San Francisco and Oakland voters approved ballot measures that will narrow long-standing transfer tax exemptions for lender acquisitions through foreclosure and deeds in lieu of foreclosure. Beginning in 2027, many distressed real estate transactions involving commercial property will be subject to transfer tax based on fair market value, potentially resulting in substantial additional tax costs.
Key Takeaways
San Francisco voters approved Proposition J, which will generally eliminate the city’s transfer tax exemption for lender acquisitions through foreclosure or deed in lieu for many property types. San Francisco’s changes apply to transfers occurring on or after March 1, 2027.
Oakland voters approved Measure FF, which will similarly subject many foreclosures and deeds in lieu to Oakland’s transfer tax. Oakland’s changes become effective Jan. 1, 2027.
The measures may materially increase transaction costs for lenders, borrowers, investors, receivers, and purchasers involved in distressed real estate transactions.
Background
California transfer taxes have historically exempted transfers in which a lender acquired title through foreclosure proceedings or accepted a deed in lieu of foreclosure. These exemptions generally reflected the principle that transfer tax should not apply where a lender merely recovers collateral securing an existing debt.
San Francisco and Oakland voters have now approved measures that will substantially limit those exemptions. According to the election results reported immediately following the Nov. 3, 2026, election, Proposition J in San Francisco and Measure FF in Oakland each received approximately 79% voter approval. Final certification of election results is expected in December 2026.
San Francisco Proposition J
Effective Date. Proposition J will apply to transfers occurring on or after March 1, 2027. According to the measure summary, the relevant event is the transfer date itself, and the measure does not provide a grandfathering exception for foreclosure proceedings already underway before the effective date.
Scope of the Measure. Under Proposition J, many lender acquisitions through foreclosure and deeds in lieu of foreclosure will become subject to San Francisco’s real property transfer tax. Importantly, the tax base is the property’s fair market value, not the lender’s credit bid or the amount of unpaid indebtedness.
Exceptions. The measure generally affects all properties, except residential properties containing four or fewer dwelling units, and certain qualifying small mixed-use properties. Even where the exemption remains available, it generally will only apply up to the amount of the unpaid indebtedness secured by the property.
Oakland Measure FF
Effective Date. Measure FF becomes effective Jan. 1, 2027.
Scope of the Measure. Like Proposition J, Measure FF will subject many foreclosures and deeds in lieu to transfer tax based on the property's fair market value. The measure will impose transfer tax at rates that can reach 2.5% for transfers involving property valued above $5 million.
Exceptions. Measure FF contains several notable exceptions, including community banks with less than $10 billion in assets, residential properties containing one to four units when acquired by an individual or family trust; and certain conversions to shelter, affordable housing, supportive housing, or healthcare uses, for which taxpayers may seek refunds following qualifying conversion.
The measure also authorizes future modification of exceptions through city legislation, suggesting that implementing rules and guidance may continue to evolve.
Practical Implications for Distressed Real Estate Transactions
One important impact of these measures may be the increased tax cost associated with traditional lender take-back strategies. In San Francisco, for example, a lender that acquires property through foreclosure and subsequently resells the property may incur transfer tax both when taking title and when reselling the property. Using a hypothetical $60 million San Francisco property, the transfer taxes associated with a lender take-back followed by a resale could approach $7.2 million under current rates.
As a result, lenders, borrowers, servicers, receivers, and investors may wish to evaluate:
- Whether foreclosure or deed-in-lieu transactions may be completed before the applicable effective dates, including transaction timelines that account for court approval processes, confirmation requirements, recording deadlines, and other closing conditions.
- Whether court-supervised receiver sales directly to third-party purchasers may offer a more tax-efficient exit strategy;
- The transfer tax consequences of entity-level restructurings and ownership transfers involving real-estate holding entities; and
- The impact of transfer taxes on workout negotiations and loan pricing.