in participating counties may apply for deferment on a form created by the participating county, which the county tax collector shall review to ensure that the claimant meets eligibility criteria. Participating counties must establish a Property Tax Deferral Fund within its Treasury, which shall be used solely to make subvention payments and pay administrative costs. County Tax Collectors must defer property taxes on the claimant's residential dwelling due and owing for that fiscal year if the claimant is eligible, timely files an application, and there are sufficient funds in the county's Property Tax Deferral Fund. If the county tax collector defers the tax, then he or she must issue a subvention payment from the Property Tax Deferral Fund to the County, for processing in the same manner as all other property tax payments. The payment must then be apportioned as if the taxpayer had paid the tax. The county sends the taxpayer a letter confirming program participation. The bill prohibits counties from charging penalties or undertaking collections actions on taxpayers granted a deferment. Counties may defer property taxes retroactively CONTINUED AB 1090 Page 3 for the time period since the suspension of the PTP law, unless the payment affects a vested right of a private party. The measure allows counties to charge a fee when a claimant applies to pay for its administration costs and foreclosure costs when they cannot be collected through collections actions. Counties may also charge recording fees to pay for the recording and releasing of liens, payable to the County Recorder. The bill further provides definitions for many of its terms, many imported from PTP law. II. Claims . The prior PTP law defined "claimants" as persons who: Are 62 years of age or older or blind or disabled on the last day of the calendar year or approved fiscal year. Own a "residential dwelling," as defined, which requires at least 20% equity of the fair market or assessed valuation. Has household income of less than $39,000 in the 2009 calendar year, as defined. Claimants must file postponement applications with the Controller between May 15th and December 10th of the calendar year in which the fiscal year of postponement is requested. This bill defines a "claimant" as a person who: Applies in a participating county. Has attained eligibility for social security benefits on the last day of the filing period for the fiscal year or is blind or disabled. For retroactive deferment, then the age of eligibility is 62. Owns a "residential dwelling," with an updated but functionally identical definition. To be eligible, the owner must have at least 20% equity of the fair market or assessed valuation as measured by the amount which the fair market value exceeds the total amount of liens. CONTINUED AB 1090 Page 4 Has household income of less than $35,500, using the existing definition, but does not allow business losses to reduce household income for eligibility purposes. The bill further states that claimants must file annually, only one claimant per residential dwelling may have property taxes deferred, and the claimant may be required to furnish evidence of eligibility every year to continue participation. If the claimant fails or refuses to furnish any information, or files a fraudulent claim, then the county obligation is null and void. The record of a deferred 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 or interest resulting from the delinquency. This bill requires claimants to file postponement applications with the county tax collector starting October 1st and ending December 10th of each year, although counties can grant reasonable extensions for good cause at any time before the end of the fiscal year for which deferment is requested. Counties may require any information necessary to process the claimant's application, and shall contain a written declaration that the information therein was provided under penalty of perjury. If a claim is filed timely, any delinquent penalties and interest are cancelled unless the failure to perfect the claim is due to the claimant or the claimant's agent willful neglect. In such a case, the subvention payment may be used only if it is accompanied by sufficient amounts to pay the delinquent interest and penalties. The county shall refund any overpayment to the party entitled thereto. The measure provides that the county shall charge an interest rate the higher of 7% per year or the effective annual yield earned in the prior fiscal year by the Pooled Money Investment Account plus 2%, rounded to the nearest full percent, and imports other parts of existing law regarding interest calculation into the local program applicable to the state program. The county must disclose the interest rate to the taxpayer. CONTINUED AB 1090 Page 5 III. Liens . Current law allows a county to issue a tax lien against property when an owner is late on paying property taxes, and provides that a judgment is satisfied, and the tax lien 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; however, property tax and special assessment liens have priority over all other liens regardless of the time of its creation. This bill provides that the amounts of property taxes deferred, plus interest accrued, shall be secured by a judgment lien. The lien shall be evidenced by a notice of lien for deferred property taxes executed by the county, and shall secure all sums deferred and owing, including amounts deferred subsequent to the initial deferment. The notice of lien must contain a description of the property and the names of all record owners of the property upon which the taxes were deferred. The county tax collector shall index the lien according to the names of each record owner and the county. The bill requires the county tax collector or assessor, upon receipt of the notice of lien, to enter on the notice a description of the property and the names of all record owners on the notice for the property for which taxes are deferred, and to enter on the assessment records that the taxes have been deferred. The assessor shall immediately forward the notice to the tax collector after the entry. The assessor shall inform the tax collector of any changes in ownership of the real property for which taxes are deferred. The tax collector shall maintain a record containing specified information of all residential dwellings against which he or she has filed a notice of lien for deferred property taxes. The bill further requires the county to reduce the amount secured by the lien by the amount of any payment, and increase it 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 shall record a release with the county recorder evidencing the satisfaction of all amounts secured by the CONTINUED AB 1090 Page 6 lien, and remove specified information from the secured roll and assessment records required when property taxes are postponed. The amount of the lien increases to reflect the accrual of interest. This bill provides that the taxes are immediately due and payable if the claimant: Dies Ceases to own the building due to sale, conveyance, or condemnation. Ends his or her permanent residence dwelling. Experiences a fall in equity value below the program's eligibility criterion. Refinances existing loans on the property. Was erroneously granted deferment because he or she did not meet eligibility criteria. IV. Limitations on Mortgagors . Current PTP law posits that the postponement of property taxes under the state program does not affect the obligation of a borrower to make payments to a lender with respect to an impound, trust, or other type of account established before 1978. That law also precluded lenders from requiring the borrower to maintain an impound, trust, or other type of account in regard to taxes once the borrower chooses to postpone taxes, unless required by federal law or regulation, in the case of a mortgage guaranteed or insured by a federal government lending or insurance agency, or if the prohibition would impair the express obligations of a loan agreement. This bill enacts identical provisions for this program, and further prohibits a mortgagee, trustee, or other person authorized to take sale on real property as a result of the mortgagor or trustor's failure to pay property taxes from filing a notice of default if the mortgagor or trustor shows evidence of participation in the property tax postponement program. The measure duplicates this provision but states that a notice of default cannot be filed for five years following the initial authorization to take sale mortgagor or trustor shows evidence of participation in the property tax postponement program. CONTINUED AB 1090 Page 7 V. Local Agency Investments . Since 1913, state law has allowed local officials to invest their temporarily idle funds in various financial instruments. State law originally limited these local investments to government bonds, but over time legislators expanded the list to include more sophisticated instruments. The Legislature limits the percentage of funds that a local agency can invest in particular instruments. In 2002, the Legislature gave counties statutory permission, until January 1, 2007, to put money into the following high-quality, short-term investments (AB 2182, Campbell, Chapter 162, Statutes of 2002): U.S. Treasury and federal obligations Federal agencies' bonds, notes, debenture, or obligations. California registered state warrants, treasury notes, or bonds. Local agencies' bonds, notes, warrants, or other indebtedness. Banker's acceptances (bills of exchange, time drafts) for international trade. Short-term corporate promissory notes, or commercial paper. Commercial banks' certificates of deposit. Repurchase agreements, reverse repurchase agreements, or securities lending agreements. Corporate or bank debt securities, including medium-term notes. Diversified management companies' shares of beneficial interest. Mortgage pass-through securities, collateralized mortgage obligations, mortgage-backed bonds, lease-backed certificates, consumer receivable pass-through certificates, or consumer receivable-backed bonds. Insurance companies' contracts. This bill adds investments in the Property Tax Deferral Fund in each county to the list of investments that a county treasurer can invest in. Prior Legislation CONTINUED AB 1090 Page 8 Last year, the former Revenue and Taxation Committee and the Legislature approved AB 1718 (Blumenfield), which is substantially similar to this bill, except that measure allows treasurer-tax collectors to secure the deferral with lien that has super priority status. Governor Schwarzenegger vetoed the measure, stating: The goal of this bill is laudable. However, the bill inappropriately grants counties a super priority lien on a participating senior or disabled individual's residential property. Not only would an individual's participation in a county program violate their mortgage contract, it would most likely render them unable to obtain future loans. I believe that the lending and mortgage industry agree with the intent of this measure. The author would be well-served by working with them and the counties next year to craft a solution that provides a workable and legally acceptable tax deferral program for seniors and disabled individuals struggling to maintain their residential property. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 7/7/11) AARP California California Association of Realtors California Senior Legislature ARGUMENTS IN SUPPORT : According to the author, "For more than 30 years, the state Senior and Disabled Citizens Property Tax Postponement Program helped thousands of low and moderate-income Californians remain in their homes by postponing their property taxes. Relying on annual General Fund support, the program was suspended indefinitely in 2009 due to state budget cuts. Program suspension leaves over 2,500 needy Californians fearful and vulnerable to foreclosures, evictions, and potential victimization by scam artists. Many former program participants can afford their monthly mortgage payments, but they do not have sufficient income to pay their property taxes. Without the CONTINUED AB 1090 Page 9 property tax postponement program, banks have begun establishing impound accounts to collect overdue property taxes. Homeowners that are unable to pay the additional amount for the impound account are being pushed into foreclosure. While a county must wait five years to foreclose, banks can do so immediately. AB 1090 seeks to re-create the Senior and Disabled Citizens Property Tax Postponement Program at no state cost, to prevent persons previously in the program from losing their homes due to bank foreclosures, and to offer property tax relief to other eligible homeowners in the future." ASSEMBLY FLOOR : 75-0, 06/02/11 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, Brownley, Buchanan, Butler, Charles Calderon, Campos, Cedillo, Chesbro, Cook, Davis, Dickinson, Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines, Galgiani, Garrick, Gatto, Gordon, Grove, Hagman, Harkey, Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman, Jeffries, Jones, Knight, Lara, Logue, Bonnie Lowenthal, Ma, Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel Pérez, Portantino, Silva, Skinner, Smyth, Solorio, Swanson, Torres, Valadao, Wagner, Wieckowski, Williams, Yamada, John A. Pérez NO VOTE RECORDED: Carter, Conway, Gorell, Halderman, Hall AGB:nl 7/11/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED