Yes on Proposition J
Removal of Foreclosure Exemption for Real Property Transfer Tax
What is it?
Prop J would end the transfer tax exemption for foreclosures, except on small residential buildings.
Currently, San Francisco charges a transfer tax every time property changes hands. The rate depends on the value and applies to all of it, reaching 5.5% from $10M to $25M and 6% at $25M or more. Since the creation of the local transfer tax in 1967, foreclosures have always been exempt. That exemption is capped at the amount still owed on the loan.
Here's a simple example: An office building that was worth $20M, with a $15M loan on it, is now only worth $10M. If an investor buys the $15M loan from the bank for $6M and then forecloses or takes a deed in lieu, the building changes hands with no tax owed. The exemption was written to protect a lender eating a loss, not to hand a building to a new owner tax-free.
Under Prop J, that same transfer would be taxed like any other sale. A $10M building falls in the 5.5% bracket, so the investor would owe $550,000 in transfer tax on top of the $6M paid for the loan. In practice, though, the investor would likely bid less for the loan to cover the tax, so much of the cost would land on the bank, which is taking a $9M loss.
What would change
Starting with transfers on March 1, 2027, the exemption would cover only small residential buildings. A foreclosure or deed in lieu on anything else would be taxed, and the bill would be based on what the property is worth rather than the price on paper. In these deals the price on paper is the unpaid loan balance, which can be far above or far below the true fair market value of the building.
The measure also reaches foreclosures on the company that owns a building, not only on deeds. Some loans are secured by the owner's stake in the LLC that holds the building rather than by the building itself. Foreclosing on that stake delivers the building without any deed being recorded, so the measure taxes those transfers too.
The measure also raises the City's appropriations limit by the amount of transfer tax collected for four years, standard language that lets the City spend the revenue under the state's Gann limit.
What remains exempt
Small residential buildings keep the exemption. Qualified residential properties are: single-family homes, condos, co-op units, single live/work units, buildings with four or fewer homes, and mixed-use buildings with four or fewer homes and one floor of space that is not housing. One unit built for travelers or other short-term guests disqualifies the whole building. Everything else loses the exemption, including offices, shops, hotels, and apartment buildings with five or more homes.
Read the full annotated legal text →
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Fiscal impacts
The measure does not change any tax rate. It ends an exemption, so how much it raises depends on how many large properties go through foreclosure each year. Supporters project $200M over three years. If Prop I also passes, roughly half of that would go to its housing fund instead of the general fund.
According to the Controller's Office, the measure would significantly increase transfer tax revenue, but the amount would be unpredictable and would swing sharply year to year. The Controller estimates an average of $100M to $150M per year over the first five years, with the increases highest early and declining significantly after that.
How much it raises depends on how many foreclosures happen. Applied to FY 2021-22, before the market declined, the measure would have raised $3.2M. Applied to FY 2025-26, it would have raised $232.5M. Based on the early 1990s recession and the Great Recession, the Controller expects foreclosure-related transactions to fall back to non-crisis levels over four to six years. The Controller cautions there may be years when the measure raises next to no new revenue.
Cost to lenders (GrowSF's estimate, not the Controller's)
The Controller's report does not estimate what Prop J would add to the cost of borrowing. Here is our worst-case estimate for a $100M office loan, assuming every default ends in foreclosure and the lender pays the full 6% on every dollar it lent:
| A $100M office loan under Prop J, worst case | |
|---|---|
| Odds the loan ever defaults (office loans bundled into bonds since 1995) | 22.8% |
| Tax if it does, at 6% of every dollar lent | $6M |
| Expected tax on the loan (22.8% of $6M) | $1.4M, once |
| Per year over a ten-year loan | about $140,000 |
| What the lender charges for risk (2.04 points over Treasuries, on $100M) | about $2M per year |
So Prop J would add about 0.14 points to a loan that carries about 2 points of risk premium, and less in practice, since the tax falls on what the building is worth by then, not on the loan.
Why is this on the ballot?
Assessor-Recorder Joaquín Torres has reported a sharp rise in high-value commercial transfers claiming the exemption, and Supervisor Mahmood says the 1984 exemption has cost the City billions since it was adopted. The measure is the revenue half of a pair: Mayor Lurie and Supervisor Mahmood paused a plan to cut transfer tax rates on new buildings and brought this forward instead.
The exemption is in Section 1108.2 of the Business and Tax Regulations Code. The City can change that section by ordinance, but the California Constitution requires a public vote before a general tax goes up. The Board of Supervisors voted 10-0 on July 28, 2026 to send it to voters, with Supervisor Walton excused (File No. 260692, Motion No. M26-070).
This was placed on the ballot by the Board of Supervisors. Under Article XIII C of the California Constitution, a general tax can only be imposed or increased by a vote of the people, so the Board cannot make this change on its own. It needs a simple majority of 50% + 1 to pass.
- Placed on ballot by: The Board of Supervisors, by a 10-0 vote on July 28, 2026.
- Sponsors: Supervisor Mahmood, joined by Supervisors Dorsey, Melgar, Chen, Wong, Walton, and Mandelman.
Why vote Yes?
When you sell your condo, San Francisco taxes the full sale price, whether you made money or lost it. When Madison Capital bought the defaulted loan on the 34-story tower at 45 Fremont for $238M this year and took the building, it paid no transfer tax. Under Prop J it would have owed 6% of what the building is worth, roughly $14M at the price it paid.
The exemption was written in 1967 for a bank stuck with a building it never wanted, and for decades it mostly covered homes. Then investors learned to buy the loan instead of the building, and the Assessor now counts $450M in foreclosure exemptions claimed in the last three years, against $50M in the fifteen years before that. The tax they skip is the one every ordinary buyer pays, and homes and small buildings keep the exemption either way.
The San Francisco Taxpayers Association argues Prop J would make lending here "significantly riskier and more expensive than anywhere else in the state", and we raised the same worry in June. But a lender pays only when a loan has failed and the building changes hands, a small extra cost on a loss it is taking anyway, so the premium is the tax times the odds of that happening. Our worst-case estimate, under Fiscal impacts above, is that Prop J adds about 0.14 points per year to a $100M office loan that carries about 2 points of risk premium, and less in practice, since the tax falls on what the building is worth by then, not on the loan.
New York and Florida have taxed foreclosures and deeds in lieu for decades, on the full unpaid debt rather than on what the building is worth, and banks still lend there. But those rules are statewide, so no city there loses a loan to the town next door. California exempts foreclosures statewide, and San Francisco would be the only major city in the state taxing them, unless Oakland passes the same fix this November.
Prop J started as half of a plan. Mayor Lurie and Supervisor Mahmood wanted to cut the transfer tax on big sales roughly in half so stalled housing gets built, and Prop J was the revenue to pay for it. We want that cut, and the Board can pass it by ordinance. We believe that if Prop J passes, the transfer tax will be cut in the next Board of Supervisors session. For that deal to happen, Prop J must pass and Prop I must fail, because Prop I would take away the Board's power to change the tax.