Existing law generally authorizes a county tax collector to sell tax-defaulted property 5 years or more, or 3 years or more, as applicable, after that property has become tax defaulted, to any person, regardless of any prior or existing lien on, claim to, or interest in, the property, as specified. Existing law also generally authorizes 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 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 authorize a property or property interest from being to be offered for sale under the provisions described above authorizing a sale to certain entities if that property or property interest that has not been offered for sale under the provisions described above authorizing a sale to any person unless if the State Board of Equalization conducts a property valuation that shows that the property or property interest is worth less than the amount of the defaulted debt, as specified.

Existing law generally authorizes a county tax collector to sell tax-defaulted property 5 years or more, or 3 years or more, as applicable, after that property has become tax defaulted, to any person, regardless of any prior or existing lien on, claim to, or interest in, the property, as specified. Existing law governs also generally authorizes 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 authorizing a sale to certain entities if that property or property interest has not been offered for sale under the provisions described below, described above authorizing a sale to any person unless certain conditions are satisfied. the Board of Equalization conducts a property valuation that shows that the property or property interest is worth less than the amount of the defaulted debt, as specified.

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. below, unless certain conditions are satisfied.

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. require a county to review a claim filed pursuant to the provisions described above and determine whether the claim is complete and valid, and would prescribe a procedure for curing any deficiency in the claim. 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, undertake new duties with respect to the claims process, 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.

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.

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

SB 964 (Seyarto) - Property tax: tax-defaulted property sales

Bill Summary:

SB 964 would make specified changes to state law guiding tax-defaulted property sales.

Fiscal Impact:

The Board of Equalization (BOE) indicates that it would incur annual costs, at a minimum, of $1.8 million to $2 million annually, to implement the provisions of the bill (General Fund, See Staff Comments).

Background:

Current law generally requires county tax collectors to begin imposing penalties for nonpayment of property taxes of 10 percent of each amount due (plus administrative charges) once taxes become delinquent on April 10^th. If a property owner does not pay the property taxes due in the current fiscal year before June 30th, the property becomes tax-defaulted, and can be subject to tax sale to satisfy outstanding taxes, penalties, and administrative charges.

To protect property owners, the Legislature has enacted specific procedural requirements to ensure tax collectors notify delinquent taxpayers when their property is subject to tax sale and offer them an opportunity to keep their property. After proper notification steps are taken, the tax collector is authorized to sell a residential property that has been in default for five years (three years for a commercial property). However, the tax collector must sell the property within four years of it being subject to sale. To conduct a tax sale, the tax collector must transmit to the county board of supervisors a notice of the properties intended to be sold. After approval of the board of supervisors, every June 8th, the tax collector publishes a notice of power and intent to sell (power to sell) property that will be tax defaulted with specified disclosures, which starts the tax sale process. This is referred to as a “Chapter 7 sale”.

At least 30 days before publishing the notice of intended sale, the tax collector must send a notice to all taxing agencies having the right to levy taxes or assessments on the property and each city having jurisdiction over a property scheduled for the tax sale. The State, a city, or any taxing agency or revenue district may object to the sale of a portion of the property, and try to purchase it themselves if it’s needed for public use. The tax collector must also forward a copy of the notice to any nonprofit organization that has requested a copy, which can also object to a tax sale and propose to purchase the property themselves, but only for the purposes of (1) constructing or rehabilitating currently substandard residential property to rent or sell to low-income persons, or otherwise use the property to serve low-income persons, or (2) dedicating vacant land for open space purposes, or for constructing residential dwellings for subsequent sale or rent to low-income persons, or for other uses to serve low-income persons.

Nonprofit agencies can also request that the tax collector send to tax sale a property eligible, but not scheduled, for tax sale. When a public agency or nonprofit proposes to purchase the property, the tax collector then proposes it to a Chapter 8 sale (see below).

The tax collector must then send notice of a proposed tax sale to the State Controller’s Office. During this period, the tax collector must also make a reasonable effort to ascertain the names and last known addresses of parties of interest to the sale, including the owner and other lienholders. Not less than 45 days nor more than 120 days before the proposed sale, the tax collector must send notice of the sale to these parties of interest. The tax collector or their agent must make a reasonable effort to contact in person any owner-occupant of a property before the tax sale, based on either a valid homeowner’s exemption, or the fact that the mailing address for the last tax bill is the same address as the property. If the tax collector or their agent cannot make personal contact, they must attempt to serve written notice, no less than five days prior to the date of the sale. The tax collector then publishes the notice of tax sale, generally in a newspaper of general circulation published in the county seat and in the public notice district where the property is situated, at least 21 days before the sale.

As noted above, government entities and nonprofit organizations can enter into agreements to purchase tax defaulted residential or vacant property that has been tax defaulted, known as a “Chapter 8 sale.” A Chapter 8 sale is not held by auction, instead requiring only payment of delinquent taxes, redemption penalties, and other costs; in some cases, the tax collector can further reduce the price. The state, local agency, or nonprofit submits an application to the county with a purchase price, which must be approved by the board of supervisors.

The board of supervisors may establish conditions of sale to the nonprofit, including reporting, to assure the completion of rehabilitation within a reasonable time and maximum benefit to low-income persons. After approval, the tax collector must send a copy of the executed agreement to the State Controller for approval. If approved, the tax collector publishes notice of the agreement. The tax collector must then complete almost all of the same steps as a regular (Chapter 7) sale, such as sending the agreement to the current property owner and any parties of interest not less than 45 nor more than 60 days prior to the effective date of the agreement, and publishing the notice of agreement. The sale cannot become effective less than 21 days from the date the tax collector publishes notice of the agreement. Unlike Chapter 7 sales, no process for rescission exists for Chapter 8 sales.

Generally, counties paused tax sales during the COVID-19 pandemic. As they have resumed, Chapter 8 sales are reportedly rare, with only 16 in 6 counties in 2022, and 30 in 12 counties in 2023, according to the State Controller. However, many counties have ceased Chapter 8 sales because of a recent U.S. Supreme Court case.

Proposed Law:

This bill would prohibit a Chapter 8 sale of tax-defaulted property unless the property is first (1) offered under Chapter 7, or (2) the State Board of Equalization (BOE) conducts a property valuation that shows the value of the property interest is worth less than the amount of the defaulted debt. Under the bill, a taxing authority intending to sell a property or property interest would need to notify BOE, which would then be required to provide the taxing authority with a valuation of that property or property interest within 45 days of the notification. Additionally, the bill would direct the State Controller to determine if the BOE’s valuation shows that the property or property interest is worth less than the amount of the defaulted debt, as part of the Chapter 8 approval process.

Staff Comments:

BOE would incur potentially significant staffing costs depending on the number of properties it would need to evaluate annually. Given the bill’s 45-day timeline, the Board would potentially need to augment its staff of property appraisers by a minimum of 10 positions, with an ongoing cost of at least $1.5 million. Since the appraisal of parcels would require in-person site visits, additional costs for travel and accommodations throughout the State would be needed as well. Finally, BOE’s Legal and Communications Departments would incur increased workload, for, respectively, (1) staff time for appeals by potential litigants alleging problems with the BOE’s valuations, and (2) increased public inquiries regarding property valuation concerns.

-- END --

SENATE COMMITTEE ON REVENUE AND TAXATION

Senator Steven Glazer, Chair

2023 - 2024 Regular

Property tax: tax-defaulted property sales

Makes three changes to state law guiding property tax sales.

Background

Property taxes are due in two installments: November 1, and February 1, with delinquency for the second installment occurring on April 10. Generally, state law requires county tax collectors to begin imposing penalties for nonpayment of property taxes of 10% of each amount due, plus administrative charges, once taxes become delinquent. If a property owner does not pay the property taxes due in the current fiscal year before June 30^th, their property becomes tax-defaulted, and can be subject to tax sale to satisfy outstanding taxes, penalties, and administrative charges.

Tax sales. Tax sales deprive persons of property ownership, so the Legislature has added specific procedural requirements to ensure tax collectors notify delinquent taxpayers when their property is subject to tax sale, and offer them an opportunity to retain their property. Among these, tax collectors must first send a notice of impending default, then a notice of default, to taxpayers whose property may be subject to tax sale by registered mail to the taxpayer’s last known address. 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. Tax collectors can offer delinquent taxpayers installment agreements to cure a default before a tax sale.

The tax collector can then sell a residential property that has been in default for five years, or three years for a commercial property, unless the board of supervisors sets a five-year period for commercial property. However, the tax collector must sell property within four years of it being subject to sale. To conduct a tax sale, the tax collector must transmit to the board of supervisors a notice of the properties they intend to sell. After approval of the board of supervisors, every June 8^th, the tax collector publishes a notice of power and intent to sell all property that will be tax defaulted with specified contents, which commences the tax sale process.

At least 30 days before publishing the notice of intended sale, the tax collector must send a notice to all taxing agencies having the right to levy taxes or assessments on the property and each city having jurisdiction over a property scheduled for the tax sale. The State, a city, or any taxing agency or revenue district may object to the sale of a portion of the property, and try to purchase it themselves if it’s needed for public use. The tax collector must also forward a copy of the notice to any nonprofit organization that has requested a copy, which can also object to a tax sale and propose to purchase the property themselves, but only for the purposes of:

• Constructing or rehabilitating currently substandard residential property to rent or sell to low-income persons, or otherwise use the property to serve low-income persons, or
• Dedicating vacant land for open space purposes, or for constructing residential dwellings for subsequent sale or rent to low-income persons, or for other uses to serve low-income persons.

Nonprofit agencies can also request that the tax collector send to tax sale a property eligible, but not scheduled, for tax sale. When a public agency or nonprofit proposes to purchase the property, the tax collector then proposes it to a Chapter 8 sale (see below).

The tax collector must then send notice of a proposed tax sale to the State Controller’s Office. During this period, the tax collector must also make a reasonable effort to ascertain the names and last known addresses of parties of interest to the sale, including the owner and other lienholders. Not less than 45 days nor more than 120 days before the proposed sale, the tax collector must send notice of the sale to these parties of interest. The tax collector or their agent must make a reasonable effort to contact in person any owner-occupant of a property before the tax sale, based on either a valid homeowner’s exemption, or the fact that the mailing address for the last tax bill is the same address as the property. If the tax collector or their agent cannot make personal contact, they must attempt to serve written notice, no less than five days prior to the date of the sale. The tax collector then publishes the notice of tax sale, generally in a newspaper of general circulation published in the county seat and in the public notice district where the property is situated, at least 21 days before the sale.

Upon completion of the sale, this right of redemption terminates, and the title to the property is deeded to the purchaser. However, a property owner has one year from the date of sale to petition the board of supervisors for a rescission of the tax sale.

Chapter 8 Sales. As noted above, government entities and nonprofit organizations can enter into agreements to purchase tax defaulted residential or vacant property that has been tax defaulted, known as a “Chapter 8 sale.” A Chapter 8 sale is not held by auction, instead requiring only payment of delinquent taxes, redemption penalties, and other costs; in some cases, the tax collector can further reduce the price. The state, local agency, or nonprofit submits an application to the county with a purchase price, which must be approved by the board of supervisors.

The board of supervisors may establish conditions of sale to the nonprofit, including reporting, to assure the completion of rehabilitation within a reasonable time and maximum benefit to low-income persons. After approval, the tax collector must send a copy of the executed agreement to the State Controller for approval. If approved, the tax collector publishes notice of the agreement. The tax collector must then complete almost all of the same steps as a regular – known as a Chapter 7 – sale, such as sending the agreement to the current property owner and any parties of interest not less than 45 nor more than 60 days prior to the effective date of the agreement, and publishing the notice of agreement. The sale cannot become effective less than 21 days from the date the tax collector publishes notice of the agreement. Unlike Chapter 7 sales, no process for rescission exists for Chapter 8 sales.

Generally, counties paused tax sales during the COVID-19 pandemic. As they have resumed, Chapter 8 sales are rare, with only 16 in 6 counties in 2022, and 30 in 12 counties in 2023, according to the State Controller. However, many counties have ceased Chapter 8 sales because of a recent U.S. Supreme Court case (see below)

Tyler v. Hennepin County. Last year, the United States Supreme Court decided Tyler v. Hennepin County, Minnesota, 598 U.S. 631, 143 S. CT. 1369. In the case, the Court ruled the County had violated the United States Constitution’s Fifth Amendment takings clause. Unlike in California where taxpayers can claim excess proceeds from a tax sale, under Minnesota law, the state can either keep a tax-defaulted property for public use or sell it, retaining all proceeds, including those in excess of the tax due.

Arguing that Chapter 8 sales do not comply with the U.S. Supreme Court’s holding in Tyler v. Hennepin County, the author wants to limit Chapter 8 sales.

Proposed Law

Senate Bill 946 prohibits Chapter 8 tax sales unless:

• The property is first offered under Chapter 7, or
• The State Board of Equalization (BOE) conducts a property valuation that shows the value of the property interest is worth less than the amount of the defaulted debt.

A taxing authority intending to sell a property or property interest must notify BOE of that intent. BOE must provide the authority with a valuation of that property or property interest within 45 days of the notification. The bill additionally directs the Controller to consider whether BOE’s valuation shows the value of the property or property interest exceeds the amount of defaulted debt as part of the Chapter 8 approval process.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “SB-964 seeks to bring California into compliance with the recent Tyler v. Hennepin County ruling by the United States Supreme Court. By providing a third party valuation of a property, pending a Chapter 8 sale, local governments can ensure that they are providing the property at fair market value and are in compliance with the Supreme Court ruling. This will protect local governments from being targeted for Constitutional violations while keeping an essential tool for selling tax defaulted properties within California. Although minor, this is a needed adjustment to protect both the Constitutional rights of property owners and the actions of local governments surrounding these unique properties.”

2. What’s the problem? SB 964 gives counties two choices to conduct a Chapter 8 sale. First, it can attempt a Chapter 7 sale, where the tax collector can only accept a minimum bid that is equal to or exceeds the amount of defaulted taxes, interest, and costs. If a minimum bid is not received, the county can then proceed to a Chapter 8 sale. Second, the county can notify BOE, which must then complete a valuation of the property or the property interest. If the BOE valuation shows a value that is less than the amount of defaulted debt, the County can then proceed to a Chapter 8 sale. However, it’s unclear counties have used Chapter 8 to seize an owner-occupied residence as was the case in Tyler v. Hennepin County, where the Court found Minnesota’s statute that deeds any tax-defaulted property to the state was in violation of the Takings Clause. Additionally, counties are aware of the case and any litigation risk they would assume authorizing a Chapter 8 sale where excess proceeds are possible. Lastly, limiting Chapter 8 sales may make it harder for local agencies to acquire property to provide public services, or nonprofit organizations to provide affordable housing. The Committee may wish to consider whether SB 964 is necessary.

3. One way. SB 964 allows counties to proceed with tax sales so long as they have a valuation from BOE that shows the value of the property interest is worth less than the amount of the defaulted debt. While BOE values unitary property of statewide assessees like utilities and railroads, and oversees county assessors, its property tax staff generally doesn’t appraise individual properties or interests. Additionally, the bill does not augment BOE’s budget to compensate for the costs of the valuation, which must be completed in short order – 45 days. Lastly, nonprofit organizations or government entities may want to contract with their own appraisers to conduct the valuation, but only a BOE valuation will suffice under the bill for a nonprofit organization or government entity that wants to purchase a property or property interest.

4. Render unto pharaoh. According to various sources, property taxes began in ancient Egypt, spread around the world to Europe and Asia, and today remain one of the primary ways governments raise money to finance public services. For governments, property taxes have several advantages over other taxes, most notably that assessors can physically locate and value the property subject to tax, and tax collectors can sell it when tax-defaulted. While imposing a more severe penalty than nonpayment of other taxes, tax sales not only serve as a significant deterrent for non-payment, they allow land that is abandoned or defunct as evidenced by non-payment of taxes to be transferred to others who can put it to productive use, improving a community’s general wealth. Additionally, tax sales convert a property where owners are not paying taxes into one where not only are delinquent taxes repaid, but so are current taxes. Because deprivation of property is among the most severe penalties governments can impose for violations of law, state law sets forth an exhaustive process of notices, notifications, publications, and approvals that ensure taxpayers and parties of interest are aware of property tax delinquency, impending sale, and ability to claim any excess proceeds. There are few categorical exemptions from property tax, so any property owner cannot reasonably claim ignorance of their property tax obligations. Any deprivation of property resulting from a tax sale can only legally occur after tax collectors have satisfied several steps to collect lawfully due and payable taxes from taxpayers who have failed to pay taxes for several years.

5. Technicals. Committee staff recommends revising subdivision (a) of the measure’s new code section to add clarity.

Support and Opposition

(4/19/24)

Support: Apartment Association of Greater Los Angeles
Apartment Owners Association of California, Inc.
Bizfed Central Valley
California Taxpayer Protection Committee
CalTax
Central Coast Taxpayers Association
Central Valley BizFed
Central Valley Taxpayers Association
Glendora Chamber of Commerce
Howard Jarvis Taxpayers Association (HJTA)
Los Angeles County Taxpayers Association
Monterey County Farm Bureau
Nisei Farmers League
Orange County Taxpayers’ Association
Pacific Legal Foundation
Placer County Taxpayers Association
San Joaquin County Farm Bureau
Solano County Taxpayers Association
Western Manufactured Housing Communities Association
1 Individual

Opposition: California Association of County Treasurers and Tax Collectors
California Housing Partnership Corporation
California State Association of Counties (CSAC)
Contra Costa County
County of Kern
County of Lake
County of Madera
Rural County Representatives of California (RCRC)
State Association of County Auditors
Urban Counties of California (UCC)

-- END --

SENATE COMMITTEE ON REVENUE AND TAXATION

Senator Steven Glazer, Chair

2023 - 2024 Regular

Property tax: tax-defaulted property sales

Makes three changes to state law guiding property tax sales.

Background

Property taxes are due in two installments: November 1, and February 1, with delinquency for the second installment occurring on April 10. Generally, state law requires county tax collectors to begin imposing penalties for nonpayment of property taxes of 10% of each amount due, plus administrative charges, once taxes become delinquent. If a property owner does not pay the property taxes due in the current fiscal year before June 30^th, their property becomes tax-defaulted, and can be subject to tax sale to satisfy outstanding taxes, penalties, and administrative charges.

Tax sales. Tax sales deprive persons of property ownership, so the Legislature has added specific procedural requirements to ensure tax collectors notify delinquent taxpayers when their property is subject to tax sale, and offer them an opportunity to retain their property. Among these, tax collectors must first send a notice of impending default, then a notice of default, to taxpayers whose property may be subject to tax sale by registered mail to the taxpayer’s last known address. 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. Tax collectors can offer delinquent taxpayers installment agreements to cure a default before a tax sale.

The tax collector can then sell a residential property that has been in default for five years, or three years for a commercial property, unless the board of supervisors sets a five-year period for commercial property. However, the tax collector must sell property within four years of it being subject to sale. To conduct a tax sale, the tax collector must transmit to the board of supervisors a notice of the properties they intend to sell. After approval of the board of supervisors, every June 8^th, the tax collector publishes a notice of power and intent to sell all property that will be tax defaulted with specified contents, which commences the tax sale process.

At least 30 days before publishing the notice of intended sale, the tax collector must send a notice to all taxing agencies having the right to levy taxes or assessments on the property and each city having jurisdiction over a property scheduled for the tax sale. The State, a city, or any taxing agency or revenue district may object to the sale of a portion of the property, and try to purchase it themselves if it’s needed for public use. The tax collector must also forward a copy of the notice to any nonprofit organization that has requested a copy, which can also object to a tax sale and propose to purchase the property themselves, but only for the purposes of:

• Constructing or rehabilitating currently substandard residential property to rent or sell to low-income persons, or otherwise use the property to serve low-income persons, or
• Dedicating vacant land for open space purposes, or for constructing residential dwellings for subsequent sale or rent to low-income persons, or for other uses to serve low-income persons.

Nonprofit agencies can also request that the tax collector send to tax sale a property eligible, but not scheduled, for tax sale. When a public agency or nonprofit proposes to purchase the property, the tax collector then proposes it to a Chapter 8 sale (see below).

The tax collector must then send notice of a proposed tax sale to the State Controller’s Office. During this period, the tax collector must also make a reasonable effort to ascertain the names and last known addresses of parties of interest to the sale, including the owner and other lienholders. Not less than 45 days nor more than 120 days before the proposed sale, the tax collector must send notice of the sale to these parties of interest. The tax collector or their agent must make a reasonable effort to contact in person any owner-occupant of a property before the tax sale, based on either a valid homeowner’s exemption, or the fact that the mailing address for the last tax bill is the same address as the property. If the tax collector or their agent cannot make personal contact, they must attempt to serve written notice, no less than five days prior to the date of the sale. The tax collector then publishes the notice of tax sale, generally in a newspaper of general circulation published in the county seat and in the public notice district where the property is situated, at least 21 days before the sale.

Upon completion of the sale, this right of redemption terminates, and the title to the property is deeded to the purchaser. However, a property owner has one year from the date of sale to petition the board of supervisors for a rescission of the tax sale.

Chapter 8 Sales. As noted above, government entities and nonprofit organizations can enter into agreements to purchase tax defaulted residential or vacant property that has been tax defaulted, known as a “Chapter 8 sale.” A Chapter 8 sale is not held by auction, instead requiring only payment of delinquent taxes, redemption penalties, and other costs; in some cases, the tax collector can further reduce the price. The state, local agency, or nonprofit submits an application to the county with a purchase price, which must be approved by the board of supervisors.

The board of supervisors may establish conditions of sale to the nonprofit, including reporting, to assure the completion of rehabilitation within a reasonable time and maximum benefit to low-income persons. After approval, the tax collector must send a copy of the executed agreement to the State Controller for approval. If approved, the tax collector publishes notice of the agreement. The tax collector must then complete almost all of the same steps as a regular – known as a Chapter 7 – sale, such as sending the agreement to the current property owner and any parties of interest not less than 45 nor more than 60 days prior to the effective date of the agreement, and publishing the notice of agreement. The sale cannot become effective less than 21 days from the date the tax collector publishes notice of the agreement. Unlike Chapter 7 sales, no process for rescission exists for Chapter 8 sales.

Generally, counties paused tax sales during the COVID-19 pandemic. As they have resumed, Chapter 8 sales are rare, with only 16 in 6 counties in 2022, and 30 in 12 counties in 2023, according to the State Controller. However, many counties have ceased Chapter 8 sales because of a recent U.S. Supreme Court case (see below)

Tyler v. Hennepin County. Last year, the United States Supreme Court decided Tyler v. Hennepin County, Minnesota, 598 U.S. 631, 143 S. CT. 1369. In the case, the Court ruled the County had violated the United States Constitution’s Fifth Amendment takings clause. Unlike in California where taxpayers can claim excess proceeds from a tax sale, under Minnesota law, the state can either keep a tax-defaulted property for public use or sell it, retaining all proceeds, including those in excess of the tax due.

Arguing that Chapter 8 sales do not comply with the U.S. Supreme Court’s holding in Tyler v. Hennepin County, the author wants to limit Chapter 8 sales.

Proposed Law

Senate Bill 946 prohibits Chapter 8 tax sales unless:

• The property is first offered under Chapter 7, or
• The State Board of Equalization (BOE) conducts a property valuation that shows the value of the property interest is worth less than the amount of the defaulted debt.

A taxing authority intending to sell a property or property interest must notify BOE of that intent. BOE must provide the authority with a valuation of that property or property interest within 45 days of the notification. The bill additionally directs the Controller to consider whether BOE’s valuation shows the value of the property or property interest exceeds the amount of defaulted debt as part of the Chapter 8 approval process.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “SB-964 seeks to bring California into compliance with the recent Tyler v. Hennepin County ruling by the United States Supreme Court. By providing a third party valuation of a property, pending a Chapter 8 sale, local governments can ensure that they are providing the property at fair market value and are in compliance with the Supreme Court ruling. This will protect local governments from being targeted for Constitutional violations while keeping an essential tool for selling tax defaulted properties within California. Although minor, this is a needed adjustment to protect both the Constitutional rights of property owners and the actions of local governments surrounding these unique properties.”

2. What’s the problem? SB 964 gives counties two choices to conduct a Chapter 8 sale. First, it can attempt a Chapter 7 sale, where the tax collector can only accept a minimum bid that is equal to or exceeds the amount of defaulted taxes, interest, and costs. If a minimum bid is not received, the county can then proceed to a Chapter 8 sale. Second, the county can notify BOE, which must then complete a valuation of the property or the property interest. If the BOE valuation shows a value that is less than the amount of defaulted debt, the County can then proceed to a Chapter 8 sale. However, it’s unclear counties have used Chapter 8 to seize an owner-occupied residence as was the case in Tyler v. Hennepin County, where the Court found Minnesota’s statute that deeds any tax-defaulted property to the state was in violation of the Takings Clause. Additionally, counties are aware of the case and any litigation risk they would assume authorizing a Chapter 8 sale where excess proceeds are possible. Lastly, limiting Chapter 8 sales may make it harder for local agencies to acquire property to provide public services, or nonprofit organizations to provide affordable housing. The Committee may wish to consider whether SB 964 is necessary.

3. One way. SB 964 allows counties to proceed with tax sales so long as they have a valuation from BOE that shows the value of the property interest is worth less than the amount of the defaulted debt. While BOE values unitary property of statewide assessees like utilities and railroads, and oversees county assessors, its property tax staff generally doesn’t appraise individual properties or interests. Additionally, the bill does not augment BOE’s budget to compensate for the costs of the valuation, which must be completed in short order – 45 days. Lastly, nonprofit organizations or government entities may want to contract with their own appraisers to conduct the valuation, but only a BOE valuation will suffice under the bill for a nonprofit organization or government entity that wants to purchase a property or property interest.

4. Render unto pharaoh. According to various sources, property taxes began in ancient Egypt, spread around the world to Europe and Asia, and today remain one of the primary ways governments raise money to finance public services. For governments, property taxes have several advantages over other taxes, most notably that assessors can physically locate and value the property subject to tax, and tax collectors can sell it when tax-defaulted. While imposing a more severe penalty than nonpayment of other taxes, tax sales not only serve as a significant deterrent for non-payment, they allow land that is abandoned or defunct as evidenced by non-payment of taxes to be transferred to others who can put it to productive use, improving a community’s general wealth. Additionally, tax sales convert a property where owners are not paying taxes into one where not only are delinquent taxes repaid, but so are current taxes. Because deprivation of property is among the most severe penalties governments can impose for violations of law, state law sets forth an exhaustive process of notices, notifications, publications, and approvals that ensure taxpayers and parties of interest are aware of property tax delinquency, impending sale, and ability to claim any excess proceeds. There are few categorical exemptions from property tax, so any property owner cannot reasonably claim ignorance of their property tax obligations. Any deprivation of property resulting from a tax sale can only legally occur after tax collectors have satisfied several steps to collect lawfully due and payable taxes from taxpayers who have failed to pay taxes for several years.

5. Technicals. Committee staff recommends adding “and did not receive a bid that exceeded the minimum bid” before “unless” on Page 3, Line 18, and “unless the property or property interest was offered for sale under Chapter 7 (commencing with Section 3691) and did not receive a bid that exceeded the minimum bid” after “intent” on Page 4, Line 29.

Support and Opposition

(4/19/24)

Support: Apartment Association of Greater Los Angeles
Apartment Owners Association of California, Inc.
Bizfed Central Valley
California Taxpayer Protection Committee
CalTax
Central Coast Taxpayers Association
Central Valley BizFed
Central Valley Taxpayers Association
Glendora Chamber of Commerce
Howard Jarvis Taxpayers Association (HJTA)
Los Angeles County Taxpayers Association
Monterey County Farm Bureau
Nisei Farmers League
Orange County Taxpayers’ Association
Pacific Legal Foundation
Placer County Taxpayers Association
San Joaquin County Farm Bureau
Solano County Taxpayers Association
Western Manufactured Housing Communities Association
1 Individual

Opposition: California Association of County Treasurers and Tax Collectors
California Housing Partnership Corporation
California State Association of Counties (CSAC)
Contra Costa County
County of Kern
County of Lake
County of Madera
Rural County Representatives of California (RCRC)
State Association of County Auditors
Urban Counties of California (UCC)

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