State Rep. Mark Painter, D-146th Dist., has introduced a bill that offers school tax relief for senior citizens by allowing investors to pay the property tax bill for them in exchange for a partial tax lien on their home.
Called the Senior Citizens Property Tax Lien Discharge Act, the proposed legislation was introduced to the House of Representatives last Thursday, Painter said.
It would permit senior citizens who own their property and don't have a mortgage to permit all or a portion of a single year's property tax bill to be paid by an investor. In exchange, the investors get a tax lien on the property which is settled when the property changes hands.
The investors will know only the age (or combined age) of the property owner(s), and so will not be able to single out specific properties, neighborhoods or even municipalities, Painter said.
“The risk for (investors) is how long it takes for the property to change hands and for them to get a return on their investment, but tax liens are a very secure investment because they get considered first at property settlement,” said Painter, who was Limerick's tax collector before winning a seat in the state House.
For the property owners, there is little risk, Painter said, because they can only access the system a maximum of 10 times and each time they do the investor is likely to be different, thereby preventing any one investor from getting control of a large portion of the asset.
The bill would prohibit the liens totalling more than 50 percent of the property's value and the liens would be paid upon the homeowner's death, or a complete or partial transfer of ownership of the home, according to Painter.
“The 50 percent limit is there because we've seen what can happen in the real estate market and we don't want anyone underwater,” he said.
Further, private investors could not initiate or pursue a sheriff sale, foreclosure proceeding or otherwise file for a judicial sale on the residence while the homeowner remains in the home, according to information from his office.
Painter offered the following example of how it would work:
“Let's say you have a senior with a school tax bill of $3,000,” said Painter.
“Under the system we're proposing, the property owner would contact the Pennsylvania Office for Aging and put their property on the list. The homeowner would get several offers and could choose, say, an investor who offers to pay $2,200 of the bill. The property owner would be responsible for the remaining $800, but would also qualify for a property tax abatement,” Painter said.
Senior homeowners would have a choice every year to participate or not, depending on their financial circumstances and need in a given year, “but they couldn't do it more than 10 times,” Painter said.
“The problem for a lot of seniors is that they are asset rich and cash poor; this allows them to use the value of the asset to pay their taxes without going through the trouble and expense of a reverse mortgage,” said Painter.
“This would allow them to age in place, and stay in the home they love without losing it because of rising property taxes,” he said.
The idea for the bill came from a hearing held in Pottstown last year, during which Desiree Hung, associate state director of advocacy for AARP of Pennsylvania, talked about states that have “tax deferral” programs for seniors.
Under many of those programs in other states, Painter said, the state pays the property taxes for the senior until the property changes hands, when it gets reimbursed.
“I knew that was never going to fly in Harrisburg, which is why we started looking into the method using private investors,” Painter said.
The bill would only apply to school taxes because “once we started to involve other municipalities it got too complicated,” said Painter, “and the school taxes are the biggest part of a property tax bill.”
To become law, the bill would have to be adopted by both the House and the Senate, as well as signed by the governor, before the legislative session ends on Nov. 30, Painter said.
If that doesn't happen, it would need to be reintroduced when the next session begins in 2015.
Painter said since he first introduced the bill last week it has picked up several co-sponsors.
The next step, he said, is for the House Speaker to assign the bill to a committee for consideration.