BILL ANALYSIS �
AB 261
Page 1
ASSEMBLY THIRD READING
AB 261 (Dickinson)
As Amended May 11, 2011
Majority vote
REVENUE & TAXATION 8-0 APPROPRIATIONS 16-0
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|Ayes:|Perea, Beall, Charles |Ayes:|Fuentes, Harkey, |
| |Calderon, Cedillo, | |Blumenfield, Bradford, |
| |Fuentes, Gordon, Harkey, | |Charles Calderon, Campos, |
| |Nestande | |Davis, Gatto, Hall, Hill, |
| | | |Lara, Mitchell, Nielsen, |
| | | |Norby, Solorio, Wagner |
| | | | |
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SUMMARY : Clarifies that prescriptive easements run with the
tax-defaulted property sold in a tax sale and requires any
person wishing to commence a proceeding in court based on
alleged invalidity or irregularity of a sale of tax-defaulted
property to first petition the local board of supervisors, as
specified, to have the tax sale rescinded. Specifically, this
bill :
1)Specifies that, in the case of a tax-defaulted property sale,
the title conveyed to the purchaser is not free from
prescriptive easements or easements of any kind, among other
liens and encumbrances.
2)Provides that a proceeding based on alleged invalidity or
irregularity of a tax lien sale, that is completed on or after
January 1, 2012, may be commenced in court only if both of the
following conditions are satisfied:
a) The person commencing the proceeding has first
petitioned the board of supervisors pursuant to Revenue and
Taxation Code (R&TC) Section 3731 within one year of the
date of the execution of the tax collector's deed, as
specified; and,
b) The proceeding is commenced within one year of the date
the board of supervisors determines that a tax deed sold,
as specified, should not be rescinded, as provided.
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3)Provides that, if the Commission on State Mandates determines
that this measure contains costs mandated by the state,
reimbursement for those costs shall be made pursuant to
Government Code Part 7 (commencing with Section 17500) of
Division 4 of Title 2.
EXISTING LAW :
1)Requires a property owner to pay property taxes to the
treasurer or tax collector of the county within which the
property is located.
2)Provides that, if property taxes are not paid within five
years of the notice of impending default, the property becomes
subject to sale and will be sold at a public auction. The tax
collector has the power to sell property that has been
tax-defaulted for five years or more, or three years or more
in the case of nonresidential commercial property.
Tax-defaulted property may be sold under either of the
following procedures, each with distinct statutory
requirements:
a) Sale to private persons (including taxing authorities)
by auction (R&TC Section 3691 et seq.); or,
b) Sale to state and local taxing agencies by agreement
(R&TC Section 3791 et seq.).
3)States that, when tax-defaulted property is sold, the deed
conveys title to the purchaser free of all encumbrances
existing before the sale, with specified exceptions, including
an exception for certain easements, such as servitudes upon,
or burdens to, the property, water rights (the record title to
which is held separately from the title to the property) and
restrictions of record.
4)Specifies that a proceeding based on alleged invalidity or
irregularity of any proceedings instituted in a sale of
tax-defaulted property can only be commenced within one year
after the date of execution of the tax collector's deed.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, negligible impact on the State General Fund revenue
and potential cost savings to counties.
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COMMENTS :
Author's statement . The author states that, "AB 261 is a modest
measure bringing clarity and legal certainty to the complex area
of tax lien sales of real property, ultimately protecting
taxpayers."
Sale of tax-defaulted property . Property is deemed in default
if property taxes are not paid when due and is subject to
penalties and costs. Once the real property is declared
tax-defaulted, the county tax collector publishes the
information on the defaulted roll. If the owner fails to redeem
the property within five years (or three years if the property
is also subject to a nuisance abatement lien) by full payment of
the defaulted taxes, interest and penalties, then the property
may be sold to the highest bidder at a public sale. The county
tax collector's power to sell arises by operation of law in
order to satisfy the defaulted taxes. After the power to sell
arises, the tax collector is required to record a Notice of
Power to Sell with the county recorder's office. Once the
property becomes subject to sale, the county tax collector must
attempt to sell the property in order to collect the defaulted
taxes. The property may be offered for sale at public auction,
a sealed bid sale, or a negotiated sale to a public agency or
qualified non-profit organization. Public auctions are the most
common way of selling tax-defaulted property, and the property
is sold to the highest bidder. Generally, if no bid was
received when the property was last offered for sale at public
auction, the tax collector may re-offer property at a reduced
price at the same or next scheduled sale.
What does this bill do ? AB 261 (Dickinson) is intended to
accomplish two things: clarify the rights of unrecorded
prescriptive easement holders when title is conveyed in a tax
lien sale and require a person wishing to challenge the validity
of a tax lien sale to petition the local board of supervisors
first to rescind the tax sale.
Title conveyed in a tax sale . Existing law provides that a
title granted by a tax deed pursuant to a valid sale of
tax-defaulted property is free of all encumbrances of any kind
existing prior to the sale, subject to certain enumerated
exceptions. One of those exceptions is an easement constituting
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servitude upon, or burden to, the property. (R&TC Section
3712).
The definition of prescriptive easements . An easement is merely
a right to use the land of another - "a restricted right to
specific, limited, definable use or activity upon another's
property, which right must be less than the right of ownership."
�Scruby v. Vintage Grapevine, Inc. (1995) 37 Cal.App.4th 697,
702]. The easement holder possesses the right to use land owned
by another person for a specific purpose. Easements are usually
obtained through a written agreement, but a prescriptive
easement is acquired through continuous use of another person's
property, without the owner's permission, for a period of five
years under California law. Thus, a prescriptive easement is an
easement that has not been recorded. To establish a
prescriptive easement, a plaintiff must show by clear and
convincing evidence: (i) open, notorious, and uninterrupted
use; (ii) hostile to the true owner; (iii) under the claim of
right; (iv) for the statutory period of five years. �Silacci v.
Abramson (1996) 45 Cal.App.4th 558, 563; Applegate v. Ota (1983)
146 Cal. App. 3d 702, 708].
"Whether the elements of prescription are established is a
question of fact for the trial court, and the findings of the
court will not be disturbed where there is substantial evidence
to support them." �Warsaw v. Chicago Metallic Ceilings, Inc.
(1984) 35 Cal.3d 564, 570]. Generally, the scope of a
prescriptive easement is determined by the actual use of the
easement during the statutory period. �Thomson v. Dypvik (1985)
174 Cal. App. 3d 329, 340]. Courts may increase the scope of a
prescriptive easement when it allows necessary use by the party
seeking the easement without the imposition of a substantially
greater burden on the owners of the property. (Applegate v.
Ota, supra, 146 Cal. App. 3d at p. 711). The land to which an
easement is attached is called the dominant tenement, and the
land which bears the burden, i.e., the land of another which is
used or enjoyed, is called the servient tenement. �City of
Anaheim v. Metropolitan Water Dist. of Southern Cal. (1978) 82
Cal.App.3d 763, 767-768].
What happens to a prescriptive easement when the property
(servient tenement) is sold ? Generally, when the owner of land
burdened by an easement sells or leases the property, the
purchaser or lessor, who has notice of the existing easement,
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takes the land subject to that easement. If the new owner or
lessee takes the land without notice of the existence or use of
the easement, and with no knowledge of facts sufficient to put
him/her on inquiry notice concerning it, he/she will take the
land free from the burden. An issue that arises in these cases
is whether the easement is sufficiently apparent to charge the
purchaser with constructive or inquiry notice. Inquiry notice
means that a prudent person possessing ordinary faculties would
be bound to notice any open or notorious use of the property by
another person, and would make further inquiry regarding that
use.
Generally, an owner of property burdened by a prescriptive
easement has significant disclosure obligations to a buyer. In
a tax sale, however, no notice regarding easements of any kind
is included as part of the disclosures required to be provided
to prospective bidders or as part of pre-sale announcements at
the tax sale, even though a general notice is given. It is the
duty of the buyer to do his/her due diligence with respect to
this issue. Prospective bidders are instructed to research the
property at the clerk-recorder official records and investigate
encumbrances listed in R&TC Section 3712 that will remain with
the property. Prospective bidders are also instructed to visit
and inspect the property and contact the local planning
department to verify the allowed use of the property before they
bid.
Clarification of existing law . AB 261 (Dickinson) would clarify
that prescriptive easements stay with the property sold at a tax
sale. Just like in a regular sale, if the purchaser of a
tax-defaulted property had notice of the existence of the
prescriptive easement, or the use of the property by others,
he/she would take the property subject to that easement.
However, if the purchaser had no notice of the existence or use
of the easement, and no knowledge of facts sufficient to put
him/her on inquiry notice concerning it, he/she will take the
property free from the burden. A person with an unrecorded
prescriptive easement may, nonetheless, enforce his/her interest
against the buyer as long as he/she is able to prove the
existence of the valid prescriptive easement.
Challenging a tax lien sale . Pursuant to R&TC Section 3725, a
proceeding to challenge the validity or irregularity of a tax
deed sale must be initiated within one year after the date of
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execution of the tax collector's deed. The section, however,
does not specify who may initiate the proceeding. Recently,
Sacramento County defended a case, in which a person who did not
have a recorded interest in the property sold at a tax sale
contested the sale. �Helen Lee v. Robert and Shirley Lyles and
County of Sacramento (2010); Case No. 05AS01166]. One of the
issues in that case was whether the alleged easement holder had
the right to challenge a tax sale of a property in which the
easement holder had no recorded interest, such as, for example,
a prescriptive easement. According to the author, the court
struggled with the issue but reasoned that, since R&TC Section
3725 is silent on the issue, anyone, including the alleged
easement holder, has standing to sue the county and challenge a
tax lien sale. Counties are concerned with the court's
decisions to allow unrelated third parties to bring legal
actions to undo transactions in which those parties have no
legal interest, at great expense to the counties.
Proposed Solution . This bill requires a person wishing to
challenge a tax sale in court to take an additional step prior
to instituting the legal proceeding. Specifically, the person
would have to petition the board of supervisors first, asking
the board to rescind the tax sale and a tax deed sold by the tax
collector in that sale. If the board of supervisors determines
that a tax deed that has been sold should not be rescinded, then
the person may bring a lawsuit in court but would have to
initiate the proceeding within one year of the board's decision.
This new requirement would apply prospectively to those
proceedings that are initiated on or after the effective date of
this bill, and thus, will not affect existing litigation.
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
FN: 0000888