Existing property tax law attaches, as a lien against property, taxes that are owed on that property. Existing law generally declares in default the taxes, assessments, and penalties on real property if those charges are not paid by a specified time. Existing law requires the tax collector to attempt to sell property that has become tax defaulted 5 years or more after that property has become tax defaulted, and in the case of tax-defaulted property that is also subject to a nuisance abatement lien, 3 years or more after that property becomes tax defaulted, as specified. During these 3- and 5-year periods, existing law allows a taxpayer a right of redemption whereby the taxpayer may pay specified charges to remove the lien against the property. Existing law specifies that this right of redemption terminates on the last business day prior to the date that the sale of the property begins and, if the tax collector approves a sale as a credit transaction and does not receive full payment on or before the date upon which the tax collector requires, the right of redemption is revived on the next business day following that date, as specified. Existing law also provides that the right of redemption is revived if the property is not sold.

This bill would specify that the commencement of the tax sale constitutes the actual sale date, regardless of the date of the conclusion of the auction. The bill would provide that the taxpayer loses all rights in the property during the auction period for failure to redeem the property by the final redemption date. The bill would provide that if a property has not been redeemed, any person or entity with title of record to the property loses all rights in the property, including all legal and equitable interest therein, upon close of the redemption period. However, those rights return if the right of redemption is revived. The bill would specify that the provisions relating to the right of redemption do not affect the distribution of proceeds, as specified, and apply regardless of whether the tax collector or his or her designee conducts the tax sale in person.

Existing property tax law attaches, as a lien against property, taxes that are owed on that property. Existing law generally declares in default the taxes, assessments, and penalties on real property if those charges are not paid by a specified time. Existing law requires the tax collector to attempt to sell property that has become tax defaulted 5 years or more after that property has become tax defaulted, and in the case of tax-defaulted property that is also subject to a nuisance abatement lien, 3 years or more after that property becomes tax defaulted, as specified. During these 3- and 5-year periods, existing law allows a taxpayer a right of redemption whereby the taxpayer may pay specified charges to remove the lien against the property. Existing law specifies that this right of redemption terminates on the last business day prior to the date that the sale of the property begins and, if the tax collector approves a sale as a credit transaction and does not receive full payment on or before the date upon which the tax collector requires, the right of redemption is revived on the next business day following that date, as specified. Existing law also provides that the right of redemption is revived if the property is not sold.

This bill would specify that the commencement of the tax sale constitutes the actual sale date, regardless of the date of the conclusion of the auction. The bill would provide that the taxpayer loses all rights in the property during the auction period for failure to redeem the property by the final redemption date. The bill would provide that if a property has not been redeemed, any person or entity with title of record to the property loses all rights in the property, including all legal and equitable interest therein, upon close of the redemption period. However, those rights return if the right of redemption is revived. The bill would specify that the provisions relating to the right of redemption do not affect the distribution of proceeds, as specified, and apply regardless of whether the tax collector or his or her designee conducts the tax sale in person.

Existing property tax law attaches, as a lien against property, taxes that are owed on that property. Existing law generally declares in default the taxes, assessments, and penalties on real property if those charges are not paid by a specified time. Existing law requires the tax collector to attempt to sell property that has become tax defaulted 5 years or more after that property has become tax defaulted, and in the case of tax-defaulted property that is also subject to a nuisance abatement lien, 3 years or more after that property becomes tax defaulted, as specified. During these 3- and 5-year periods, existing law allows a taxpayer a right of redemption whereby the taxpayer may pay specified charges to remove the lien against the property. Existing law specifies that this right of redemption terminates on the last business day prior to the date that the sale of the property begins and, if the tax collector approves a sale as a credit transaction and does not receive full payment on or before the date upon which the tax collector requires, the right of redemption is revived on the next business day following that date, as specified. Existing law also provides that the right of redemption is revived if the property is not sold.

This bill would specify that the commencement of the tax sale constitutes the actual sale date, regardless of the date of the conclusion of the auction. The bill would provide that the taxpayer loses all rights in the property during the auction period for failure to redeem the property by the final redemption date. This The bill would provide that if a property has not been redeemed, any person or entity with title of record to the property loses all rights in the property, including all legal and equitable interest therein, upon close of the redemption period. However, those rights return if the right of redemption is revived. This The bill would specify that the provisions relating to the right of redemption do not affect the distribution of proceeds, as specified. specified, and apply regardless of whether the tax collector or his or her designee conducts the tax sale in person.

Existing property tax law attaches, as a lien against property, taxes that are owed on that property. Existing law generally declares in default the taxes, assessments, and penalties on real property if those charges are not paid by a specified time. Existing law requires the tax collector to attempt to sell property that has become tax defaulted 5 years or more after that property has become tax defaulted, and in the case of tax-defaulted property that is also subject to a nuisance abatement lien, 3 years or more after that property becomes tax defaulted, as specified. During these 3- and 5-year periods, existing law allows a taxpayer a right of redemption whereby the taxpayer may pay specified charges to remove the lien against the property. Existing law specifies that this right of redemption terminates on the last business day prior to the date that the sale of the property begins and, if the tax collector approves a sale as a credit transaction and does not receive full payment on or before the date upon which the tax collector requires, the right of redemption is revived on the next business day following that date, as specified. Existing law also provides that the right of redemption is revived if the property is not sold.

This bill would specify that the commencement of the tax sale constitutes the actual sale date, regardless of the date of the conclusion of the auction. The bill would provide that the taxpayer loses all rights in the property during the auction period for failure to redeem the property by the final redemption date. This bill would provide that if a property has not been redeemed, any person or entity with title of record to the property loses all rights in the property, including all legal and equitable interest therein, upon close of the redemption period. However, those rights return if the right of redemption is revived. This bill would specify that the provisions relating to the right of redemption do not affect the distribution of proceeds, as specified. The bill would also provide that the sole responsibility of the tax collector and the county during the redemption period is to sell the tax-defaulted property, and specify that the tax collector and the county are not liable for any injury on the property or relating thereto.

Existing law authorizes the governing board of a school district to permit any person, except a person required to register as a sex offender, to serve as a nonteaching volunteer aide, or to perform other specified duties, under the immediate supervision and direction of certificated personnel of the school district, as specified. Existing law requires that a nonteaching volunteer aide serve without compensation of any type or other benefits accorded to employees of the school district, except as specified. Existing law prohibits a school district from abolishing a classified position and using a nonteaching volunteer aide in lieu of a classified employee, and from refusing to employ a person in a vacant classified position and using a volunteer aide in lieu of filling the classified position. Existing law authorizes a school district or county office of education to request that a local law enforcement agency conduct an automated records check of a prospective nonteaching volunteer aide, as specified.

This bill would authorize a local educational agency, as defined, to operate a seniors as mentors program by recruiting senior volunteers to serve as mentors to pupils. The bill would require that a senior in the seniors as mentors program be considered a nonteaching volunteer aide for purposes of the provisions governing nonteaching volunteer aides, except as specified. The bill would require the State Department of Education to offer training and support to a local educational agency that operates a seniors as mentors program and to seniors who participate in the program. The bill would require the department to post a notice of the opportunity for seniors to participate in the seniors as mentors program on the departments Internet Web site.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 2746

Author:(Eduardo Garcia)

As Amended Ver:June 20, 2018

Majority vote

Original Committee Reference: REV. & TAX.

SUMMARY: Addresses the redemption termination deadline related to tax-defaulted property the county tax collector is required to offer for sale at a public auction.

The Senate amendments add language stating that this section of law applies regardless of whether the county tax collector or his or her designee conducts the sale in person. Additionally, the amendments substitute the phrase "commencement date of the tax sale" for "date of the publicly held or Internet sale" to avoid using "Internet sale" which could become an outdated term as technology changes.

EXISTING FEDERAL LAW:

1. Provides an automatic stay if a property owner files for bankruptcy wherein certain actions are impermissible against the debtor or his or her property.
2. Disallows a county tax collector from selling a tax-defaulted property, via the automatic stay, if a property owner files a bankruptcy petition before the right of redemption termination deadline.
3. Creates, at the commencement of the bankruptcy, a "bankruptcy estate" of the debtor's property, which is described as all of the debtor's legal or equitable interest in property.

EXISTING STATE LAW:

1. Provides that all property is taxable unless explicitly exempted by the California Constitution or federal law.
2. Requires taxpayers to pay their property tax bills on real property in two installments, which become delinquent on December 10 and April 10, respectively, and subject to penalties.
3. Provides that a property becomes tax-defaulted if taxes remain unpaid after June 30, and subject to sale by the county tax collector if the taxpayer fails to redeem the property by repaying in full the defaulted taxes, interest, and penalties within five years (three years in the case of nonresidential commercial property).
4. Assesses a redemption penalty of 1.5% per month.
5. Details the series of actions a tax collector must follow, such as notices and publications, in the case of tax-defaulted property.
6. Grants tax collectors the power to sell tax-defaulted property and requires tax collectors to attempt to sell the property for nonpayment of taxes unless, by other provisions of law, the property is not subject to sale.
7. Allows the property owner to redeem the tax-defaulted property until the right of redemption is terminated.
8. Terminates the right of redemption of tax-defaulted property at the close of business on the last business day prior to the date of sale of property.
9. Defines "date of sale" as the date upon which a public auction begins.
10. Requires the tax collector to sell property at public auction if the property is not redeemed before the close of business on the last day prior to the date of sale.
11. Allows the tax collector to conduct the public auction by electronic media, including the Internet.

AS PASSED BY THE ASSEMBLY, this bill:

1. Clarified that the right of redemption deadline, which terminates at the close of business on the last business day prior to the "date of the sale" applies whether that sale is:
   1. A publicly held sale; or,
   2. An Internet sale.
2. Specified that in the case of a sale of tax-defaulted property by public auction:
   1. The commencement of the auction constitutes the actual sale date regardless of the auction conclusion; and,
   2. During the auction period, the taxpayer has lost all rights in the tax-defaulted property for failure to redeem the property by the final redemption date.
3. Detailed property owner rights in tax-defaulted property following the right of redemption termination deadline as follows:
   1. Provided that any person or entity with title of record to tax-defaulted property subject to sale by the county tax collector loses all rights in the property, including all legal and equitable interest therein, if the property is not redeemed prior to the redemption termination deadline; and,
   2. Provided that any person or entity holding title to tax-defaulted property subject to sale by the county tax collector regains all property rights if the right of redemption is revived.
   3. Specified redemption rights are revived if:
      1. The property remains unsold after the public auction; or,
      2. The property was sold in a credit transaction, but full payment was not received, as specified.
4. Provided that tax sale distribution of proceeds law (Revenue and Taxation Code (R&TC) Section 4671 et seq.), which includes distributing excess proceeds to the former owner, is unaffected by the above provisions.

FISCAL EFFECT: This bill is keyed non-fiscal by the Legislative Counsel.

COMMENTS:

1. The author has provided the following statement in support of this bill:

The tax sale process comes to fruition only after years of certified mailings and personal contact to the property owner alerting them of their defaulted status. A tax sale is not a surprise. When the right to redemption time frame ends, the property owner should not be able to game the process by then filing bankruptcy to stall the sale. Taxpayers who have lost their right of redemption have no rights to their property.

Any bankruptcy proceeding filed after the final right of redemption has no legal authority and the automatic stay has not been violated during the tax auction period. Yet counties like Imperial are sued for taking the property to tax sale.

In addition, with the advent of Internet tax sales, impacted taxpayers have sought relief from the final redemption deadline because the multi-day internet tax sale has not concluded. The legal cost to defend the county tax collector mandated authority has escalated, costing counties thousands of dollars to defend their compliance with the tax sale process.

This problem has most recently impacted my County, but has also impacted Merced and Los Angeles and unless a legislative change is made to the code, some taxpayers will continue to game the tax code, sue local governments and waste taxpayer money defending the county's compliance with tax law.

1. The sponsor of this bill, the Imperial County Board of Supervisors, states that this bill is needed to address problems related to the right of redemption and Internet tax sales.
2. Committee Staff Comments:
   1. Tax-defaulted property sales: Generally, property taxes on the secured roll are due in two installments on November 1 and February 1. Property taxes that are due but unpaid after December 10 or April 10, respectively, become delinquent and incur a 10% penalty per installment. If there are any unpaid taxes after June 30, the property taxes are declared to be in default and incur additional penalties at the rate of 1.5% per month of the unpaid taxes, as well as a $15 redemption fee. The taxpayer may redeem his or her property by paying the total amount of the unpaid taxes for all delinquent years, as well as all penalties and fees.

If property taxes remain unpaid for five years (three years for nonresidential commercial property and three years for property subject to a nuisance abatement lien), then ultimately the property becomes subject to the power of sale and will be sold at a public auction. After proper notice is given, as the law requires, the owner of the tax-defaulted property has up until the close of business on the last business day prior to the tax sale to redeem the property. If the owner files for bankruptcy prior to that point in time, then the tax collector will remove the property from the public auction pursuant to the protection afforded by the automatic stay under federal bankruptcy law.

• 1. Tax Sales: Tax collectors generally sell tax-defaulted property through public auctions. Today, county tax collectors may conduct the auction over the Internet, or otherwise accept bids, over a time period that can last several days, rather than holding the auction on the "courthouse steps". This ensures a wider pool of buyers from outside the county and a higher sales price. This, in turn, increases the possibility that the former owner receives excess proceeds, if any, from the tax sale.
  2. What does this bill do? This bill addresses tax sales of tax-defaulted property that are held via public auction to: (i) expressly provide the date of the commencement of the tax sale constitutes the actual sale date regardless of when the auction concludes; and (ii) reaffirm that, during the auction period, a property owner has lost all rights in the tax-defaulted property being offered for auction for failure to redeem the property by the final redemption date. Additionally, this bill adds an express provision in law that property owners of record title lose all rights in tax-defaulted property, including all legal and equitable interests therein if the property owners do not exercise their right of redemption prior to the redemption termination deadline. These express "loss of rights" provisions address a bankruptcy-related court decision that has created uncertainty over the tax sale process. Specifically, uncertainty has arisen in cases where the property owner files bankruptcy in the window period after the tax sale commences but before the auction concludes. This has introduced uncertainty and the prospect that counties will incur continuing litigation costs in performing their state mandated duties in administering the property tax.
  3. What is the problem? A recent bankruptcy-related court decision related to property in Imperial County was issued that is contrary to the position that the right of redemption terminates at the close of business on the last day prior to the start of a county property tax sale for delinquent taxes (i.e., tax-defaulted). This decision is contrary to:
     1. An earlier bankruptcy court decision;
     2. The California State Controller's Office County Tax Sale Procedural Manual; and,
     3. The longstanding procedure of county tax collectors throughout the state.
  4. Statewide consistency and the importance of a bright line: The decision has introduced a question involving the interaction between the expiration of the right of redemption under California's property tax law and the protection afforded by the automatic stay under federal bankruptcy law. The decision is of great concern to tax collectors across the state because of the uncertainty that has been introduced into the tax sale process. Previously, a bright line existed. Without this bill, when a bankruptcy petition is filed after the right of redemption has expired and a sale is in process, the tax collector will be faced with a dilemma on whether to proceed. Given the different decisions in different counties, it is possible that when an impending tax sale must be halted due to a bankruptcy filing the procedure will differ from county to county. A tax collector may also halt the sale midway through to protect the county from incurring litigation costs it cannot afford. This creates a lack of statewide uniformity for tax collectors. It also introduces an added measure of risk for potential buyers, which could impact auction sales prices.

Analysis Prepared by: Rose Marie Kinnee / REV. & TAX. / (916) 319-2098 FN: 0003749

 THIRD READING  

Bill No: AB 2746

Author:

:

Vote:

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/27/18

AYES: McGuire, Nguyen, Beall, Hernandez, Hertzberg, Lara, Moorlach

ASSEMBLY FLOOR: 71-0, 5/25/18 - See last page for vote

SUBJECT:

SOURCE: California Association of County Treasurer-Tax Collectors

DIGEST:

This bill clarifies the redemption period applicable for tax sales conduced on the internet.

ANALYSIS:

Existing law:

1. Assigns to county tax collectors the duty to collect all taxes, including real and personal property taxes, school and special district taxes, and taxes on business licenses.
2. Directs tax collectors to administer the billing and collections process for property taxes, determining delinquency and default, and administering the sale of tax-defaulted property, among other obligations.
3. Requires property owners to pay their property taxes in two annual installments: the first on November 1st, and the second on February 1^st.
4. Provides that property owners who have not paid their first property tax installment by December 10, or their second installment by April 10, become delinquent and receive a 10% delinquency penalty on each amount, plus redemption penalties of 1.5% a month until paid.
5. States that if the property owner does not pay before June 30th, the property becomes tax-defaulted.
6. Allows the tax collector to seek approval from the board of supervisors to sell property in a tax sale to satisfy delinquent taxes when a residential property has been in default for five years, or three years for a commercial property.
7. Requires the tax collector to attempt to sell the property within four years after obtaining the power to sell.
8. States that all sales must be conducted by public auction to the highest bidder.
9. Directs the tax collector to complete several steps before taking a property to tax sale, like providing specified notices to the taxpayer, publication in a newspaper, and attempting to make personal contact with the taxpayer.
10. Authorizes tax sales over the internet (SB 1832, Cedillo, Chapter 194, Statutes of 2004).
11. Affords the property owner a right to redeem the property by paying the total amount of all prior year defaulted taxes, together with penalties, costs, and fees prior to the close of business on the last business day prior to the date of the sale at any time during delinquency.
12. States that if the tax collector approves a sale as a credit transaction and does not receive full payment on or before the date upon which the tax collector requires, the right of redemption is revived on the next business day following that date.
13. Deems the sale complete when full payment has been received by the tax collector, and revives the right of redemption if the property is not sold.
14. Defines the date of sale as “the date upon which a public auction begins," but does not specify that it must end that same day.

This bill:

1. States that for purposes of tax sales of tax defaulted property:
   1. The right of redemption terminates at the close of business of the last day prior to the commencement date of the tax sale,
   2. The commencement of the tax sale constitutes the actual sale regardless of when the auction concludes, and
   3. The taxpayer loses all rights during the auction period for failure to redeem the property by the final redemption date.
2. Provides that if the property owner does not redeem tax-defaulted property prior to the redemption termination deadline, any person or entity with title of record to the property shall lose all rights in the property, including all legal and equitable interest therein.
3. Adds that if the right of redemption is revived, any person or entity with title of record to the property shall regain all rights in the property, including all legal and equitable interest therein.
4. Clarifies that the termination of redemption rights, as well as this bill’s changes, applies to Internet sales by stating its provisions apply regardless of whether the tax collector conducts the auction in person.
5. Directs that the law specifying the distribution of tax sale proceeds, which includes distributing excess proceeds to the former owner, is unaffected by the bill’s provisions.

Background

Federal bankruptcy law provides an automatic stay if a property owner files for bankruptcy that precludes most collections actions against the debtor or his or her property, including disallowing a county tax collector from selling a tax-defaulted property. This preclusion applies if a property owner files a bankruptcy petition before the right of redemption termination deadline.

In 2016, the Imperial County tax collector administered a multi-day tax sale on the internet, which began on a Saturday, February 6^th, meaning that the right of redemption should have ended at 5pm on February 5^th. A taxpayer whose property was sold at the auction filed for bankruptcy on Monday, February 8^th, before the auction ended and the tax collector had accepted a bid. Despite the right of redemption having expired, the United States Bankruptcy Court held, and its appellate panel for the Ninth Circuit affirmed, that the tax sale violated the automatic stay provided in bankruptcy. The Court stated that sale had not been concluded by the date of bankruptcy because the tax collector had not yet received full payment, so the property owner continued to hold both an equitable interest in and legal title to the property. As a result, federal bankruptcy law’s automatic stay, which precludes the sale of any property in which the property owners holds an equitable interest, applied.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 7/3/18)

California Association of County Treasurer-Tax Collectors (source)

Imperial County Board of Supervisors

OPPOSITION: (Verified 7/3/18)

None received

ARGUMENTS IN SUPPORT: According to the author, “The tax sale process comes to fruition only after years of certified mailings and personal contact to the property owner alerting them of their defaulted status. A tax sale is not a surprise. When the right to redemption time frame ends, the property owner should not be able to game the process by then filing bankruptcy to stall the sale. Taxpayers who have lost their right of redemption have no rights to their property. Any bankruptcy proceeding filed after the final right of redemption has no legal authority and the automatic stay has not been violated during the tax auction period. Yet counties like Imperial are sued for taking the property to tax sale. This problem has most recently impacted my County, but has also impacted Merced and Los Angeles, and unless a legislative change is made to the code, some taxpayers will continue to game the tax code, sue local governments and waste taxpayer money defending the county's compliance with tax law.”

ASSEMBLY FLOOR: 71-0, 5/25/18

AYES: Acosta, Aguiar-Curry, Baker, Berman, Bigelow, Bloom, Bonta, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Rodriguez, Rubio, Salas, Santiago, Mark Stone, Thurmond, Ting, Voepel, Weber, Wood, Rendon

NO VOTE RECORDED: Travis Allen, Arambula, Brough, Levine, Mullin, Steinorth, Waldron

Prepared by:

7/3/18 16:08:02

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2017 - 2018 Regular

Taxation: tax-defaulted property sales

Clarifies the redemption period applicable for tax sales conduced on the internet.

Background

California law assigns to county tax collectors the duty to collect all taxes, including real and personal property taxes, school and special district taxes, and taxes on business licenses. As part of these duties, tax collectors administer the billing and collections process for property taxes, determine delinquency and default, and administer the sale of tax-defaulted property, among other obligations.

Property owners must pay their property taxes in two annual installments: the first on November 1^st, and the second on February 1^st. Property owners who have not paid their first property tax installment by December 10^th, or their second installment by April 10^th, become delinquent and receive a 10% delinquency penalty on each amount, plus redemption penalties of 1.5% a month until paid. If the property owner does not pay before June 30^th, the property becomes tax-defaulted. When a residential property has been in default for five years, or three years for a commercial property, the tax collector can seek approval from the board of supervisors to sell the property in a tax sale. The power of sale is the exclusive means of enforcing payment of taxes.

The tax collector must attempt to sell the property within four years after obtaining the power to sell. All sales must be conducted by public auction to the highest bidder. State law requires the tax collector to complete several steps before taking a property to tax sale, like providing specified notices to the taxpayer, publication in a newspaper, and attempting to make personal contact with the taxpayer. Many tax collectors conduct tax sales in person, either by accepting written bids or in public auctions. In 2004, the Legislature authorized tax sales over the internet (SB 1832, Cedillo, 2004), which not only lowers costs, but can also increase the pool of potential buyers who cannot appear to purchase the property in person, thereby increasing prices. Internet sales often take place over a time period that can last several days.

At any time during the delinquency, the taxpayer has a right to redeem the property by paying the total amount of all prior year defaulted taxes, together with penalties, costs, and fees prior to the close of business on the last business day prior to the date of the sale. However, the law further states that if the tax collector approves a sale as a credit transaction and does not receive full payment on or before the date upon which the tax collector requires, the right of redemption is revived on the next business day following that date. Additionally, the sale is only deemed complete when full payment has been received by the tax collector, and the right of redemption revives if the property is not sold. The law further defines the date of sale as “the date upon which a public auction begins," but does not specify that it must end that same day.

Federal bankruptcy law provides an automatic stay if a property owner files for bankruptcy that precludes most collections actions against the debtor or his or her property, including disallowing a county tax collector from selling a tax-defaulted property. This preclusion applies if a property owner files a bankruptcy petition before the right of redemption termination deadline.

In 2016, the Imperial County tax collector administered a multi-day tax sale on the internet, which began on a Saturday, February 6^th, meaning that the right of redemption should have ended at 5pm on February 5^th. A taxpayer whose property was sold at the auction filed for bankruptcy on Monday, February 8^th, before the auction ended and the tax collector had accepted a bid. Despite the right of redemption having expired, the United States Bankruptcy Court held, and its appellate panel for the Ninth Circuit affirmed, that the tax sale violated the automatic stay provided in bankruptcy. The Court stated that sale had not been concluded by the date of bankruptcy because the tax collector had not yet received full payment, so the property owner continued to hold both an equitable interest in and legal title to the property. As a result, federal bankruptcy law’s automatic stay, which precludes the sale of any property in which the property owners holds an equitable interest, applied.

Seeking to prevent future cases where tax collectors conduct tax sales on the internet that are subsequently voided by bankruptcy filings, and reduce litigation costs, the California Association of County Treasurer-Tax Collectors wants to clarify that the right of redemption always ceases as of the close of business the day before the tax sale.

Proposed Law

Assembly Bill 2746 states that for purposes of tax sales of tax defaulted property:

• The right of redemption terminates at the close of business of the last day prior to the commencement date of the tax sale,
• The commencement of the tax sale constitutes the actual sale regardless of when the auction concludes, and
• The taxpayer loses all rights during the auction period for failure to redeem the property by the final redemption date.

The bill also provides that if the tax-defaulted property is not redeemed prior to the redemption termination deadline, any person or entity with title of record to the property shall lose all rights in the property, including all legal and equitable interest therein. The measure adds that if the right of redemption is revived, any person or entity with title of record to the property shall regain all rights in the property, including all legal and equitable interest therein. Additionally, the bill clarifies the section of law specifying the termination of redemption rights, as well as this bill’s changes, apply to Internet sales by stating its provisions apply regardless of whether the tax collector conducts the auction in person. Additionally, AB 2746 provides that law specifying the distribution of tax sale proceeds, which includes distributing excess proceeds to the former owner, is unaffected by the above provisions.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “The tax sale process comes to fruition only after years of certified mailings and personal contact to the property owner alerting them of their defaulted status. A tax sale is not a surprise. When the right to redemption time frame ends, the property owner should not be able to game the process by then filing bankruptcy to stall the sale. Taxpayers who have lost their right of redemption have no rights to their property. Any bankruptcy proceeding filed after the final right of redemption has no legal authority and the automatic stay has not been violated during the tax auction period. Yet counties like Imperial are sued for taking the property to tax sale. This problem has most recently impacted my County, but has also impacted Merced and Los Angeles, and unless a legislative change is made to the code, some taxpayers will continue to game the tax code, sue local governments and waste taxpayer money defending the county's compliance with tax law.”

2. Back in time. AB 2746 responds to a situation in Imperial County when a property owner who would’ve lost their right to redeem property had the tax sale been conducted in the traditional fashion on a single day, regained it because the sale had been conducted over the internet where the sale lasted longer. Tax collectors seek to use the Internet to conduct tax sales to find more buyers, which should increase prices, thereby making it more likely that the tax collector can sell a property at an amount that can meet outstanding delinquent tax obligations and satisfy other liens in some cases, or find a purchaser who can meet the minimum price in others. Additionally, the measure should reduce litigation costs should a similar event occur in the future.

3. Related legislation. Earlier this year, the Senate approved SB 1506 (Committee on Governance and Finance), which amends five sections of property tax collections law to clarify that legally required notices constitute a “notice of tax deficiency” under federal bankruptcy law. The measure is currently pending hearing in the Assembly Appropriations Committee.

Assembly Actions

Assembly Revenue and Taxation Committee: 9-0

Assembly Floor: 71-0

Support and Opposition

(6/22/18)

Support: Imperial County Board of Supervisors, California Association of County Treasurer-Tax Collectors.

Opposition: Unknown.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 2746

Author:(Eduardo Garcia)

As Amended Ver:May 15, 2018

Majority vote

SUMMARY: Addresses the redemption termination deadline related to tax-defaulted property the county tax collector is required to offer for sale at a public auction. Specifically, this bill:

1. Clarifies that the right of redemption deadline, which terminates at the close of business on the last business day prior to the "date of the sale" applies whether that sale is:
   1. A publicly held sale; or,
   2. An Internet sale.
2. Specifies that in the case of a sale of tax-defaulted property by public auction:
   1. The commencement of the auction constitutes the actual sale date regardless of the auction conclusion; and,
   2. During the auction period, the taxpayer has lost all rights in the tax-defaulted property for failure to redeem the property by the final redemption date.
3. Details property owner rights in tax-defaulted property following the right of redemption termination deadline as follows:
   1. Provides that any person or entity with title of record to tax-defaulted property subject to sale by the county tax collector loses all rights in the property, including all legal and equitable interest therein, if the property is not redeemed prior to the redemption termination deadline; and,
   2. Provides that any person or entity holding title to tax-defaulted property subject to sale by the county tax collector regains all property rights if the right of redemption is revived.
   3. Specifies redemption rights are revived if:
      1. The property remains unsold after the public auction; or,
      2. The property was sold in a credit transaction, but full payment was not received, as specified.
4. Provides that tax sale distribution of proceeds law (Revenue and Taxation Code (R&TC) Section 4671 et seq.), which includes distributing excess proceeds to the former owner, is unaffected by the above provisions.

EXISTING FEDERAL LAW:

1. Provides an automatic stay if a property owner files for bankruptcy wherein certain actions are impermissible against the debtor or his or her property.
2. Disallows a county tax collector from selling a tax-defaulted property, via the automatic stay, if a property owner files a bankruptcy petition before the right of redemption termination deadline.
3. Creates, at the commencement of the bankruptcy, a "bankruptcy estate" of the debtor's property, which is described as all of the debtor's legal or equitable interest in property.

EXISTING STATE LAW:

1. Provides that all property is taxable unless explicitly exempted by the California Constitution or federal law.
2. Requires taxpayers to pay their property tax bills on real property in two installments, which become delinquent on December 10 and April 10, respectively, and subject to penalties.
3. Provides that a property becomes tax-defaulted if taxes remain unpaid after June 30, and subject to sale by the county tax collector if the taxpayer fails to redeem the property by repaying in full the defaulted taxes, interest, and penalties within five years (three years in the case of nonresidential commercial property).
4. Assesses a redemption penalty of 1.5% per month.
5. Details the series of actions a tax collector must follow, such as notices and publications, in the case of tax-defaulted property.
6. Grants tax collectors the power to sell tax-defaulted property and requires tax collectors to attempt to sell the property for nonpayment of taxes unless, by other provisions of law, the property is not subject to sale.
7. Allows the property owner to redeem the tax-defaulted property until the right of redemption is terminated.
8. Terminates the right of redemption of tax-defaulted property at the close of business on the last business day prior to the date of sale of property.
9. Defines "date of sale" as the date upon which a public auction begins.
10. Requires the tax collector to sell property at public auction if the property is not redeemed before the close of business on the last day prior to the date of sale.
11. Allows the tax collector to conduct the public auction by electronic media, including the Internet.

FISCAL EFFECT: This bill is keyed non-fiscal by the Legislative Counsel.

COMMENTS:

1. The author has provided the following statement in support of this bill:

The tax sale process comes to fruition only after years of certified mailings and personal contact to the property owner alerting them of their defaulted status. A tax sale is not a surprise. When the right to redemption time frame ends, the property owner should not be able to game the process by then filing bankruptcy to stall the sale. Taxpayers who have lost their right of redemption have no rights to their property.

Any bankruptcy proceeding filed after the final right of redemption has no legal authority and the automatic stay has not been violated during the tax auction period. Yet counties like Imperial are sued for taking the property to tax sale.

In addition, with the advent of Internet tax sales, impacted taxpayers have sought relief from the final redemption deadline because the multi-day internet tax sale has not concluded. The legal cost to defend the county tax collector mandated authority has escalated, costing counties thousands of dollars to defend their compliance with the tax sale process.

This problem has most recently impacted my County, but has also impacted Merced and Los Angeles and unless a legislative change is made to the code, some taxpayers will continue to game the tax code, sue local governments and waste taxpayer money defending the county's compliance with tax law.

1. The sponsor of this bill, the Imperial County Board of Supervisors, states that this bill is needed to address problems related to the right of redemption and Internet tax sales.
2. Committee Staff Comments:
   1. Tax-defaulted property sales: Generally, property taxes on the secured roll are due in two installments on November 1 and February 1. Property taxes that are due but unpaid after December 10 or April 10, respectively, become delinquent and incur a 10% penalty per installment. If there are any unpaid taxes after June 30, the property taxes are declared to be in default and incur additional penalties at the rate of 1.5% per month of the unpaid taxes, as well as a $15 redemption fee. The taxpayer may redeem his or her property by paying the total amount of the unpaid taxes for all delinquent years, as well as all penalties and fees.

If property taxes remain unpaid for five years (three years for nonresidential commercial property and three years for property subject to a nuisance abatement lien), then ultimately the property becomes subject to the power of sale and will be sold at a public auction. After proper notice is given, as the law requires, the owner of the tax-defaulted property has up until the close of business on the last business day prior to the tax sale to redeem the property. If the owner files for bankruptcy prior to that point in time, then the tax collector will remove the property from the public auction pursuant to the protection afforded by the automatic stay under federal bankruptcy law.

• 1. Public auctions: Tax collectors generally sell tax-defaulted property through public auctions. Today, county tax collectors may conduct the auction over the Internet, or otherwise accept bids, over a time period that can last several days, rather than holding the auction on the "courthouse steps". This ensures a wider pool of buyers from outside the county and a higher sales price. This, in turn, increases the possibility that the former owner receives excess proceeds, if any, from the tax sale.
  2. What does this bill do? This bill addresses publicly held and Internet sales of tax-defaulted property that are held via public auction to: (i) expressly provide the commencement of the tax sale auction constitutes the actual sale date regardless of when the auction concludes; and (ii) reaffirm that, during the auction period, a property owner has lost all rights in the tax-defaulted property being offered for auction for failure to redeem the property by the final redemption date. Additionally, this bill adds an express provision in law that property owners of record title lose all rights in tax-defaulted property, including all legal and equitable interests therein if the property owners do not exercise their right of redemption prior to the redemption termination deadline. These express "loss of rights" provisions address a bankruptcy-related court decision that has created uncertainty over the tax sale process. Specifically, uncertainty has arisen in cases where the property owner files bankruptcy in the window period after the tax sale commences but before the auction concludes. This has introduced uncertainty and the prospect that counties will incur continuing litigation costs in performing their state mandated duties in administering the property tax.
  3. What is the problem? A recent bankruptcy-related court decision related to property in Imperial County was issued that is contrary to the position that the right of redemption terminates at the close of business on the last day prior to the start of a county property tax sale for delinquent taxes (i.e., tax-defaulted). This decision is contrary to:
     1. An earlier bankruptcy court decision;
     2. The California State Controller's Office County Tax Sale Procedural Manual; and,
     3. The longstanding procedure of county tax collectors throughout the state.
  4. Statewide consistency and the importance of a bright line: The decision has introduced a question involving the interaction between the expiration of the right of redemption under California's property tax law and the protection afforded by the automatic stay under federal bankruptcy law. The decision is of great concern to tax collectors across the state because of the uncertainty that has been introduced into the tax sale process. Previously, a bright line existed. Without this bill, when a bankruptcy petition is filed after the right of redemption has expired and a sale is in process, the tax collector will be faced with a dilemma on whether to proceed. Given the different decisions in different counties, it is possible that when an impending tax sale must be halted due to a bankruptcy filing the procedure will differ from county to county. A tax collector may also halt the sale midway through to protect the county from incurring litigation costs it cannot afford. This creates a lack of statewide uniformity for tax collectors. It also introduces an added measure of risk for potential buyers, which could impact auction sales prices.

Analysis Prepared by: Rose Marie Kinnee / REV. & TAX. / (916) 319-2098 FN: 0002982

Date of Hearing: May 7, 2018

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Autumn R. Burke, Chairwoman

ABPCA Bill Id:AB 2746 (

Author:Eduardo Garcia) – As Amended Ver:April 26, 2018

Majority vote.

SUBJECT: Taxation: tax-defaulted property sales.

SUMMARY: Addresses the redemption termination deadline related to tax-defaulted property the county tax collector is required to offer for sale at a public auction. Specifically, this bill:

1. Details property owner rights in tax-defaulted property following the right of redemption termination deadline as follows:
   1. Provides that any person or entity with title of record to tax-defaulted property subject to sale by the county tax collector loses all rights in the property, including all legal and equitable interest therein, if the property is not redeemed prior to the redemption termination deadline; and,
   2. Provides that any person or entity holding title to tax-defaulted property subject to sale by the county tax collector regains all property rights if the right of redemption is revived.
   3. Specifies redemption rights are revived if:
      1. The property remains unsold after the public auction; or,
      2. The property was sold in a credit transaction, but full payment was not received, as specified.
2. Provides that tax sale distribution of proceeds law (Revenue and Taxation Code (R&TC) Section 4671 et seq.), which includes distributing excess proceeds to the former owner, is unaffected by the above provisions.
3. Indemnifies the tax collector and county from any liability from any injury on tax-defaulted property from the time that redemption rights terminate (such that the former owner has lost all property rights) to the time that the tax collector executes a deed to the purchaser of the tax defaulted property (such that the new owner gains all property rights).
4. Specifies that the tax collector's and the county's sole responsibility during the above time frame is to sell the tax-defaulted property.

EXISTING FEDERAL LAW:

1. Provides an automatic stay if a property owner files for bankruptcy wherein certain actions are impermissible against the debtor or his or her property. (Bankruptcy Code Section 362.)
2. Disallows a county tax collector from selling a tax-defaulted property, via the automatic stay, if a property owner files a bankruptcy petition before the right of redemption termination deadline.
3. Creates, at the commencement of the bankruptcy, a "bankruptcy estate" of the debtor's property, which is described as all of the debtor's legal or equitable interest in property. (Bankruptcy Code Section 541.)

EXISTING STATE LAW:

1. Provides that all property is taxable unless explicitly exempted by the California Constitution or federal law.
2. Requires taxpayers to pay their property tax bills on real property in two installments, which become delinquent on December 10 and April 10, respectively, and subject to penalties.
3. Provides that a property becomes tax-defaulted if taxes remain unpaid after June 30, and subject to sale by the county tax collector if the taxpayer fails to redeem the property by repaying in full the defaulted taxes, interest, and penalties within five years (three years in the case of nonresidential commercial property). (R&TC Sections 3436, 3693, and 126.)
4. Assesses a redemption penalty of 1.5% per month. (R&TC Section 4103.)
5. Details the series of actions a tax collector must follow, such as notices and publications, in the case of tax-defaulted property. (R&TC Section 3691 et seq.)
6. Grants tax collectors the power to sell tax-defaulted property and requires tax collectors to attempt to sell the property for nonpayment of taxes unless, by other provisions of law, the property is not subject to sale. (R&TC Section 3691 and 3692.)
7. Allows the property owner to redeem the tax-defaulted property until the right of redemption is terminated. (R&TC Section 4101.)
8. Terminates the right of redemption of tax-defaulted property at the close of business on the last business day prior to the date of sale of property. (R&TC Section 3707(a)(1).)
9. Defines "date of sale" as the date upon which a public auction begins. (R&TC Section 3692.1.)
10. Requires the tax collector to sell property at public auction if the property is not redeemed before the close of business on the last day prior to the date of sale. (R&TC Section 3706.)
11. Allows the tax collector to conduct the public auction by electronic media, including the Internet. (R&TC Section 3692.2.)

FISCAL EFFECT: Unknown

COMMENTS:

1. The author has provided the following statement in support of this bill:

The tax sale process comes to fruition only after years of certified mailings and personal contact to the property owner alerting them of their defaulted status. A tax sale is not a surprise. When the right to redemption time frame ends, the property owner should not be able to game the process by then filing bankruptcy to stall the sale. Taxpayers who have lost their right of redemption have no rights to their property.

Any bankruptcy proceeding filed after the final right of redemption has no legal authority and the automatic stay has not been violated during the tax auction period. Yet counties like Imperial are sued for taking the property to tax sale.

In addition, with the advent of Internet tax sales, impacted taxpayers have sought relief from the final redemption deadline because the multi-day internet tax sale has not concluded. The legal cost to defend the county tax collector mandated authority has escalated, costing counties thousands of dollars to defend their compliance with the tax sale process.

This problem has most recently impacted my County, but has also impacted Merced and Los Angeles and unless a legislative change is made to the code, some taxpayers will continue to game the tax code, sue local governments and waste taxpayer money defending the county's compliance with tax law.

1. The sponsor of this bill, the Imperial County Board of Supervisors, states that this bill is needed to address problems related to the right of redemption and Internet tax sales.
2. Committee Staff Comments:
   1. Tax-defaulted property sales: Generally, property taxes on the secured roll are due in two installments on November 1 and February 1. Property taxes that are due but unpaid after December 10 or April 10, respectively, become delinquent and incur a 10% penalty per installment. If there are any unpaid taxes after June 30, the property taxes are declared to be in default and incur additional penalties at the rate of 1.5% per month of the unpaid taxes, as well as a $15 redemption fee. The taxpayer may redeem his or her property by paying the total amount of the unpaid taxes for all delinquent years, as well as all penalties and fees.

If property taxes remain unpaid for five years (three years for nonresidential commercial property and three years for property subject to a nuisance abatement lien), then ultimately the property becomes subject to the power of sale and will be sold at a public auction. After proper notice is given, as the law requires, the owner of the tax-defaulted property has up until the close of business on the last business day prior to the tax sale to redeem the property. If the owner files for bankruptcy prior to that point in time, then the tax collector will remove the property from the public auction pursuant to the protection afforded by the automatic stay under federal bankruptcy law.

• 1. Public auctions: Tax collectors generally sell tax-defaulted property through public auctions. Today, county tax collectors may conduct the auction over the Internet, or otherwise accept bids, over a time period that can last several days, rather than holding the auction on the "courthouse steps". This ensures a wider pool of buyers from outside the county and a higher sales price. This, in turn, increases the possibility that the former owner receives excess proceeds, if any, from the tax sale.
  2. What does this bill do? This bill adds an express provision in law that property owners of record title lose all rights in tax-defaulted property, including all legal and equitable interests therein if the property owners do not exercise their right of redemption prior to the redemption termination deadline. This express "loss of rights" provision addresses a bankruptcy-related court decision that has created uncertainty over the tax sale process. Specifically, uncertainty has arisen in cases where the property owner files bankruptcy in the window period after the tax sale commences but before the auction concludes. This has introduced uncertainty and the prospect that counties will incur continuing litigation costs in performing their state mandated duties in administering the property tax.
  3. What is the problem? A recent bankruptcy-related court decision related to property in Imperial County was issued that is contrary to the position that the right of redemption terminates at the close of business on the last day prior to the start of a county property tax sale for delinquent taxes (i.e., tax-defaulted). This decision is contrary to:
     1. An earlier bankruptcy court decision;
     2. The California State Controller's Office County Tax Sale Procedural Manual; and,
     3. The longstanding procedure of county tax collectors throughout the state.
  4. Statewide consistency and the importance of a bright line: The decision has introduced a question involving the interaction between the expiration of the right of redemption under California's property tax law and the protection afforded by the automatic stay under federal bankruptcy law. The decision is of great concern to tax collectors across the state because of the uncertainty that has been introduced into the tax sale process. Previously, a bright line existed. Without this bill, when a bankruptcy petition is filed after the right of redemption has expired and a sale is in process, the tax collector will be faced with a dilemma on whether to proceed. Given the different decisions in different counties, it is possible that when an impending tax sale must be halted due to a bankruptcy filing the procedure will differ from county to county. A tax collector may also halt the sale midway through to protect the county from incurring litigation costs it cannot afford. This creates a lack of statewide uniformity for tax collectors. It also introduces an added measure of risk for potential buyers, which could impact auction sales prices.
  5. This bill does not explicitly address Internet tax sales: The issue giving rise to this bill relates to public auction tax sales spanning multiple days and that involve Internet sales. However, this bill lacks any mention of Internet sales. Committee staff recommends the following language be added to better reflect this bill's intent:
     1. On page 3, line 4, insert "publicly-held or Internet" before "sale".
     2. On page 3, line 5, renumber paragraph (2) as (4) and insert new paragraph (2) and (3) to subdivision (a), as follows:

"(2) The commencement of the tax sale constitutes the actual sale date regardless of the auction conclusion."

"(3) The taxpayer loses all rights during the auction period for failure to redeem the property by the final redemption date."

• 1. Suggested technical amendment: Committee staff suggests adoption of the following technical amendment to this bill: on page 3, line 28 strike "not".
  2. Prior legislation: SB 1832 (Cedillo), Chapter 194, Statutes of 2004, authorized counties to conduct tax-defaulted property sale auctions over the Internet.

REGISTERED SUPPORT / OPPOSITION:

Support

Imperial County Board of Supervisors (Sponsor)

Opposition

None on file

Analysis Prepared by: Rose Marie Kinnee / REV. & TAX. / (916) 319-2098