Existing law governs the sale to certain entities of a property that has been tax defaulted for 5 years or more, or 3 years or more, as applicable, in an applicable county, including by authorizing the state, county, any revenue district the taxes of which on the property are collected by county officers, or a redevelopment agency created pursuant to the California Community Redevelopment Law, to purchase the property or any part thereof, as prescribed. Existing law also authorizes a nonprofit organization to purchase, with the approval of the board of supervisors of the county in which it is located, a residential or vacant property that has been tax-defaulted for 5 years or more, or 3 years or more if the property is subject to a nuisance abatement lien, as prescribed. Existing law requires the sales price of a property sold pursuant to the provisions described or referenced above to include certain amounts, including all defaulted taxes and assessments and all associated penalties and costs.

This bill would prohibit a property or property interest from being offered for sale under the provisions described above if that property or property interest has not been offered for sale under the provisions described below.

Existing law generally authorizes a county tax collector to sell to any person tax-defaulted property 5 years or more, or 3 years or more, as applicable, after that property has become tax defaulted. Existing law authorizes a party of interest in the property to file with the county a claim for the excess proceeds, in proportion to that persons interest held with others of equal priority in the property at the time of sale, at any time before the expiration of one year following the recordation of the tax collectors deed to the purchaser and provides for the distribution of those excess proceeds. Existing law requires, if excess proceeds from the sale of tax-defaulted property exceed $150, the county to provide notice of the right to claim the excess proceeds, as prescribed.

This bill would increase the claims period described above to 2 years if the county does not receive any claims before the expiration of one year following the recordation of the tax collectors deed to the purchaser and would make conforming changes. The bill would also require the notice described above to include certain information, including the consequences for failing to apply for excess proceeds within the claims period. By requiring a county to administer the claims period for a longer time period and to include additional information in the required notice of the right to claim excess proceeds, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Date of Hearing: March 13, 2023

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 445 (

Author:Essayli) – As Introduced Ver:February 6, 2023

Majority vote. Fiscal Committee.

SUBJECT: Property tax: tax-defaulted property sales

SUMMARY: Modifies the process of a sale by agreement for a tax-defaulted property and increases the claim period for excess proceeds resulting from a sale by public auction or sealed bid. Specifically, this bill:

1. Requires that a sale by public auction or sealed bid, also referred to as a Chapter 7 tax sale, be conducted before a sale by agreement, also referred to as a "Chapter 8 tax sale".
2. Extends the period during which a party of interest in a property may collect the excess proceeds resulting from a Chapter 7 sale from one to two years, if the county receives no claims within a year of the sale.
3. Requires that the notice provided to inform parties of interest in the excess proceeds resulting from the sale of a tax-defaulted property shall additionally include:
   1. The amount of the tax debt with respect to which the tax-defaulted property was in default;
   2. The amount for which the property was sold; and,
   3. The consequences for failing to apply for excess proceeds within the extended time period provided by this bill.
4. Specifies 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 existing law.

EXISTING LAW:

1. Stipulates that all property is taxable, unless otherwise provided by the California Constitution or federal law (California Constitution, Article XIII, Section 1).
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 (R&TC Sections 2617 and 2618).
3. 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 3365 and Section 3691 et seq.).
4. 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, or three years in the case of nonresidential commercial property (R&TC Sections 3436, 3693, and 126).
5. Generally requires the tax collector to attempt to sell tax-defaulted property at a public auction to the highest bidder within four years of the property becoming subject to sale. Provides that certain properties, such as properties with oil, gas, or mineral rights or property rendered unusable by size or location shall be sold via a sealed bid to the highest bidder (R&TC Section 3692).
6. Requires the minimum bid amount in a sale by public auction, sealed bid, or agreement sale to be no less than the amount of the sum of defaulted taxes, delinquent penalties and costs, redemption penalties, a redemption fee, and any outstanding balance of any property tax postponement loan, as defined (R&TC Section 3698.5 and 3793.1).
7. Requires revenues resulting from the sale of a tax-defaulted property to be allocated according to a specific schedule and stipulates that any excess proceeds may be claimed by parties of interest, which include lienholders of record and any persons with title of record to the property. Requires the county to provide notice to parties of interest within 90 days of the sale of a property if the excess proceeds are more than $150 (R&TC Sections 4675 and 4676).
8. Permits, subject to application of certain affordability requirements, an eligible nonprofit organization, among other entities, to request the tax collector to bring any residential real property to the next scheduled tax sale if that property has been delinquent for three years, would serve the public benefit of providing housing directly related to low- or moderate-income households, and is not occupied by the owner as their principal place of residence. Requires the tax collector to bring the real property for which such a request has been submitted to the next scheduled tax sale (R&TC Section 3692.4).
9. Permits the State, taxing agencies, revenue districts, and special districts to object to the sale by public auction or sealed bid of a tax-defaulted property on the basis that it is needed for public use and forbids the tax collector from conducting the sale of the property subject to the objection (R&TC Section 3695.4). Requires the agreement to be submitted to the State Controller for approval (R&TC Section 3795).
10. Authorizes, for real property that has been defaulted for five or more years, or three or more years if the property is subject to a nuisance abatement lien, a nonprofit organization to purchase the real property by an agreement sale if the nonprofit organization will rehabilitate or construct residential dwellings for sale or rent to low- or moderate-income persons or families (R&TC Section 3791.4).
11. Stipulates that the transfer of deed resulting from an agreement sale has the same effect as a deed conveyed to a private purchaser after sale of tax-defaulted property pursuant to a public auction or sealed bid (R&TC Section 3806).

FISCAL EFFECT: Unknown

COMMENTS:

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

AB 445 would put an end to home equity theft in California by preventing a public agency, taxing agency, and non-profit organization from taking an entire property along with the homeowner's equity for a debt of potentially just a few dollars.

1. The Howard Jarvis Taxpayers Association, writing as sponsors of this bill, state:

AB 445 would close a loophole in California's tax-defaulted property sales that allows for an unconstitutional taking without just compensation of seized tax-delinquent property when it is sold to other government agencies or public interest groups working on low-income housing

[…] A pending United States Supreme Court case is a vital consideration here. The Court will hear oral argument in Tyler v. Hennepin (Case No. 22-166) on April 26^th [of this year]. In hearing this case, the Court is considering whether any government retention of home equity beyond its own claims violates the Fifth Amendment Takings Clause and/or the Eighth Amendment's Excessive Fines Clause. If such retention violates one or both, the State of California will be subject to its ruling and claims for refund could be filed based thereon.

1. Committee Staff Comments:
   1. Tax-defaulted property: Existing law generally declares real property for which taxes have not been paid by July 1^st in default. After a period of five years, or three years in the case of a nonresidential commercial property or property subject to a nuisance abatement lien, the defaulted property becomes subject to the power to sell by the tax collector. The tax collector is required to issue notices to owners of defaulted property informing them of the property's status, and to subsequently inform the property owner of the intent to sell the property at auction, after certain requirements are met. According to the County Tax Collectors' Reference Manual, published by the State Controller, current tax sale practice allows the title of tax-defaulted property to remain with the property owner or successor in interest while the property is subject to the tax collector's power to sell; ownership terminates upon completion of the tax sale by the tax collector and payment of the purchase amount. During the period between the property being declared in default and the sale of the property, the property owner has a right to redeem the status of the property by paying all taxes, assessments, penalties, and fees. However, upon completion of the sale, this right terminates, and the title to the property is deeded to the purchaser. The property must be sold at the minimum bid price, unless certain circumstances apply. Any party of interest in the property may claim the excess proceeds resulting from the sale of a property up to one year after the date of the sale. If no party of interest claims the excess proceeds after a period of one year, the balance may be transferred to the county general fund after reimbursing certain costs incurred by specified entities. The process for selling a tax-defaulted property by public auction or sealed bid is also referred to as a Chapter 7 sale.
   2. Sale by agreement: Eligible entities may object to the sale of a property at public auction or by sealed bid and request a sale by agreement if the property may be used for a public purpose, including a nonprofit organization that is strictly using the property to rehabilitate or construct residential dwellings for sale or rent to low- or moderate-income persons or families. A sale by agreement schedule commences after a tax collector receives a correctly completed application, with approval from the State Controller, and an objection letter from an eligible taxing agency or nonprofit organization if the property is scheduled to be sold at open auction or by sealed bid. The property must be sold at the minimum bid price. Upon completion of the sale, the right to redemption terminates and the title is deeded to the purchaser, which has the same effect as the completion of a sale by public auction or sealed bid. The process for selling a tax-defaulted property by agreement is also referred to as a Chapter 8 sale.
   3. What does this bill do? This bill has two distinct components. The first component requires that a Chapter 7 sale must occur before a Chapter 8 sale may be conducted. The second component allows a party of interest an additional year to claim excess proceeds resulting from the sale of a tax-defaulted property if they fail to claim those proceeds in the initial year pursuant to existing law.

The first component will be discussed below. However, the need for the second component of this bill is unclear. The sponsors have provided no evidence that the existing one year period during which interested parties may claim excess proceeds is an insufficient amount of time. As such, extending the period during which excess proceeds may be claimed by interested parties may unnecessarily delay a county in recouping amounts of defaulted property tax.

• 1. Tyler v. Hennepin County: The author indicates that this bill is prompted by a case that has been granted a writ of certiorari by the United States (U.S.) Supreme Court, Tyler v. Hennepin County. (2023) U.S. [143 S.Ct. 644, 214 L.Ed.2d 382]. In that case, the United States Court of Appeals for the Eight Circuit upheld the ruling of the U.S. District Court of Minnesota, which opined that there was no unconstitutional taking. The U.S. District Court of Minnesota held that where state law recognizes no property interest in surplus proceeds from a tax-foreclosure sale conducted after adequate notice to the owner, there is no unconstitutional taking, citing a case adjudicated by the Court, Nelson v. City of New York (1956) 352 U.S. 103 [77 S.Ct. 195, 1 L.Ed.2d 171]. Given the Chapter 8 sale process does not stipulate a means by which excess proceeds can be distributed to interested parties, and the Court will be hearing that case with this issue at hand, it may be premature to modify the sale by agreement process.
  2. Previous legislation: AB 1839 (Choi), of the 2021-22 Legislative Session, was essentially identical to this bill. AB 1839 failed to pass this Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

Howard Jarvis Taxpayers Association (Sponsor)

Opposition

None on file

Analysis Prepared by: Harrison Bowlby / REV. & TAX. / (916) 319-2098