BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 1718 - Blumenfield
Amended: August 19, 2010
Urgency
Hearing: August 25, 2010 Fiscal: Yes
SUMMARY: Recasts the Property Tax Postponement Program,
and Provides Statutory Framework for Counties to
Defer Property Taxes
I. The County Deferred Property Tax Program for Senior
Citizens and Disabled Citizens
EXISTING LAW establishes the Senior Citizens and
Disabled Citizens Property Tax Postponement Law, the Senior
Citizens Tenant-Stockholder Property Tax Postponement Law,
the Senior Citizens Mobilehome Property Tax Postponement
Law, and the Senior Citizens Possessory Interest Holder
Property Tax Postponement Law in the Revenue and Taxation
Code, 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 spouse continues to occupy the home
secured by the lien. The Controller's lien for a property
tax postponement loan is not afforded "superpriority"
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. These programs are distinct from the
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Senior Citizens Property Tax Assistance Program (PTAP),
administered by the Franchise Tax Board, which is a direct
grant program to income-eligible senior citizens, but the
four postponement laws rely on the tax assistance law's
terms and definitions.
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. Last year, 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.
THIS BILL requires the County Tax Collector to 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.
THIS BILL prohibits counties from charging penalties
or undertaking collections actions on taxpayers granted a
deferment. Counties may defer property taxes retroactively
for the time period since the suspension of the Senior
Citizens and Disabled Citizens Property Tax Postponement
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Law, unless the payment affects a vested right of a private
party.
THIS BILL 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.
THIS BILL provides definitions for many of its terms.
II. Claims
EXISTING LAW defines "claimant" as a person who:
Is 62 years of age or older or blind or
disabled on the last day of the calendar year or
approved fiscal year.
Owns 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.
THIS BILL defines "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
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as measured by the amount which the fair market
value exceeds the total amount of liens.
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.
THIS BILL 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.
EXISTING LAW requires claimants to 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 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.
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EXISTING LAW provides an uncompounded interest rate on
property tax loans of 7% per year for loans made prior to
1984. After that, the Controller established the annual
rate of interest as equal to the Pooled Money Investment
Account effective annual yield for the prior year rounded
to the nearest full percent, unless the effective annual
yield is at least a full point more or less than the prior
year, in which case the Controller adjusts to the new rate
not later than July 15th.
THIS BILL 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.
III. Liens
EXISTING 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 recorded by a
lien with the same priority as property tax and special
assessment liens, requiring payment before other non-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 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
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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.
THIS 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 lien shall constitute constructive
notice to subsequent purchasers, lessees, and other
lienholders. 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.
THIS BILL 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
lien, and remove specified information from the secured
roll and assessment records required when property taxes
are postponed.
THIS BILL provides that the taxes are immediately due
and payable if the claimant:
Ceases to own the building due to sale,
conveyance, or condemnation.
Ends his or her permanent residence
dwelling.
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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
EXISTING 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.
THIS BILL 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, and
then specifies that this preclusion applies to participants
in the Controller's Program in the 2008-09 fiscal year,
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regardless of whether the claimant enrolls in the county
program. AB 1718 also states that written confirmation
from the Controller identifying the individual as a
participant in the program shall be considered evidence to
satisfy the conditions above. The measure requires the
Controller to provide written notice to individuals that
participated in the program in 2008 and 2009.
FISCAL EFFECT:
According to Committee Staff, AB 1718 does not affect
state revenues.
COMMENTS:
A. Purpose of the Bill
According to the Author, "The state last year cut
General Fund support for the state property tax
postponement program for eligible seniors and disabled
homeowners. That left more than five thousand needy
Californians facing being delinquent on their property
taxes.
Amid continuing state budget deficits, we have a
proposal now with AB 1718 to help these senior and disabled
homeowners at no cost to the state.
Basically, the bill would establish a county opt-in
program with uniform eligibility standards and
administrative procedures for postponing property taxes.
Counties would be administering the program for homeowners
in their county.
The eligibility standards are similar to what had been
in place for the state program - with some tightening such
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as not allowing deduction of business losses. The counties
opting in would use their existing authority to collect
property taxes - so they would place a lien on the homes of
eligible claimants and collect when the homeowners dies,
sells or pulls out equity when refinancing.
The new approach being taken in the bill comes out of
discussions with county treasurers and tax collectors,
lenders and representatives of the land title industry.
Instead of creating the pooled investment fund in the
version of the bill passed earlier by this committee, the
bill now would provide for more local control while helping
needy seniors and disabled homeowners.
The bill would:
Allow counties opting in by resolution of
the Board of Supervisors to postpone property
taxes for claimants secured by a lien to be
collected when the ownership of the house changes
or the homeowner refinances.
Require 20 percent equity, homeowner to
reside in the house, an adjusted household gross
income of under $35,500, and tightened income
eligibility - such as disallowing deductions of
business losses.
Only one claimant is allowed per
household.
Require claimants to pay the deferred
property taxes upon death of the claimant, sale
of the house or refinancing that draws down the
20% equity level.
Authorize county tax collectors to forgive
property tax delinquencies for December 2009 and
April 2010 to avoid having program participants
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pay penalties and interest.
We need to do something now to help these elderly and
disabled homeowners. Unless we pass this bill now, these
needy California taxpayers will face foreclosures and
forced tax sales in a couple of years for delinquent
property taxes.
Lenders already are sending these homeowners letters
warning of foreclosure actions and creating impound
accounts for the property taxes - which means the
homeowners not only will be delinquent on property taxes
but very likely will become delinquent on mortgage payments
-and subject to foreclosure actions.
B. Do It Yourself
For many years, the Senior Citizens and Disabled
Citizens Property Tax Postponement Program helped
individuals who were unable to make property tax payments
stall foreclosure by securing unpaid amounts in a tax lien,
which was satisfied with the proceeds of a subsequent sale
of the property. According to the Controller's Office,
over the last 30 years, the program has provided property
tax postponement assistance to more than 200,000
homeowners. However, with the Legislature shuttering the
program last year due to its escalating costs and declining
revenues, existing participants can no longer defer taxes,
thereby requiring them to pay property taxes for the first
time since enrolling in the program, and no new
participants can be enrolled.
AB 1718 revises the program to be elective for
counties. Under the bill, counties can enact an ordinance
participating in the program, set aside funds, accept
claims, and defer taxes for eligible claimants, which are
secured by a tax lien with the same superpriority status as
other tax liens. The County Auditor allocates the revenue
to other local agencies such as cities, special districts,
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and school districts using county revenue as if the tax had
been paid until the house is sold and the lien can be
satisfied. The county opt-in program largely relies on
eligibility criteria used for the state program, with some
updates, and even allows counties to grant retroactive
relief for individuals who could not obtain deferment when
the Legislature defunded the program and precluded
claimants from filing new claims. Whereas the former
program used state general funds to benefit eligible
individuals anywhere in the state, AB 1718 gives counties
willing to use its own money the option to continue
deferring taxes for property owners within the
participating county.
C. Lien on Me?
Under existing law, tax liens are payable in the order
in which they are filed. For example, if the Internal
Revenue Service files a lien against a home for a taxpayer
delinquent on income taxes, the lien is repaid after the
lien filed by the mortgage company if the property owner
fell behind on their mortgage payments first. In
California, a property tax lien payable to counties
automatically jumps to the front of the line. AB 1718
confers similar treatment to liens that secure a claimant's
deferred property taxes, a feature that the Controller did
not enjoy under the prior law, and likely leading to its
negative cash flow when the housing market soured and
forced sales where lien amounts exceed the property's
value. So-called "superpriority" lien status ensure that
the county will be repaid when the house is sold by
requiring its lien be paid out of sale proceeds first, an
important security feature in these days of negative
equity. The superpriority status substantially reduces the
risk that the claimant will not repay the County for
property taxes. Under AB 1718, a lien securing deferred
property is treated in the same was a lien recorded to
compel payment of delinquent property taxes.
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D. Renewing Acquaintances
The Committee approved AB 1718 on June 23rd when the
measure resuscitated the state program by allowing counties
to fund it by investing excess local funds. The Banking,
Finance, and Insurance (BF&I) Committee approved the
measure on July 15th with amendments suggested by this
Committee. On August 9th, the author deleted the contents
of the bill, and replaced them with the county optional
program in advance of its hearing in the Appropriations
Committee. On August 19th, the Author further amended the
measure, causing the Rules Committee to refer the bill back
to both the Committees on Revenue and Taxation, and BF&I
pursuant to Senate Rule 29.10. Under that rule, the
Committee may elect to either hold the bill or approve it,
sending it to BF&I.
E. Looking Ahead
The Author can amend AB 1718 if it returns to the
Floor; however, Joint Rule 61 requires a 2/3 vote to amend
a bill after the deadline, which this year fell on August
20th. The Committee recommends the Author make the
following amendments at that time, in addition to
amendments suggested by BF&I:
Page 6, line 37: revise to allow the Tax Collector
to require the claimant to furnish evidence.
Page 7, line 4: replace the "county obligation"
with "the claimant's application."
Page 11, line 7: delete "time period since the
suspension of the Senior Citizens and Disabled
Citizens Property Tax Postponement Law" and replace
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with "for taxes due on or before February 20, 2010,"
the enactment date of SBx3 8.
Page 11, line 9: define "vested right," and clarify
whether this provision's prospective application
supersedes or accedes to other parts of the bill that
preclude lenders from requiring impound accounts and
foreclosing for non-payment of property taxes for new
claimants or claimants under the state program in
2008-09..
Page 11, line 12: revise to state that the claimant
may submit his or her application in a participating
county.
Page 11, line 28: change "shall" to "may" to avoid
a situation where more claims have to be paid because
at the time eligibility the fund shows a balance,
because it has not yet paid pending claims.
Page 11, line 35: add "direct the County Auditor"
to apportion the subvention payment because in many
counties, the auditor apportions revenues.
Delete lines 8 through 17 on Page 17, because a
county cannot easily appropriately rate the risk of
future foreclosures and calculate the appropriate
foreclosure costs into a fee for applicants. If fee
revenues are short, the County general fund would have
to pay the costs in order for the investment to be
repaid out of tax sale proceeds. If fee revenues are
too much, it would be cost prohibitive for genuinely
poor people to apply, or the fee could be thrown out
on Government Code 54985 for exceeding actual costs.
Add a provision on Page 18, after line 23 stating
that written confirmation from the tax collector shall
be considered evidence of participation for purpose of
this section, and require the tax collector to provide
the evidence to individuals participating in the
program.
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Delete lines 25 through 30 on page 18 because it
duplicates lines 16 through 23.
On Page 19, line 14, replace "department" with
"deferment."
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Support and Opposition
Support:California State Association of Counties,
Urban Counties Caucus, Black Los Angeles County Client
Coalition
Oppose: Howard Jarvis Taxpayers Association;
California Bankers Association; California Financial
Services Association; California Taxpayers Association
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Consultant: Colin Grinnell