BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                  AB 1090|
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                                 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 
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          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 

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          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.  

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                 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.


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          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 

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          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.


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          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


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           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 

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          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

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