If you fall behind on property taxes in California, there’s a new law that protects you — and your home’s value.
Until recently, if the county sold your home at a tax auction, they could keep all the profit, even after your tax bill was paid. For example, if you owed $10,000 in taxes and your home sold for $500,000, the county could take it all.
That practice — often called “home equity theft” — is now illegal in California thanks to AB 418, a new law signed in 2025.
What Is “Home Equity Theft”?
Home equity theft happens when a government agency takes a property for unpaid taxes and doesn’t return the leftover money after the debt is covered.
California law used to let counties keep that surplus. Many homeowners who were already struggling lost not just their homes, but all the equity they’d built over the years.
What Does AB 418 Change?
AB 418 makes sure that any extra money from a tax sale goes back to the homeowner or their heirs.
Here’s how it works now:
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You owe property taxes.
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The county may eventually sell your home to collect the unpaid amount.
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Once the taxes, penalties, and fees are covered, the remaining proceeds must be returned to you (or your estate).
In other words — the county can collect what’s owed, but not profit from your loss.
Why Was This Law Needed?
The change came after a major 2023 Supreme Court case (Tyler v. Hennepin County), where the Court ruled that governments can’t keep extra money from tax sales.
California’s AB 418 aligns state law with that decision and ends a practice that unfairly hurt vulnerable homeowners — especially seniors, people on fixed incomes, and those who inherited property but didn’t realize taxes were owed.
Q&A: Understanding Your Rights
Q: What if my home was sold for unpaid taxes before this law passed?
A: You may still have a legal claim to recover some of that money, depending on your situation. Consult a property or tax attorney familiar with AB 418 and the Supreme Court ruling.
Q: Does this mean I can’t lose my home for unpaid taxes anymore?
A: No — tax foreclosure is still possible. But if your home is sold, you’re now entitled to any remaining equity after your debt is paid.
Q: How do I make sure I get my money if this happens?
A: Contact your county’s tax collector to learn about their process for distributing surplus proceeds. Under AB 418, they are required to notify former owners when funds are available.
Q: Can investors still buy homes at tax sales?
A: Yes, tax sales still happen. But counties can’t pocket the profit anymore — that money now goes back to the rightful owner.
Q: Who pushed for this law?
A: Groups like the Pacific Legal Foundation and consumer advocates fought for this change to protect homeowners from losing their entire life savings over small tax debts.
What Homeowners Should Take Away
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Stay current on property taxes whenever possible — tax foreclosure still applies.
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If your property was taken or sold, you may be owed money.
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Counties must now return extra funds — it’s your right under AB 418.
The Bottom Line
AB 418 restores a basic sense of fairness: you shouldn’t lose your home and your hard-earned equity because of a missed tax bill.
California’s move closes the door on “home equity theft” once and for all — protecting homeowners, heirs, and families statewide.
