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Low-income senior homeowners readmitted to tax deferral program

NATHAN GILLES
THE MID-COUNTY MEMO

Beginning in January 2014, homeowners excluded from the Oregon Property Tax Deferral for Disabled and Senior Citizens program will be allowed to reapply. This makes the second batch of former participants added back to the program in recent years.

The addition of the former members was made possible by legislation introduced in 2013 by Jessica Vega Pederson, State Representative for Oregon House District 47, which represents residents of Northeast Portland.

Previous participants were excluded from the program in the first place as a result of changes to the program approved by Oregon lawmakers just two years earlier. These changes, advocates for Oregon homeowners say, pushed out low-income seniors and disabled homeowners, the very people the program aimed to help.

In the upcoming February session of the Oregon Legislature, these advocates hope to introduce a bill designed to undo additional damage they say was caused by the 2011 changes.

“What we are considering is a small bill,” said John Mullin, Legislative Advocate at the Oregon Law Center.

Mullin told the Memo his organization, in connection with the Oregon chapter of the American Association of Retired Persons (AARP), is currently crafting a bill aimed at reversing a 2011 change.

Mullin's bill addresses how the program allows qualifying participants to defer their taxes.

Created in 1963 to help low-income seniors and the disabled stay in their homes, the Oregon Property Tax Deferral for Disabled and Senior Citizens program achieves this by allowing qualifying homeowners to use their homes' equity to finance loans with the state. These loans are utilized to pay off homeowners' county property taxes. (The program does not cover federal, state and other taxes.)

Among the 2011 legislation, Oregon lawmakers changed the deferral program's interest rate on loans from a simple six-percent interest rate to a compound interest rate. Mullin said charging participants to a compound interest rates goes against the spirit of a program designed to help low-income individuals. His bill aims to change the interest rate back to a simple six-percent rate.

The Oregon Law Center and the AARP face a major obstacle to passing their bill in February 2014: The session itself. The upcoming legislative session is a short session lasting just one month during which lawmakers can introduce only two bills; however, if it's successful, the advocates' bill will reverse yet another change implemented in 2011, when the tax deferral program appeared to be on the point of collapse.

“The context here is that in 2011, without significant changes, the program would have gone away,” said Rick Bennett, Director of Government Relations for the AARP of Oregon.

Bennett confirmed the AARP is working with the Oregon Law Center on the new bill.

What threatened the program's disappearance was a series of financial problems beginning with the housing market crash and subsequent recession of the late 2000s, according to a comprehensive 2012 Oregon State University (OSU) survey.

Following the downturn, the program's enrollment lists increased by 25 percent. At the same time, fewer payments were being made to the program; portions of the program's funds were also being diverted elsewhere. As a result, the 2012 survey concluded, the tax deferral program teetered on financial instability, and, in 2010, Oregon was nearly unable to make its full $21 million payments on the program's property taxes; then came the changes.

In 2011, Oregon lawmakers responded to the deferral program's ailing health by passing HB 2543, which significantly altered the program, including changing the interest rate from simple to compound. HB 2543 also made it a lot harder to get in and stay in the deferral program. Instead of grandfathering in now disqualified former participants, they were kicked out.

Following HB 2543, roughly half of the program's 10,500 participants were dropped, according to the OSU survey. Bennett said while the program was ailing and needed help, lawmakers went about saving the program in the wrong way. “[The 2011] changes were made without a lot of information about what the circumstances were of the people who were in the program,” Bennett told the Memo.

One big change that proved particularly harmful to some participants, according to Bennett and others, was forcing reverse mortgage holders out of the program.

A reverse mortgage-also called a home equity conversion loan-is a financial tool that allows seniors to access their homes' equity and, in effect, live off it. However, advocates say, reverse mortgages are often used by homeowners who have no other source of income.

“Reverse mortgages are done by folks looking for change in the couch cushions,” said David Raphael of the advocacy group the Alliance of Vulnerable Homeowners. “This isn't done by the wealthy.”

In the same 2012 OSU survey, researchers report former deferral program participants with reverse mortgages said on average they made less than $15,000 a year. HB 2543 removed homeowners with reverse mortgages from the deferral program. As a result, researchers estimate roughly 1,700 program participants were eliminated solely because they held reverse mortgages.

HB 2543 also added a qualification that a deferral program's participant's net worth not exceed $500,000. To be eligible, the bill further stated a household's annual income should not exceed $39,500 a year. According to the OSU survey, these two changes were made in response to an Oregonian article that detailed how the state program had been covering tax payments on nearly 200 homes worth $500,000 on average, with about eight of these homes worth more than $1 million.

HB 2543 also now requires that homeowners have had to live in their homes for at least five years before they would be eligible for tax deferrals.

Raphael said HB 2543 did more damage to low-income homeowners than help them. He estimated of the 5,000 plus participants dropped from the program due to the 2011 changes, roughly 1,300 were Multnomah County residents.

Raphael said the Alliance of Vulnerable Homeowners formed in reaction to the 2011 changes. Due to complaints from his group and others like it, Raphael said Oregon lawmakers responded almost immediately and began reversing many of the changes they had implemented.

Oregon lawmakers' about face began in 2012 with a bill that provided a temporary reprieve for reverse mortgage holders. That added back roughly 1,500 of the 1,700 reverse mortgage holders who had been excluded, according to Raphael. In 2013, lawmakers went a step further and passed HB 2489, which officially grandfathered in individuals who had been excluded from the deferral program because they had reverse mortgages. That year saw another significant legislative change to the tax deferral program: HB 2510.

HB 2510 was introduced by freshman Oregon congresswoman Rep. Jessica Vega Pederson, District 47.

Pederson told the Memo she crafted HB 2510 after she met with Northeast Portlanders who were going to be left behind by the protections in HB 2489.

“The main point of this bill [HB 2510] was to help as many people as we could stay in their homes and do it in a way that is financially responsible,” said Vega Pederson.

HB 2510 reverses another 2011 change: it eliminates the five-year occupancy rule, which said homeowners had to occupy their properties for five years to qualify for the program. It does this by allowing 700 participants into the program each year with a set five-percent increase each additional year.

“I fall into the category of somebody who applied for the tax deferral program and was accepted, and that worked for a couple of years. Then they changed the rules mid-stream,” said Northeast Portland resident Don Clayton.

Clayton said he met with Rep. Vega Pederson and told her his story. Clayton said he and his wife depend on social security for their survival, and they rely on a reverse mortgage.

Following the initial 2012 changes, Clayton said he thought he and his wife were going to be added back in to the deferral program. However, when he tried to reapply, Clayton said the Oregon Department of Revenue-which runs the program-told him he still did not qualify because he had not lived in his house long enough. Vega Pederson's bill changes that, and beginning this January, Clayton and others like him will be allowed to reapply to the program.

But Clayton said he now faces another problem: he hasn't paid his county property taxes in three years.

“We are on social security, and not having extra income and being blessed with property taxes again [following the 2011 changes], well, we couldn't pay them,” said Clayton.

Unlike the reverse mortgage holders that were allowed back into the program in 2012, former program participants like Clayton have several years of back taxes they have not paid. Raphael said Clayton is not alone.

“This second group [those who qualify under HB 2510] has this gap of two or three years when they were on their own [and they weren't paying their taxes],” said Raphael. “And this could put those with reverse mortgages in a position where they might default on their mortgages.”

Program reforms prohibit individual counties from foreclosing on homeowners in default, but banks still can. Raphael said he is not sure how many former program participants might now be facing foreclosure from their lenders due to the 2011 changes.

“We have maybe 300 people in our database of the 5,000 that were excluded, so we don't touch the universe. We don't know what kind of misery is out there,” he said.

Rep. Vega Pederson said it is not known exactly how many homeowners with back taxes are potentially in trouble. She suspects the number is probably small. She said getting these homeowners back into the deferral program is a first step that should help them stay on the right side of their lenders and avoid foreclosure.

“What we are hoping for is, by helping these people back into the program and having their taxes going forward being taken care of by the state, that that will give them the stability the banks and mortgage companies are looking for,” said Vega Pederson.

While it is unknown how many homeowners might be in threat of default, advocates told the Memo they might pursue still another legislative option to fix the 2011 changes.

“I understand there is some interest in creating some type of fund that will pay for those taxes,” said Oregon AARP's Bennett. “I'm not quite sure where those funds come from.”

Bennett said the AARP and the Oregon Law Center's focus in the February session would be on changing the program's interest rate.

Oregon Department of Revenue spokesperson Bob Estabrook told the Memo his agency has sent out 1,800 letters to “inactive” account holders-which includes former members-informing them about the upcoming January start date to reapply to the program.

He said it is not known how many will reapply in the coming year, but the Department of Revenue has added extra staff to help process the incoming applications and any questions.

“The bottom line from our perspective is we want people to apply and if folks have question we want them to call us,” said Estabrook.
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