{"id":478369,"date":"2026-09-28T16:15:14","date_gmt":"2026-09-28T16:15:14","guid":{"rendered":"https:\/\/www.newsbeep.com\/us-ca\/478369\/"},"modified":"2026-09-28T16:15:14","modified_gmt":"2026-09-28T16:15:14","slug":"proposition-j-would-close-tax-loophole-on-foreclosed-properties","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us-ca\/478369\/","title":{"rendered":"Proposition J Would Close Tax Loophole on Foreclosed Properties"},"content":{"rendered":"

Corporate owners and large lenders claimed hundreds of millions in tax breaks on nine-figure San Francisco buildings in the last three years. Proposition J would end that.\u00a0<\/p>\n

Mayor Daniel Lurie and other supporters call the measure a necessary fairness fix, while critics warn it could slow downtown\u2019s economic recovery.<\/p>\n

Proposition J would end a 42-year-old transfer-tax exemption for foreclosure sales of large commercial and multiunit residential properties valued over $10 million, while preserving the exemption for single-family homes, condos and residential buildings with fewer than five units.<\/p>\n

San Francisco levies a transfer tax on sellers when properties change hands. Since 1984, foreclosed properties have been exempt \u2014 a policy originally designed to protect struggling homeowners from extra tax burdens during personal financial crises. However, the blanket exemption extends also to institutional and corporate foreclosures, including downtown office towers, massive apartment complexes and industrial sites.<\/p>\n

Lurie and Supervisor Bilal Mahmood introduced Proposition J after Assessor-Recorder Joaqu\u00edn Torres flagged a dramatic spike in foreclosure-related transfer-tax exemption claims on high-value commercial properties.<\/p>\n

Sellers in San Francisco claimed more than $450 million in foreclosure-tax exemptions over the past three fiscal years, according to the San Francisco Examiner<\/a>, compared to roughly $50 million over the previous 15 years combined.<\/p>\n

Few transactions illustrate the issue better than one involving 350 California St. Once valued at roughly $300 million, the 22-story Financial District office tower sold in 2023 for $61 million \u2014 a plunge of nearly 80% from its pre-COVID pandemic value.<\/p>\n

\"\"350 California St. Credit: Neal Wong \/ San Francisco Public Press<\/p>\n

\"\"600 California St. Credit: Neal Wong \/ San Francisco Public Press<\/p>\n

\"\"703 Market St. Credit: Neal Wong \/ San Francisco Public Press<\/p>\n

On a $61 million transfer, San Francisco\u2019s top-tier 6% transfer tax rate would typically generate over $3.6 million for the city. Under the existing 1984 loophole, similar debt-driven foreclosures produce $0 in transfer tax.<\/p>\n

\u201cThe emergency measure passed in 1984 simply couldn\u2019t have accounted for today\u2019s market conditions,\u201d said Erika McLitus, a policy expert at SPUR<\/a>, a San Francisco-based urban policy think tank. \u201cI don\u2019t think anyone anticipated that this could ultimately serve as a loophole.\u201d<\/p>\n

Proposition J is a general tax measure requiring a simple majority to pass. Supporters include seven members of the Board of Supervisors, state Sen. Scott Wiener, Assemblymembers Matt Haney and Catherine Stefani and the San Francisco Democratic Party.<\/p>\n

What changes if it passes<\/p>\n

If approved, foreclosure sales of commercial buildings and large multifamily complexes would be taxed at the same standard transfer-tax rates applied to ordinary market sales:<\/p>\n

5.5% on properties sold for $10 million to less than $25 million<\/p>\n

6% on properties sold for $25 million or more<\/p>\n

When high-value properties hit financial distress, big-pocketbook buyers frequently acquire their defaulted mortgages or debt from banks rather than buying the real estate directly. Under current rules, a sale like this is exempt from the city\u2019s transfer tax up to the unpaid loan balance.<\/p>\n

If it passes, Proposition J will, starting next March 1, also cover deed-in-lieu foreclosures, for example, when a buyer purchases the debt on a building. By taxing transfers of the parent companies that own real estate \u2014 not just physical property deeds \u2014 Proposition J would close a common legal loophole used to avoid transfer taxes during corporate restructurings.<\/p>\n

The ballot argument in favor of Proposition J says the measure will end the \u201cunfair tax break for corporate lenders\u201d who are \u201ctaking advantage\u201d of an exemption \u201cmeant for struggling homeowners\u201d and will keep the exemption for homeowners and small residential buildings.<\/p>\n

The Controller\u2019s Office estimates this would generate $100 million to $150 million annually<\/a> for the first five years. However, this figure is highly dependent on a local economic downturn leading to an increase in foreclosures.<\/p>\n

Controller data highlights this volatility: Proposition J would have generated just $3.2 million during the strong pre-pandemic market of fiscal year 2021-22, compared to $232.5 million during the commercial distress of fiscal year 2025-26 \u2014 a more than 70-fold shift.<\/p>\n

The opposition \u2014\u00a0and whether it holds up<\/p>\n

If Proposition J fails, all foreclosures \u2014 from single-family homes to high-rise towers \u2014 will remain exempt from transfer taxes, leaving the current market structure intact.<\/p>\n

Opponents argue that eliminating the exemption could stifle downtown San Francisco\u2019s recovery. One opponent, former Supervisor Quentin Kopp, contends the original exemption was designed to keep the real estate market liquid during economic downturns. He warns that taxing distress-related sales adds friction when properties are already failing financially.<\/p>\n

In an earlier analysis of the mayor\u2019s proposal, GrowSF, a pro-development political pressure group, warned the tax could push lenders toward \u201cextend and pretend\u201d on foreclosed buildings \u2014 waiting for better market conditions rather than reselling distressed properties.<\/p>\n

SPUR\u2019s McLitus pushed back on that framing, saying that in cities comparable to San Francisco, there wasn\u2019t any evidence of lenders delaying foreclosures to avoid transfer taxes.\u00a0<\/p>\n

McLitus noted also that Proposition J shouldn\u2019t be considered a reliable revenue source, since collections will \u201cchange a lot every year depending on the market.\u201d\u00a0<\/a><\/p>\n

Unpredictable calculus<\/p>\n

The ultimate destination of revenue from Proposition J, if voters pass it, could depend on another measure on the same ballot, Proposition I. If both measures pass, that could throw a wrench in Lurie\u2019s plans.\u00a0<\/p>\n

As written, Proposition J funds flow directly into the city\u2019s unrestricted General Fund. However, Proposition I \u2014 the Affordable Housing Guarantee Act \u2014 would redirect roughly half of any new transfer tax revenue to dedicated affordable housing funds. Mahmood amended Proposition J\u2019s language to ensure the two measures would not legally invalidate each other if both passed.<\/p>\n

The bigger interaction is procedural, not financial. Proposition I would strip the Board of Supervisors\u2019 authority to lower transfer tax rates, intersecting with the mayor\u2019s long-term tax strategy.<\/p>\n

Lurie has described Proposition J as step one of a two-part plan to eventually cut transfer tax rates on properties over $10 million. Those rates, currently 5.5% to 6%, are among the highest in the country.\u00a0Proposition I\u2019s passage could make the mayor\u2019s plan harder to execute and would likely require another public vote.<\/p>\n

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