BILL ANALYSIS �
AB 2257
Page A
Date of Hearing: April 28, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 2257 (Cooley) - As Introduced: February 21, 2014
Majority vote. Fiscal committee.
SUBJECT : Property tax: tax-defaulted property: excess
proceeds from sale
SUMMARY : Makes changes to the distribution of excess proceeds
from the sale of tax defaulted property. Specifically, this
bill :
1)Authorizes the transfer of specified excess proceeds from the
sale of tax-defaulted property to the county general fund
instead of the taxing agencies.
2)Modifies the timing of distributions of excess proceeds to
parties of interest in a case where the county board of
supervisors has been petitioned to rescind the tax sale.
Specifically, provides that any excess proceeds may be
distributed to the parties of interest no sooner than within
one year of the date the board of supervisors determines that
the tax sale should not be rescinded, unless the petitioner
has commenced a court proceeding to challenge the validity of
the tax sale.
3)Prohibits a distribution of excess proceeds to parties of
interest if a proceeding challenging the validity of the tax
sale has been commenced in a court, until a final court order
is issued.
4)Allows treasurer-tax collectors, when they provide notice of
the right to claim proceeds to the last known parties of
interest in a tax sale but cannot obtain the address of the
last known party, to forego the requirement to publish the
notice in a newspaper of general circulation if the costs of
publication eliminates any excess proceeds available for
distribution.
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5)Provides that if the Commission on State Mandates determines
that this bill contains costs mandated by the state,
reimbursement to local agencies and school districts for those
costs shall be made pursuant to current law governing state
mandated local costs.
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.
3)Specifies that a proceeding based on alleged invalidity or
irregularity of any proceedings instituted in a sale of
tax-defaulted property may only be commenced within one year
after the date of execution of the tax collector's deed.
4)Requires that proceeds from the sale of tax-defaulted property
be deposited in the delinquent tax sale fund and then be
distributed to the State of California General Fund (GF), to
the county general fund for the costs of conducting the sale,
costs incurred in giving notice pursuant to existing law, and
the costs of advertising sales of tax defaulted property, and
to the taxing agencies based on the proportion of tax rate for
property taxes and assessments for the defaulted taxes.
5)Requires any excess in the proceeds, remaining after the
distribution, to be deposited in the delinquent tax sale trust
fund. Allows parties of interest in the property to claim
those proceeds within one year following the recordation of
the tax deed to the purchaser.
6)Authorizes any party of interest, including lienholders or
former owners, to file with the county a claim for the excess
proceeds, in proportion to his or her interest in the
property, as specified.
AB 2257
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7)Requires the excess proceeds, if the excess proceeds have been
claimed by any interested parties, to be distributed on order
of the board of supervisors pursuant to specified order of
priority.
8)Requires any excess proceeds not claimed by parties of
interest to be distributed to the county for administering and
processing claims for excess proceeds and then to the taxing
agencies.
9)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.
10)Requires treasurer-tax collectors to provide notice to the
right to claim proceeds to the last known parties of interest
in a tax sale that exceeds $150, and specifies that if the
treasurer-tax collector cannot obtain the address, he/she must
publish notice in a newspaper of general circulation in the
county. Allows treasurer-tax collectors to skip the
requirement to publish the notice in a newspaper of general
circulation if the costs of publication are equal to or
greater than the amount of the tax sale's proceeds.
FISCAL EFFECT : Unknown, but Committee staff estimates that this
bill will have no impact on the State GF revenue and may
potentially generate cost savings for counties.
COMMENTS :
1)Author's Statement . According to the author, "When real
property is sold due to a tax default, the distribution of
those proceeds is government by [current law]. Occasionally,
there are small amounts of proceeds left over after all the
claims have been paid to parties in interest and monies
distributed to local taxing authorities. This bill clarifies
that when this happens, the see nominal excess proceeds shall
be deposited into the county General Fund after the time in
which any claimants may make additional claims has elapsed.
This simple change will result in cost-savings for the
counties through reduced staff time used on distributing these
small dollar amounts."
2)Arguments in Support . The proponents assert that the excess
AB 2257
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proceeds "are money that is not the property of a local agency
which remains in the official custody of the county." The
proponents argue that making this common-sense change will
reduce staff time needed to allocate small sums of money to
taxing entities that have already been made whole through the
distribution proceeds from the sale and clarifies that the
funds may be deposited into the general fund.
3)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.
4)What Does This Bill Do ? This bill is sponsored by the
California Association of County Treasurers and Tax Collectors
and is intended to accomplish several goals.
a) Distribution of Tax Sale Proceeds . Existing law
specifies that tax sale proceeds must be distributed to the
State, the county and taxing agencies to reimburse them for
costs incurred and for the amount of defaulted taxes.
Following these distributions, lienholders and the former
owner may claim proceeds in excess of the taxes and cost of
the sale. Finally, any remaining amounts must be dispersed
again, in another round of distributions, to the local
AB 2257
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taxing agencies entitled to share in the proceeds. This
bill would simplify the distribution procedure by allowing
for the remaining amounts, after the lienholders or former
owners had a chance to claim their share of proceeds, to be
transferred to the county general fund instead of going
back to the taxing agencies for another round of
distribution.
b) The timing of distribution of proceeds to parties of
interest . Current law establishes several requirements for
a person - a party of interest<1> - to challenge the
validity of a tax sale, including the requirement that the
person first petition the county board of supervisors. The
general rule specifies that the excess proceeds claimed by
a party of interest may be distributed no sooner than
within one year following the date of the recordation of
the tax collector's deed to the purchaser. This bill would
modify the timing of distributions in the case where the
county board of supervisors has been petitioned to rescind
the tax sale. In that case, any excess proceeds may be
distributed to the parties of interest no sooner than
within one year of the date the board of supervisors
determines the tax sale should not be rescinded, unless the
petitioner has commenced a court proceeding to challenge
the validity of the tax sale. If the petitioner has
challenged the board's decision in court, a distribution of
excess proceeds to parties of interest would be prohibited
until a final court order is issued.
c) Notice Publication . Existing law requires treasurer-tax
collectors to provide notice of the right to claim proceeds
to the last known parties of interest in a tax defaulted
property sale that exceeds $150. Existing law also
specifies that if the treasurer-tax collector cannot obtain
the address, he/she must publish notice in a newspaper of
general circulation in the county. The publication is not
required, however, if the cost of the notice in a newspaper
of general circulation is equal to or greater than the
amount of the tax sale's proceeds. This bill would extend
this exemption in current law if the publication cost
eliminates any excess proceeds available for distribution.
--------------------------
<1> Holder of unrecorded title to property sold at tax sale is
not "party of interest" within the meaning of statute entitling
certain parties of interest to file claim for excess proceeds of
tax sale. Azadozy v. Nikoghosian (2005) 128 Cal.App.4th 1369.
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As noted in the analysis of this bill prepared by the Local
Government Committee staff, it is unclear why the last
amendment relating to notice publication is necessary.
Current law already creates an exemption to publication in
a newspaper if the cost to publish is equal to or greater
than the amount of the excess proceeds. Therefore, if the
amount of excess proceeds available for distribution is
eliminated by the cost of publishing, they would already be
equal to or greater than the cost of publishing. The
Committee may wish to consider deleting this provision.
5)Prior Legislation . AB 261 (Dickinson), Chapter 288, Statues
of 2011, requires persons challenging the validity of a tax
sale to first petition the Board of Supervisors for a
rescission within one year of the sales. If the Board rejects
the petition, the person must commence the proceeding
challenging the validity of the tax sale within one year of
the rejection.
6)Double Referral . This bill is double-referred to the Assembly
Committee on Local Government and passed out of that Committee
on a 9-0 vote.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of County Treasurers and Tax Collectors
(Sponsor)
Opposition
None on file
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098