Property Tax Deferral Reverses Some Fortunes
After raising 10 children and seeing that they all got an education, there wasn’t much left in the way of savings for Jim and Eleanor Brooks’ later years.
“Everything went into keeping our kids fed, clothed and healthy. And we did it without ever asking for government assistance,” Eleanor Brooks said proudly.
However, as retirees, the picture has changed.
“We live on a low fixed income and are always looking for ways to ease the budget,” she said.
One of the ways Jim and Eleanor Brooks found to cut costs is a state program begun in 1978 that lets eligible older homeowners postpone their property taxes until they sell their home or die.
The couple are among almost 10,000 Californians being helped each year by the Property Tax Postponement program, designed to ease economic stress for homeowners who are at least 62 years old, or blind or disabled, whose household income is less than $24,000 and who have at least 20% equity in their home.
It is the only program in the United States, state officials believe, that defers property taxes at low interest rates for the life of the commitment.
The Brookses, who live in Palmdale and asked that their real names not be used, bought their two-bedroom house in 1985 for $69,000, while Jim was employed in the aircraft industry. Their down payment, by choice, was $10,000.
“Looking back, Jim and I realize it was a bad mistake to put all that money on a down payment,” she said. “It left us with very little cash flow, but I guess we were just old-fashioned and afraid to take on large debts.”
While the value of the Brookses’ home has almost doubled since they bought it, and under Proposition 13 their taxes are still based on the original price, each year, by law, the tax creeps up another 2%.
“If we had not opted for tax deferral this year, we would be paying about $750 in property taxes,” Eleanor Brooks said. “Now we have that much more to take care of the unexpected costs that continually crop up when you get older.”
The tax postponement program is administered by the office of State Controller Gray Davis.
“The last thing we want . . . is to see older people forced out of their homes because they can’t pay their property taxes,” Davis said, adding that the program “can be a godsend for eligible people who find themselves in an economic bind either through loss of income or illness.”
In 1988, it was estimated that more than 900,000 California homeowners qualified for property tax postponement, even though only 1%, or 9,000 people, participated.
As to why so few eligible Californians take part in tax deferral, Gray said: “A lack of knowledge about the program is one reason, although we do receive some 70,000 inquiries annually.
“Another is the fact that a lot of older people who have lived through the Depression are leery of taking on debts. They would rather try to get by with a little less than have a government lien (required under the program) on their home.”
When taxes are postponed under the PTP program, an account is opened in the homeowner’s name at the state controller’s office, which then pays that homeowner’s property taxes on a short- or long-term commitment.
And since the tax obligation must be reimbursed at some point, a property tax lien is recorded on the home.
Under the program, the state becomes a lender and collects interest much like any other financial institution. This year, the interest on the deferred taxes is 9%, a rate that is pegged to the state’s pooled money investment fund and has fluctuated at an average of 8% over the last four years.
To qualify for the program, the applicant must have owned and occupied the home for at least a year as the principal place of residence. Special conditions apply to mobile homes, which cannot be simply travel trailers and must be occupied by the owner.
The homeowner wishing to continue in the tax deferral program must reapply each year but whether or not the homeowner continues in the program, whatever tax debt has already been incurred through the PTP program need not be paid until the home is sold or the homeowner dies.
“In excess of 95% of those currently participating in the program are seniors living on fixed Social Security incomes. Los Angeles, Orange, San Bernardino and Riverside counties account for 42% of the program participants throughout California,” said state spokesman Edd Fong. “Often, it’s a case of being equity-rich and cash-poor.”
Madelon Martin, 78, whose real name also was not used at her request, joined the program after knowing about it for three years. “I should have done it a lot sooner but it was a question of pride to keep trying to pay my property taxes.”
Martin, a longtime resident of Orange County, looks back on a life of rewarding accomplishments.
“My husband and I were work-aholics; we were both inventors, and all of our time and money were spent on trying to find better ways to do things. A safety device we developed is being used even today to substantially reduce the loss of lives on the highway.
“Unfortunately, there were also many reverses, mostly health problems. My husband suffered with cancer for 14 years before he died and I have also been quite ill. Now all I have left is this house, where I’ve lived for 32 years, and it means so much to me. What I save on taxes each year helps me remain here.”
HOW IT WORKS
To show how the PTP program works, state accountants were asked to provide an example of a homeowner’s loan obligation:
* Assume that a homeowner whose home is valued at $200,000, with a 1% tax rate on that amount, opts for a property tax deferral loan and renews it each year for the next 20 years.
* Allowing for a 2% assessment increase on the property each year and a PTP interest rate of 8% (an average taken of the last four years), the homeowner would have a tax liability of $51,566.87 plus interest of $38,266.64, for a debt of almost $90,000, which would be owed to the state, either at sale of the property or death of the homeowner.
* Also assuming that the property would have substantially appreciated in 20 years, barring a severe downturn in the real estate market, there would be more than enough gain to offset the $90,000 owed. Meanwhile, the homeowner would have had the use of about $50,000 that would have gone to property taxes.
