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No, this wouldn't happen except in vanishingly rare circumstances. A lien is generated only when property values rise faster than the Prop. 13 formula. For a

No, this wouldn't happen except in vanishingly rare circumstances. A lien is generated only when property values rise faster than the Prop. 13 formula. For a large balance to accumulate, the property value has to have grown much faster than 2% annually for a long time. If it does that, the sale price of the property will be far above the purchase price. Even if it does that and then the market takes a huge dive right before the owner wants to sell, the sale price will probably still be well above the purchase price. If the property value merely takes a big jump in the first year and doesn't change thereafter, the annual payment will eventually catch up to it (a 2% annual increase is still exponential growth!). If you want to add a clause that says that the collected tax will never exceed the difference between the sale price and the original purchase price, I'm okay with that. But I'll bet it will practically never be needed.

dpark 10y ago
> A lien is generated only when property values rise faster than the Prop. 13 formula. So basically all the time. > Even if it does that and then the market takes a huge dive right before the owner wants to sell, the sale price will probably still be well above the purchase price. Three important words: Home Equity Loan. How many people in the bay area have taken equity out of their homes for renovations, medical bills, etc? I'd wager a lot. Throwing a big tax lien against their houses could easily put many of them effectively underwater. > If you want to add a clause that says that the collected tax will never exceed the difference between the sale price and the original purchase price, I'm okay with that. But I'll bet it will practically never be needed. You think that will make it attractive to sell? Any equity you've built is gone. All the payments you've made have evaporated. Everything you hoped to get out of the house is owed to the state. This leaves you with a choice to rent the house until you die, realizing a significant input stream, or selling and literally ending up with nothing. Who's going to sell?
- ScottBurson 10y ago
  > Three important words: Home Equity Loan A tax lien is a public record. Banks will subtract the amount of outstanding liens against the property (even if not yet due) from its estimated value before deciding how much to loan against it. Yes, the amount will be smaller than it was. > Everything you hoped to get out of the house is owed to the state. You need to look at some actual numbers. Let's say the original purchase price is $X. Let's say that the property appreciates 10% per year for 3 years, and then in the fourth year, the market tanks. What happens? At the 1% tax rate mandated by Prop. 13 [see below], the total tax due for the first three years is 3.3% of X. The total tax paid is 3.06% of X, leaving a lien on .24% of X. Okay, then the market tanks. If it tanks 10%, the property is still worth 1.197X -- the owner has almost a 20% gain; the .24% is hardly noticeable. If the market tanks 20%, the owner still has a 6.4% gain; the tax lien is still less than 4% of the gain. The market has to tank a full 25% -- a massive collapse, well into recession territory -- to wipe out the owner's gain completely and make that .24% start to hurt a little. Okay, now let's try a scenario where the 10% appreciation continues for 10 years. The total tax is 15.9% of X. The total amount paid is 10.9% of X, leaving a lien on 5%. But in the tenth year, before the market tanks, the property value has more than doubled to 2.59X! Even if the market crashed an unimaginable 50%, the tax would still be a small fraction of the owner's gain. Now, about the tax rate. It's true that in my original post I suggested that tax rates could be set by the locality instead of being capped at the 1% limit Prop. 13 imposed. The replies to the effect that that's unrealistic are probably right; as a political matter, that limit probably can't be raised. But just as a thought experiment, if we imagine that the tax rate is 2% rather than 1%, it doesn't change the outcome very much. Play with more scenarios if you like. If you can come up with one that shows a problem, I'd love to see it.
  - dpark 10y ago
    > A tax lien is a public record. Banks will subtract the amount of outstanding liens against the property (even if not yet due) from its estimated value before deciding how much to loan against it. Yes, the amount will be smaller than it was. Fair enough, though lots of people have ended up underwater because the banks gave them larger HELOCs than was wise. None of this makes your proposal good, though. At best it magnifies the biggest problem with Prop 13, namely that it encourages owners to hold indefinitely (either as a primary or rental residence) rather than lose the tax benefits. Making a sale suddenly incur an additional massive tax burden will not encourage market liquidity. Nor will it encourage new housing construction in any meaningful way. > You need to look at some actual numbers. You need to look at what I was replying to. This was in response to your proposal that the maximum tax lien be capped at the difference between purchase and sale price. You were literally discussing the situation where the owner will walk away with zero dollars (negative, actually, due to closing costs).
    - ScottBurson 10y ago
      I still think you need to look at the numbers if you're using phrases like "additional massive tax burden". I'm done here.
      - dpark 10y ago
        The fact that you are proposing this lien instead of simply removing the 2%/year restriction altogether is evidence enough that you agree the additional tax burden is significant.

dpark 10y ago

> A lien is generated only when property values rise faster than the Prop. 13 formula. So basically all the time. > Even if it does that and then the market takes a huge dive right before the owner wants to sell, the sale price will probably still be well above the purchase price. Three important words: Home Equity Loan. How many people in the bay area have taken equity out of their homes for renovations, medical bills, etc? I'd wager a lot. Throwing a big tax lien against their houses could easily put many of them effectively underwater. > If you want to add a clause that says that the collected tax will never exceed the difference between the sale price and the original purchase price, I'm okay with that. But I'll bet it will practically never be needed. You think that will make it attractive to sell? Any equity you've built is gone. All the payments you've made have evaporated. Everything you hoped to get out of the house is owed to the state. This leaves you with a choice to rent the house until you die, realizing a significant input stream, or selling and literally ending up with nothing. Who's going to sell?

ScottBurson 10y ago
> Three important words: Home Equity Loan A tax lien is a public record. Banks will subtract the amount of outstanding liens against the property (even if not yet due) from its estimated value before deciding how much to loan against it. Yes, the amount will be smaller than it was. > Everything you hoped to get out of the house is owed to the state. You need to look at some actual numbers. Let's say the original purchase price is $X. Let's say that the property appreciates 10% per year for 3 years, and then in the fourth year, the market tanks. What happens? At the 1% tax rate mandated by Prop. 13 [see below], the total tax due for the first three years is 3.3% of X. The total tax paid is 3.06% of X, leaving a lien on .24% of X. Okay, then the market tanks. If it tanks 10%, the property is still worth 1.197X -- the owner has almost a 20% gain; the .24% is hardly noticeable. If the market tanks 20%, the owner still has a 6.4% gain; the tax lien is still less than 4% of the gain. The market has to tank a full 25% -- a massive collapse, well into recession territory -- to wipe out the owner's gain completely and make that .24% start to hurt a little. Okay, now let's try a scenario where the 10% appreciation continues for 10 years. The total tax is 15.9% of X. The total amount paid is 10.9% of X, leaving a lien on 5%. But in the tenth year, before the market tanks, the property value has more than doubled to 2.59X! Even if the market crashed an unimaginable 50%, the tax would still be a small fraction of the owner's gain. Now, about the tax rate. It's true that in my original post I suggested that tax rates could be set by the locality instead of being capped at the 1% limit Prop. 13 imposed. The replies to the effect that that's unrealistic are probably right; as a political matter, that limit probably can't be raised. But just as a thought experiment, if we imagine that the tax rate is 2% rather than 1%, it doesn't change the outcome very much. Play with more scenarios if you like. If you can come up with one that shows a problem, I'd love to see it.
- dpark 10y ago
  > A tax lien is a public record. Banks will subtract the amount of outstanding liens against the property (even if not yet due) from its estimated value before deciding how much to loan against it. Yes, the amount will be smaller than it was. Fair enough, though lots of people have ended up underwater because the banks gave them larger HELOCs than was wise. None of this makes your proposal good, though. At best it magnifies the biggest problem with Prop 13, namely that it encourages owners to hold indefinitely (either as a primary or rental residence) rather than lose the tax benefits. Making a sale suddenly incur an additional massive tax burden will not encourage market liquidity. Nor will it encourage new housing construction in any meaningful way. > You need to look at some actual numbers. You need to look at what I was replying to. This was in response to your proposal that the maximum tax lien be capped at the difference between purchase and sale price. You were literally discussing the situation where the owner will walk away with zero dollars (negative, actually, due to closing costs).
  - ScottBurson 10y ago
    I still think you need to look at the numbers if you're using phrases like "additional massive tax burden". I'm done here.
    - dpark 10y ago
      The fact that you are proposing this lien instead of simply removing the 2%/year restriction altogether is evidence enough that you agree the additional tax burden is significant.