BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 2257 (Cooley) - Property tax: excess proceeds from
tax-defaulted property.
Amended: May 5, 2014 Policy Vote: G&F 6-0
Urgency: No Mandate: Yes
Hearing Date: August 4, 2014
Consultant: Mark McKenzie
This bill does not meet criteria for referral to the Suspense
File.
Bill Summary: AB 2257 would require any excess proceeds from the
sale of tax-defaulted property to be transferred to the county
general fund, after paying for specified county administrative
costs and satisfying specified claims on the proceeds from the
sale.
Fiscal Impact:
Unknown, likely minor property tax revenue loss to schools,
resulting in a corresponding minor increase in Proposition
98 General Fund expenditures. (see staff comments)
Likely minor administrative savings to county
auditor-controllers. (Local)
Background: Existing law requires property owners to pay taxes
in two annual installments, and property taxes become delinquent
and subject to specified penalties and fees if the taxes go
unpaid. Counties can issue tax liens on a property that is
"tax-defaulted." Existing law authorizes county tax collectors
to sell residential property that has been in default for five
years (three years for commercial property), if the owner fails
to pay all taxes, interest, and penalties that are due. Prior
to sale, the tax collector must issue a notice, and record it
with the county recorder. The tax collector sends the notice to
the board of supervisors for approval of the sale, to each
taxing agency, and each party of interest with a lien against
the property or with title to all or any portion of the
property. If the property is a primary residence, the tax
collector must inform the taxpayer that the property will be
sold, and of the taxpayer's right of redemption. Boards of
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supervisors may rescind tax sales in specified circumstances.
After the sale, proceeds first pay for the county costs of
publishing and recording the sale notice. Funds are then
distributed to taxing agencies with valid claims on delinquent
taxes, and to the tax collector to pay for notices and
contacting taxpayers. Any proceeds remaining in the county's
delinquent tax sale trust fund must be retained in the fund for
a year to satisfy liens held by parties in interest. Any
amounts left over, known as "excess proceeds," are then divided
up among the taxing entities according to their proportionate
share of the property tax, after the county deducts specified
costs.
Proposed Law: AB 2257 would authorize the transfer of excess
proceeds from the sale of tax-defaulted property, after
satisfying other statutory requirements, to the county general
fund rather than distributing those proceeds to taxing agencies
that receive a portion of the property taxes.
The bill would also modify 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, the bill 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. If such a proceeding has been initiated, the bill
prohibits a distribution of excess proceeds to parties of
interest until a final court order is issued.
Staff Comments: This bill would allow any excess proceeds from
the sale of tax-defaulted property to be transferred to the
county general fund, rather than requiring them to be
distributed among taxing entities. Any excess proceeds that
would otherwise have been distributed to schools must be
backfilled from the state General Fund pursuant to Proposition
98 minimum funding guarantees. Although unquantifiable, staff
estimates that the amounts subject to distribution to schools
under current law would likely be minor, after satisfying all
other statutory payments and claims on the proceeds. An
informal survey of tax officials in several large counties
indicates that there are rarely excess proceeds remaining after
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making payments for specified costs and delinquent amounts, and
satisfying claims of lienholders. The nominal amounts that
would be transferred to the county general fund as a result of
this bill, if any remain, could be used to offset some of the
county's property tax administration costs.