BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1090 HEARING: 7/6/11
AUTHOR: Blumenfield FISCAL: No
VERSION: 5/31/2011 TAX LEVY: No
CONSULTANT: Grinnell
PROPERTY TAX DEFERMENT
Enacts the County Deferred Property Tax Program for Senior
and Disabled Citizens.
Background and Proposed Law
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
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).
Assembly Bill 1090 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
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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
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.
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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.
Assembly Bill 1090 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.
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.
AB 1090 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
AB 1090 - 5/31/11 -- Page 4
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.
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.
Assembly Bill 1090 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
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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 measure 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
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.
AB 1090 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.
Assembly Bill 1090 enacts identical provisions for this
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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.
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, 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
AB 1090 - 5/31/11 -- Page 7
receivable-backed bonds.
Insurance companies' contracts.
Assembly Bill 1090 adds investments in the Property Tax
Deferral Fund in each county to the list of investments
that a county treasurer can invest in.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the Author, "For
more than 30 years, the state Senior Citizens and Disabled
Citizens Property Tax Postponement Program helped thousands
of low-income Californians remain in their homes by
postponing their property taxes. Unfortunately, the
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 by allowing counties to
establish a similar program. Many former program
participants can afford their monthly mortgage payments,
but they do not have sufficient income to pay their
property taxes. One past participant is Ms. Barbara
Kauffman, 75, of Studio City who has lived in her home for
25 years. She relies solely on Social Security, and
after paying her $1,100 mortgage, little is left for food,
utilities, and medical expenses. For seniors like Ms.
Kauffman, the property tax postponement program was a
lifeline, allowing them to stay in their homes and live a
dignified life. AB 1090 will help protect our most
vulnerable citizens.
2. Timing is everything . ABx1 34 (Blumenfield) is
currently on the Governor's Desk, approved by the
Legislature two weeks ago. That bill:
Establishes the Senior Citizens and Disabled
Citizens Property Tax Postponement Fund within the
State Treasury and annually appropriates moneys in the
fund for the purposes of paying costs and
disbursements related to the postponement of property
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taxes of eligible senior citizens and disabled
citizens.
Requires the transfer of funds in excess of $10
million that accumulate in the Senior Citizens and
Disabled Citizens Property Tax Postponement Fund to
the General Fund and deletes any General Fund
appropriation for the program.
Requires loan repayments relating to the Senior
Citizens and Disabled Citizens Property Tax
Postponement Law that are not deposited into the
program's impound account to be deposited directly
into the Senior Citizens and Disabled Citizens
Property Tax Postponement Fund.
Establishes that loan repayments relating to the
Senior Citizens and Disabled Citizens Property Tax
Postponement Law that are deposited in the program's
impound account are transferred to the Senior Citizens
and Disabled Citizens Property Tax Postponement Fund
after a six-month period.
Removes language that eliminates the consideration
of applications for the property tax postponement
program by the Controller and allows applications for
the property tax postponement program to be considered
beginning July 1, 2012
Given that the bill currently on the Governor's Desk
resuscitates the PTP, and that local treasurers are
reluctant to participate in this bill's program without
super priority lien status (see Comment 4), what's the
reason to approve AB 1090? The Author states that ABX1
34's $10 million won't meet existing demand, and a
local-option program will help people who need assistance
but won't get it due to the $10 million cap. The Committee
may wish to consider deferring action on this bill until
the Governor acts.
3. 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 in 2009 due to its escalating costs
AB 1090 - 5/31/11 -- Page 9
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 1090 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. The County
Auditor allocates the revenue to other local agencies such
as cities, special districts, 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 1090 gives
counties willing to use its own money the option to
continue deferring taxes for property owners within the
participating county.
4. 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,
known as "super priority status." The Controller did not
enjoy under the super priority status under prior law,
leading to its negative cash flow when the housing market
soured. As introduced, AB 1090 conferred similar treatment
to liens that secure a claimant's deferred property taxes,
much to the angst of other lienholders, such as financial
institutions or investors who hold mortgages and other
credit instruments secured by a lien on the home. The May
31st amendments deleted the super priority status, instead
allowing the tax collector to file a judgment lien against
the property, which is paid out of sales proceeds only
after previously filed liens are satisfied.
So-called "super priority" lien status ensures that the
AB 1090 - 5/31/11 -- Page 10
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
super priority status substantially reduces the risk that
the claimant will not repay the County for property taxes.
Without that status, will counties participate in the
program given their fiduciary duties to taxpayers only to
invest in secure instruments? The Committee may wish to
consider whether allowing local treasurer-tax collectors to
defer property taxes with the sole security of a
last-in-line lien is a smart investment, or whether the
bill will set up a program that no counties will choose to
use.
5. Renewing Acquaintances . 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."
Assembly Actions
Assembly Revenue and Taxation 5-2
Assembly Appropriations 11-5
Assembly Floor 75-0
AB 1090 - 5/31/11 -- Page 11
Support and Opposition (6/30/11)
Support : AARP California; California Association of
Realtors; California Senior Legislature; California State
Association of Counties.
Opposition : Unknown.