BILL ANALYSIS �
AB 1090
Page 1
ASSEMBLY THIRD READING
AB 1090 (Blumenfield)
As Introduced February 18, 2011
Majority vote
REVENUE & TAXATION 5-2
-----------------------------------------------------------------
|Ayes:|Perea, Charles Calderon, | | |
| |Cedillo, Alejo, Gordon | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Donnelly, Harkey | | |
| | | | |
-----------------------------------------------------------------
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
AB 1090
Page 2
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
AB 1090
Page 3
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
AB 1090
Page 4
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 :
AB 1090
Page 5
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
AB 1090
Page 6
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
AB 1090
Page 7
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
AB 1090
Page 8
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,
AB 1090
Page 9
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
FN: 0000392