Does a mezzanine lender's foreclosure or a preferred equity holder's remedy change the ownership of a California property, and what must be filed?

A mezzanine loan is secured by a pledge of the ownership interests in the entity above the one that holds title to the building, not by a deed of trust on the building. When the borrower defaults, the lender enforces against those interests. Separately, an investor in the property-owning entity may hold preferred equity whose remedies shift rights, or management, if the sponsor misses a payment. Proposition 13 reassesses real property when ownership changes. The question is whether either event is a change in ownership when no deed is recorded, who must report it to the State Board of Equalization (the BOE), and what a miss costs.

How California treats transfers of entity interests

A foreclosure on the building itself is a real property event: a trustee's sale is a reappraisal event, and a transfer in lieu of a trustee's sale is a change in ownership (Cal. Code Regs., tit. 18, section 462.120). A mezzanine foreclosure differs in form, because the lender never takes title; it takes the equity above the title holder. The default rule is that buying or transferring ownership interests in a legal entity is not a transfer of the entity's real property (section 64(a)). Two exceptions override it: obtaining control (section 64(c)) and cumulative transfers by original co-owners (section 64(d)). Because the lender acquires the whole pledged interest at once, a mezzanine foreclosure is tested under section 64(c) first.

What counts as control

For a corporation, control is direct or indirect ownership or control of more than 50 percent of the voting stock. For a partnership or limited liability company, the statute says the person "obtains a majority ownership interest" in the entity, including through a purchase or transfer of 50 percent or less of the ownership interest through which the majority is obtained (section 64(c)(1)). Cal. Code Regs., tit. 18, section 462.180(d)(1)(B) splits the measure in two: more than 50 percent of the total interest in capital and more than 50 percent of the total interest in profits, obtained directly or through multi-tiering. A BOE annotation treats capital and profits alike and measures the capital interest by the share of equity the holder would receive if the entity sold its assets at fair market value, paid its liabilities and liquidated (Property Tax Annotation 220.0375.030).

Ownership counts directly and through tiers. In Ocean Avenue LLC v. County of Los Angeles (2014) 227 Cal.App.4th 344, a sole member sold 100 percent of a limited liability company to three buyers who took 49, 42.5 and 8.5 percent. The county traced one individual's interest through a second tier and multiplied it to 48.29224 percent; the court held that Cal. Code Regs., tit. 18, section 462.180(d)(1)(B) had no application and affirmed. The decision applies the capital and profits test on its words at the 50 percent line, multiplies indirect interests through tiers, and refuses to let a county recharacterize a sale of entity interests as a sale of the asset. Shuwa Investments Corp. v. County of Los Angeles (1991) 1 Cal.App.4th 1635 holds that the statutory definition, a majority ownership interest, governs; an effective control theory, or a contract right to compel a sale, does not.

A holder of exactly 50 percent has not obtained control, but a holder that moves from 50 to 100 percent has (annotation 220.0506). Interests acquired in separate steps from separate holders are added (Cal. Code Regs., tit. 18, section 462.180, Example 6; annotation 220.0769). Where the percentages move by agreement, redemption or reverse split rather than by a purchase from a holder, annotations 220.0481, 220.0112 and 220.0103 treat crossing 50 percent as a change in control: the statute does not require the person obtaining control to buy the stock, and annotation 220.0112 says that "The fact of the change in control is determinative".

Whether a pledge counts before the foreclosure

The position here, which is also the State Board of Equalization's likely reading, is that a pledge of entity interests does not count as a change in ownership. The creation of a security interest is not a change in ownership (section 62(c)(1); Cal. Code Regs., tit. 18, section 462.240(a)(2)). Under the California limited liability company statute, a pledge of a transferable interest neither causes the transferor to cease to be a member nor gives the pledgee or anyone else the power to exercise a member's rights, and a member that transfers a transferable interest keeps a member's rights other than the interest in distributions transferred (Corporations Code section 17705.02(b), (g)). The pledgor therefore remains the holder of the capital and profits until the disposition, and Shuwa points the same way. A pledgee thus holds no majority ownership interest before the disposition.

For a corporation the statute is wider: it reaches "ownership or control of more than 50 percent of the voting stock". Annotation 220.0120 treats an irrevocable proxy over more than 50 percent of the voting stock as a change in control, requires examination of limits on the holder's discretion, and says a transfer solely to secure a debt is excluded by section 62(c)(1). Whether consent or veto rights over a limited liability company held by a pledgee amount to control is open: Shuwa and section 17705.02(b) point away from control, but no source applies them to a pledgee. An option to acquire entity interests is also unaddressed; the one option annotation concerns real property.

The foreclosure itself

After default, a secured party may dispose of the collateral at a commercially reasonable public sale and may buy at that sale, or may accept the collateral in satisfaction with the debtor's consent after default (Commercial Code sections 9610, 9620). A private-disposition purchase by the secured party is limited to collateral customarily sold on a recognized market, which pledged limited liability company interests are not, and judicial enforcement is a third route (sections 9610(c)(2), 9601).

No rule, annotation, Letter To Assessors, BOE legal opinion or court decision read addresses a foreclosure on pledged interests in a property-owning entity; the foreclosure annotations all concern real property. The conclusion rests on the text. Section 64(c)(1) reaches control obtained "through the purchase or transfer of corporate stock, partnership, or limited liability company interest": a sale under section 9610 is a purchase, and an acceptance is a transfer. The Assessors' Handbook (section 401, September 2010 edition, page 3) says a transfer "may be voluntary or involuntary and may happen by operation of law or may result from: a purchase or sale" among other events. Section 62 mentions a mortgage and a lender in subdivision (i), on insured mortgages, but no subdivision excludes an acquisition on default; the security interest exclusion covers creating, assigning, terminating or reconveying the security interest itself.

When the pledged interests are those of the property owner, the lender obtains direct control of the entity that holds title. When the pledge is at the mezzanine borrower tier, the lender obtains direct control of the borrower and indirect control of the property owner. Either way, all of the property owned directly or indirectly by the acquired entity is deemed to have undergone a change in ownership (Cal. Code Regs., tit. 18, section 462.180(d)(1)), and the former holders' retained indirect interest does not undo a direct control acquisition by a new person (annotation 220.0032; Kraft, Inc. v. County of Orange (1990) 219 Cal.App.3d 1104). One Form BOE-100-B filed by the acquisition company reports both its direct acquisition and the lender's indirect one.

The date of the change is open: no source states a date rule for a disposition of pledged entity interests. The candidates come from the Commercial Code: the completed disposition (section 9617(a)(1)); the effective acceptance (section 9622(a)(2)); and, for an acceptance in full satisfaction, the twentieth day after the proposal is sent if the debtor has not objected (section 9620(c)(2)). The Form BOE-100-B instructions ask for the date of acquisition, and Cal. Code Regs., tit. 18, section 462.260 has no entity paragraph. Also open is whether a transferee admitted only to the economic rights, not as a member (Corporations Code section 17705.02(a)(3)(A)), obtains ownership for section 64(c), since the BOE measure of capital and profits does not turn on admission.

A prompt resale by the lender has three possible outcomes. The BOE's plain reading is two changes in control, with two base year values, two statements and a separate 90 days for each. Where the resale was committed before the disposition (a pre-arranged buyer or a binding contract to resell), the binding commitment and interdependence tests in Shuwa let the assessor collapse the steps into one transfer to the end buyer, dated by the end result, and section 64(c)(2) itself refers to "the appropriate application of the step-transaction doctrine". Where the vehicle resells to several buyers and none obtains more than 50 percent of both measures, Ocean Avenue means no second change in control, and section 64(d) does not apply because the vehicle did not acquire in a section 62(a)(2) transfer.

Preferred equity

Preferred equity can affect whether a change in ownership occurs in three ways.

1. Percentage. An investor holding 50 percent or less of the capital, or 50 percent or less of the profits, has not obtained control, whatever its preferred return, because the rule requires more than 50 percent of both (section 64(c)(1); Cal. Code Regs., tit. 18, section 462.180(d)(1)(B)). No source read, the Assessors' Handbook included, says how a preferred return or priority distribution counts in the profits measure; annotation 220.0375.030 defines only the capital measure, and annotation 220.0387 treats a return of the amount invested plus interest, with no share in profits and losses, as a creditor relationship. The BOE's likely reading takes profits from the agreement's allocations. A default remedy that sweeps every distribution to the preferred holder until it is paid can be argued to move the profits interest above 50 percent in substance while the stated percentages stand still, because annotation 220.0481 turns on capital and profit accounts crossing 50 percent, so a cash sweep is tested on the profits measure. For corporate preferred stock, only voting stock counts toward control under section 64(c)(1), so acquiring more than 50 percent of nonvoting stock is not a change in control. Prang v. Los Angeles County Assessment Appeals Board (2024) 15 Cal.5th 1152 holds that section 62(a)(2) measures proportional ownership by corporate stock generally, and that voting stock "is used as a measure of corporate control, not of beneficial ownership interests in corporate real property".
2. Management rights. Control under section 64(c) is control of ownership units, not management of the property (annotation 220.0391). Becoming the sole general partner while holding less than a majority interest is not a change in ownership (annotation 220.0383), and a new manager with no ownership interest does not cause one (annotation 220.0375.035). A remedy that removes the managing member or takes over management after a default therefore does not by itself cross the line. Shuwa's rejection of an effective control theory supports that reading, and annotation 220.0482 and a BOE letter of June 22, 2007 (file 625.0153) say the test is the amount of profits and capital interests transferred, not the degree of management control.
3. Step-ups, conversions and redemptions. Where the limited liability company agreement raises the preferred holder's share of capital and profits on a default, or a redemption or conversion shifts the percentages, the test is applied to the percentages after the event. Annotations 220.0481, 220.0112 and 220.0103 support treating a shift that carries one holder's capital and profit accounts, or its share of voting stock, over 50 percent as a change in control even though the holder did not purchase. No source addresses a contractual step-up in terms.

Section 64(d) applies only if the building was transferred into the entity in a proportional-interest transaction excluded by section 62(a)(2), so that the holders afterward are the original co-owners. Where the entity bought the building from an unrelated seller, the holders are not original co-owners as to that property, and the Assessors' Handbook says property the entity acquired and had reassessed is not subject to another reassessment on that ground (page 43). Where section 64(d) is engaged, only the previously excluded property is reappraised unless the same transfers also give someone control, in which case all of the entity's property is reappraised (page 44). The handbook counts an original co-owner's transfer of an interest to the partnership itself toward the 50 percent total (Example 6-5, page 45); no source says whether the entity's own issuance of new preferred units counts.

What the assessor does after the change

On a change in control the assessor appraises the entity's California real property at full cash value as of the date of the change, and that becomes the new base year value (sections 110.1(a)(2)(A), 75.10). The old factored value is replaced, up or down; the later taxable value is the lesser of the new base year value, factored by the California Consumer Price Index at no more than 2 percent a year, and current full cash value (section 51(a)). A supplemental assessment, the added bill for the period after the change, follows, computed under section 75.11 and prorated under section 75.41; a separate article in this library on supplemental assessment covers those mechanics and the notice and appeal window.

The purchase-price presumption of section 110(b) speaks of a purchase of real property and applies where the terms were negotiated at arm's length between a knowledgeable transferor and transferee, neither of which could take advantage of the exigencies of the other. Section 110(c) conditions it on the arm's-length information in the statement filed under section 480, 480.1, 480.2 or 480.4, so Form BOE-100-B is where the price allocation among assets is stated. No source read says whether a credit bid or the price paid for the entity interests sets the real property's value. The BOE's likely reading is that a disposition after default is the paradigm of exigency, so the credit bid plus the senior debt ($52,000,000 in the example) is evidence only and the assessor appraises under sections 75.10 and 110.1. The counter-argument is that a commercially reasonable public disposition under Commercial Code section 9610(b) is a market test.

What must be filed, by whom, and what a miss costs

The person or entity acquiring control files Form BOE-100-B with the BOE at Sacramento within 90 days of the change in control (section 480.1(a)); the county assessor is not the filing office. The statement is signed under penalty of perjury, lists all counties where the entity owns real property, and is confidential (sections 480.1, 481). The same duty arises on a written BOE request even if no change occurred, and a filing is required even if the filer believes an exclusion applies. The BOE offers the form electronically, and the electronic submission date fixes the 90 days; the instructions treat an unsigned, electronic or faxed statement as incomplete, so a filer using any other route files a signed original.

A late or incomplete filing carries a penalty of 10 percent of the taxes applicable to the new base year value, or 10 percent of the current year's taxes if there was no change (section 482(b)). Subdivision (b) states no dollar cap and is in lieu of the penalty in subdivision (a), so the caps of subdivision (a) do not reach it. The penalty is imposed once per transfer (section 482(c)) and is collected like other roll taxes, with the same delinquency penalties (section 482(d)). The BOE's penalty page fixes the no-change penalty to the current year's taxes as of the date the due date period expired; by parallel, the change penalty is read here as one fiscal year's taxes at the new base year value. That is a reading, not a published statement of one year. Abatement lies with the county board of equalization or assessment appeals board on reasonable cause and circumstances beyond the filer's control, ordinary care and no willful neglect, after the statement is filed with the BOE and on written application within 60 days of the assessor's notice (section 483(c)).

If no statement is filed, section 532(b)(3) states that an escape assessment (an additional assessment for years in which the property was underassessed) "shall be made for each year in which the property escaped taxation or was underassessed", so no fixed period is stated; the four-year period of section 532(a) and the eight-year period of section 532(b)(2) do not govern. Two windows apply. For the supplemental assessment, section 75.11(d) has no paragraph for an unfiled section 480.1 statement, so the default in paragraph (d)(1) governs: the fourth July 1 after the July 1 of the assessment year, which for a 2025-26 supplemental is July 1, 2029, unless the section 503 penalty is added and no limit applies. For the later regular roll years, section 532(b)(3) reaches each year the property was underassessed. Subdivision (b)(2) reads "is not timely filed", while (b)(3) reads "was not filed with respect to the event giving rise" to the escape assessment or underassessment, so a voluntary late filing may stop new years from running, while the BOE may argue that a filing made after discovery does not close assessments already open under (b)(3). This article states the contrast and does not resolve it.

Detection does not depend on a deed: the Franchise Tax Board return question in section 64(e) and county referrals feed the BOE. Of the two sources the BOE's January 2026 presentation quantifies, the Franchise Tax Board source produced far more determined changes than self-reported filings. A change in control that crosses section 64(c) can also carry documentary transfer tax in jurisdictions that adopt the property tax tests, subject to the continuing-partnership exemption in section 11925(a) for entities taxed as partnerships; a separate article in this library on documentary transfer tax and a change in control of an entity covers that analysis.

Exclusions that may preserve the structure

• Proportional interests, section 62(a)(2). This exclusion from change in ownership applies only where the transferors and transferees hold the same proportions in each property afterward, so a lender's foreclosure acquisition does not qualify. It can apply to a later move of the acquired interests into the lender's wholly owned vehicle, but a filing is still due for the first change.
• Affiliated group, section 64(b). The exclusion covers corporate reorganizations and transfers among members of an affiliated group, a chain of corporations with a common corporate parent (Cal. Code Regs., tit. 18, section 462.180(b) carries the examples). It does not reach a limited liability company acquisition by a lender.
• Majority owner buying out the minority, section 64(c)(2). The paragraph covers partnerships only: when an owner of a majority ownership interest in a partnership obtains the remaining interests, the purchase is not a change in ownership, subject to the appropriate application of the step-transaction doctrine. For a limited liability company the same result rests on "obtains" in section 64(c)(1) and, by analogy, on Assessors' Handbook Example 6-7, which concerns a partnership. It does not protect the acquisition that first crosses 50 percent.

A worked example

Facts (invented). A seven-story office building in a mid-size California city is owned by Owner LLC. Mezzanine Borrower LLC holds 100 percent of Owner LLC, and two individual sponsors hold 100 percent of Mezzanine Borrower LLC. Owner LLC bought the building in 2023 from an unrelated seller for $50,000,000, so the sponsors are not original co-owners under section 64(d). A $40,000,000 senior loan is secured by a deed of trust on the building, and a $12,000,000 mezzanine loan is secured by a pledge of Mezzanine Borrower LLC's 100 percent membership interest in Owner LLC. The example assumes a total tax rate of 1.2 percent, a 2 percent inflation factor every year, and full cash value above the factored base year value throughout. The 2023 base year value of $50,000,000, factored twice, gives a taxable value of $52,020,000 on the 2025-26 roll.

Control. On October 7, 2025, after a default and a commercially reasonable public disposition, the mezzanine lender, through a newly formed acquisition company, buys the pledged interest. Before, the lender held a pledge and no capital or profits, and the pledge caused no change (sections 62(c)(1), 64(a)). After, the acquisition company holds 100 percent of the capital and 100 percent of the profits of Owner LLC, a change in control under section 64(c)(1) and Cal. Code Regs., tit. 18, section 462.180(d)(1)(B), and the building is treated as changing ownership as of October 7, 2025, although no deed is recorded and the senior deed of trust is untouched. A pledge of the sponsors' interests in Mezzanine Borrower LLC would give the same result, through direct control of that entity and indirect control of Owner LLC.

Value and tax. The assessor is taken to appraise the building at $64,000,000 on October 7, 2025. That figure is assumed; the $12,000,000 credit bid plus the $40,000,000 senior loan is $52,000,000 and is not treated as setting value.

• New base year value $64,000,000, enrolled on the 2025-26 supplemental roll. Supplemental assessment (change on or after June 1 and before January 1, section 75.11(b)): $64,000,000 minus $52,020,000 is $11,980,000, which at 1.2 percent is $143,760 for a full year.
• Presumed date of change November 1 (section 75.41(b)), proration factor 0.67 (section 75.41(c)(7)): $143,760 times 0.67 is $96,319 of supplemental tax, rounded.
• 2026-27 roll (lien date January 1, 2026), the first regular roll carrying the new base year value: $64,000,000 times 1.02 is $65,280,000, and the tax is $783,360. Without the change, $52,020,000 times 1.02 is $53,060,400, and the tax would be $636,725, rounded. The first-year increase is about $146,635, and it grows each year because both values are factored by up to 2 percent.

Filing and penalty. Form BOE-100-B is due from the acquisition company within 90 days of October 7, 2025, which is January 5, 2026, a Monday. Schedule A asks for the date control was obtained, the ownership percentages before and after, and a schedule of the real property. If the filing is missed and the assessor mails the notice, the penalty is 10 percent of the taxes applicable to the new base year value; read as one year's tax on the round $64,000,000 value, that is 10 percent of $768,000, or $76,800, with no dollar cap in section 482(b). A late filing with a timely application that meets section 483(c) may be abated by the county board. If no filing is ever made, the exposure (tax only, before delinquency penalties) has two parts. The 2025-26 supplemental assessment ($96,319 of supplemental tax) must be on the supplemental roll by July 1, 2029, the fourth July 1 after July 1, 2025, unless the section 503 penalty is added (section 75.11(d)(1)). For the roll years from 2026-27, section 532(b)(3) leaves the underassessment open for each year: about $146,635 for 2026-27, growing each year, plus the penalty.

Second variant: preferred equity. In this variant, Owner LLC admitted in 2024 an investor that contributed $15,000,000 for preferred units carrying 40 percent of its capital and 40 percent of its profits, plus rights to approve the budget and to replace the manager if a redemption payment is missed. The sponsors' vehicle holds the other 60 percent of each.

• At closing, 40 percent is not more than 50 percent of either measure, so no person has obtained control, and the management rights do not change that (annotations 220.0391, 220.0383, 220.0375.035). No Form BOE-100-B is due unless the BOE sends a written request, and section 64(d) is not engaged, because there are no original co-owners. If the BOE sent a written request in mid-2024, so that the 90 days ended during the 2024-25 fiscal year, and no filing followed, the no-change penalty would be 10 percent of the current year's taxes on the 2024-25 roll: $50,000,000 times 1.02 is $51,000,000, the tax is $612,000, and the penalty is $61,200.
• Removal of the manager on a missed payment, with the percentages unchanged, is no change in control, on the same annotations and on Shuwa. A cash sweep of every distribution to the preferred holder until it is paid is tested on the profits measure, and no source defines how a preferred return counts there.
• A step-up to 60 percent of the capital and 60 percent of the profits on a missed payment exceeds 50 percent on both measures, so on the text of section 64(c)(1) and Cal. Code Regs., tit. 18, section 462.180(d)(1)(B) the step-up date is a change in control, supported by annotations 220.0481, 220.0112 and 220.0103 for percentages that shift without a sale. No source addresses a contractual step-up in terms. The preferred holder files within 90 days.
• Sixty percent of the capital with 40 percent of the profits is not control, because both measures must exceed 50 percent.

What the example leaves out. Voter-approved debt and special assessments in the tax rate, lien date timing, any decline in value, documentary transfer tax and the senior lender's own rights.

Practice notes

Test control at the entity that holds title and at each tier above it, on the capital and on the profits separately, before pricing a pledge enforcement or a preferred equity remedy (section 64(c)(1); Cal. Code Regs., tit. 18, section 462.180(d)(1)). Keep a ledger of capital and profits percentages by class, including step-ups, conversions and redemptions, and test every event against 50 percent on both measures; test a cash sweep or priority distribution on the profits measure as well as the stated percentages. Where the entity received the property in a proportional transfer, keep the original co-owner ledger for section 64(d).

Calendar the 90th day from the closing of the disposition or acceptance, assign the filing to the acquiring entity, and file Form BOE-100-B with the BOE, not the county, even where an exclusion is claimed (sections 480.1(a), 482(b)). File through the BOE's electronic form or, for any other route, file a signed original. Put the arm's-length and price-allocation information in the statement so that the section 110(b) presumption is not lost (section 110(c)). On a penalty notice, file the statement first, then apply in writing to the county board for abatement within 60 days of the assessor's notice (section 483(c)). Run the documentary transfer tax question alongside, since the same change in control can raise it. G&G State Tax Group advises lenders, sponsors and preferred investors on property tax reassessment and filing duties for entity interests alongside its state and local tax practice.