[smsm42]

This would make underwater mortgage holders (at least lower-income ones) to stop paying taxes completely. After all, they've already lost their money, and have no hope of getting anything out of the sale, and there's no way anybody gets anything more out of them, it's bank's loss now. Moreover, it is in their interest to postpone the sale - since until sold, bank's incentive in eviction is much lower, and incentive in just discharging the part of the mortgage is higher, due to additional buyer costs. So if you shift the tax burden essentially to the buyer of the house, the consequences may be not that good.

[ScottBurson]

The property owner would still be liable for annual tax payments on the assessed value of the property. When that is falling, the Prop. 13 limitation has no effect.

The lien we're talking about would be on the difference between the tax paid under Prop. 13 and the tax that would be due if there were no Prop. 13. If the mortgage is underwater, that difference is zero.