BILL ANALYSIS                                                                                                                                                                                                    ”



                                                                  SB 1342
                                                                  Page  1

          Date of Hearing:  June 13, 2012

                       ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
                                Cameron Smyth, Chair
                    SB 1342 (Emmerson) - As Amended:  June 7, 2012

           SENATE VOTE  :  29-7
           
          SUBJECT  :  Counties: recording: real estate instruments.

           SUMMARY  :  Increases, from $3 to $10, the maximum fee that a 
          county can place on certain recorded real estate documents to 
          fund real estate fraud prevention and enforcement.  
          Specifically,  this bill  :   

          1)Increases, from $3 to $10, the maximum additional recording 
            fee that counties can impose on real estate instruments, 
            papers and notices for payment into a Real Estate Fraud 
            Prosecution Trust Fund (Fund).

          2)Adds the following documents to the list of real estate 
            instruments that are subject to the additional fee: an amended 
            deed of trust; an abstract of judgment; an affidavit; an 
            assignment of rents; an assignment of a lease; a construction 
            trust deed; covenants, conditions and restrictions; a 
            declaration of homestead; an easement; a lease; a lien; a lot 
            line adjustment; a mechanics lien; a modification for deed of 
            trust; a notice of completion; a quitclaim deed; a 
            subordination agreement; a release; a trustee's deed upon 
            sale; and any Uniform Commercial Code amendment, assignment, 
            continuation, statement or termination.

          3)Clarifies that "real estate instrument" does not include any 
            deed, instrument, or writing recorded in connection with a 
            transfer subject to the imposition of a documentary transfer 
            tax.

          4)Authorizes a portion of the resources in the Fund to be 
            directly allocated to the county recorder to support real 
            estate fraud prevention programs.

          5)Requires the county auditor-controller to verify, before a 
            county may expend resources from its Fund, that the county 
            district attorney has complied with the existing September 1 
            annual reporting deadline.








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          6)Eliminates the requirement that county district attorneys must 
            submit to the Legislative Analyst's Office (LAO) annual 
            reports on real estate fraud activity, and that the LAO must 
            annually compile and submit that information to the 
            Legislature.

          7)Makes findings and declarations related to the insufficiency 
            of resources currently generated to support each county's 
            Fund. 

          8)Makes other technical and non-substantive amendments. 

           

          EXISTING LAW  : 

          1)Authorizes the board of supervisors to adopt, by resolution, a 
            fee of up to $3 for each recording of a real estate 
            instrument, paper, or notice required or permitted by law to 
            be recorded, except as specified, to be placed in a Fund.

          2)Requires that money in the Fund be expended to support 
            programs to enhance the capacity of local police and 
            prosecutors to deter, investigate, and prosecute real estate 
            fraud crimes.

          3)Defines the term "real estate instrument" to mean a deed of 
            trust, an assignment of trust, a reconveyance, a request for 
            notice, a notice of default, a substitution of trustee, a 
            notice of trustee sale, or a notice of rescission of 
            declaration of default. 

          4)Requires a district attorney in a participating county to 
            annually submit a report to the LAO on the effectiveness of 
            deterring, investigating, and prosecuting real estate fraud 
            crimes funded by the recording fee, and requires the LAO to 
            report to the Legislature on these efforts, as specified.

           FISCAL EFFECT  :  None

           COMMENTS  :

          1)This bill is intended to authorize counties to increase 
            funding for real estate fraud prevention and prosecution by 








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            raising recordation fees for certain real estate documents.  
            In practice, it would permit counties to increase an 
            additional recording fee from $3 to a maximum of $10 per 
            document, increase the number of documents to which the fee 
            would apply, and allow the use of some of those funds to 
            support county recorder fraud prevention programs.  The bill 
            would also clarify that the fees would not apply to documents 
            recorded in connection with transfers subject to the 
            documentary transfer tax (i.e. the sale of real property).  
            Finally, the bill would delete an unnecessary LAO report 
            requirement.  The measure is sponsored by the California 
            District Attorneys Association (CDAA).

          2)Under existing law, counties can impose a $3 recording fee on 
            certain real estate documents and put the money into a county 
            Fund.  County officials may expend money from that Fund to 
            deter, investigate, and prosecute real estate fraud crimes, 
            with an emphasis on fraud against individuals whose residences 
            are in danger of, or are in, foreclosure.  Administrative 
            costs are capped at 10% of revenues.  

            State law assigns 60% of the Fund proceeds to the county 
            district attorney's office and 40% to eligible law enforcement 
            agencies.  In order to be eligible, a law enforcement agency 
            must either have a unit or division devoted to real estate 
            investigation or prosecution, or have been actively involved 
            in such cases for the prior three years.  

            A Real Estate Fraud Prosecution Trust Fund Committee allocates 
            the 40% by reviewing and approving applications from law 
            enforcement agencies.  The Committee has four members: the 
            county's chief administrative officer, the district attorney, 
            the chief officer responsible for 
            consumer protection, and the chief officer of one law 
            enforcement agency that receives 


            monies from the Fund.  If a county has no eligible law 
            enforcement agencies, the entire Fund goes to the district 
            attorney.

            District attorneys in counties that impose the additional fee 
            must provide an annual report to the county board of 
            supervisors and the LAO on past-year expenditures, the number 
            of filed complaints of real estate fraud, and program 








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            outcomes.  The LAO must annually compile the information 
            submitted by participating counties and report to the 
            Legislature. 

            According to the most recent LAO report from October 2011, 
            there were 21 counties reporting real estate fraud prosecution 
            statistics and Fund expenditures.  In FY 2010-11, those 
            counties reported a total of 2,121 cases investigated, 931 
            cases filed and 268 convictions.  Those counties also reported 
            Fund revenues of $14,169,000 and Fund expenditures of 
            $18,237,000.

          3)According to the sponsor, "real estate fraud has emerged as 
            the fastest growing white-collar crime in the country.  
            California is currently one of the leading states in terms of 
            the incidence of mortgage fraud and this trend is likely to 
            continue given the high number of California families who find 
            themselves at risk of foreclosure."

            CDAA adds that, according to the LAO, "the number of real 
            estate fraud cases investigated in 2009-2010 was almost double 
            what it was in 2008-2009, and the number of cases filed was 
            almost triple that of the previous year.  Californians lost 
            $619 million to real estate fraud in 2010-11.  Fewer than half 
            of the real estate fraud cases investigated progress to actual 
            charges filed, and a mere 28% of those charges earn actual 
            convictions.  This disparity is further intensified by a lack 
            of adequate funding.  Despite the best efforts of local police 
            and prosecutors to stem this tide, their efforts are hampered 
            by a lack of individuals able to effectively investigate and 
            prosecute these crimes."

            The sponsor contends that in order "to ensure that local 
            police and prosecutors are able to fight real estate fraud, an 
            increase in revenues earmarked for real estate fraud 
            prevention and prosecution is vital.  Increasing the maximum 
            amount a county can opt to charge for a document recording fee 
            and adding to the pool of documents considered real estate 
            instruments are two reasonable ways to assist counties in 
            addressing this problem."

          4)There is no current estimate for the total number of 
            transactions that would be affected or the amount of money 
            that might be raised statewide under this measure.  However, 
            CDAA's own projected revenue estimates assume that the 








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            expanded list of affected transactions proposed by this bill 
            would increase the number of transactions subject to the fee 
            by roughly 25%. 

          Accordingly, CDAA estimates that, based on FY 2009-10 figures, 
            the proposed fee authority could bring in revenues in the 
            following general ranges, depending on the extent of the fee 
            increase ($3-$10):

                     Riverside County: $1,000,000 to $4,000,000
                     Ventura County:   $300,000 to $1,000,000
                     Santa Cruz County: $100,000 to $400,000

          1)It is possible that the fee increase contemplated by this bill 
            would constitute a tax pursuant to the terms of Proposition 
            26, which was approved by the voters of California in 
            November, 2010.  Proposition 26 amended Article XIII C of the 
            Constitution to define a tax as any levy, charge or exaction 
            of any kind imposed by a local government, subject to seven 
            specific exemptions.  A tax imposed at the county level would 
            require voter approval.  General taxes, which provide 
            discretionary revenue to be spent as a local agency's 
            governing body directs, require majority approval.  Special 
            taxes, the proceeds of which may be spent only on specified 
            purposes, require a two-thirds voter approval. 

          Because the fee increase enabled by this bill would go towards 
            funding real estate fraud prevention and prosecution in the 
            authorizing county, and if no enumerated exemption is found to 
            apply, it may be classified as a special tax.  If so, the 
            board of supervisors of the county would, if it chose to 
            authorize the increase by ordinance, need to secure approval 
          of two-thirds of the county voters before the increase could go 
            into effect. 

          The Howard Jarvis Taxpayers Association has taken an oppose 
            unless amended position on the bill, requesting that language 
            be inserted into the bill explicitly stating that the bill 
            authorizes a special local tax requiring 2/3 approval of 
            county voters.    

          The Committee may also wish to consider, if a two-thirds local 
            vote is indeed required, whether or not individuals counties 
            would actually choose to exercise the expanded fee 
            authorization provided by this bill. 








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          2)There are two bills from the 2011-12 legislative session that 
            contained provisions related to those of this bill:

          AB 1950 (Davis) would have, among other provisions, imposed a 
            fee of $25 to be paid at the time of recording a notice of 
            default to fund a state Real Estate Fraud Prosecution Trust 
            Fund.  However, the bill was amended on May 21, 2012, to 
            delete the fee increase. The bill is currently pending in the 
            Senate Rules Committee.   

          SB 1220 (DeSaulnier) would have imposed a $75 fee on recorded 
            real estate documents, excluding any document recorded in 
            connection with a transfer subject to a documentary transfer 
            tax, and directed the money to a Housing Opportunity and 
            Market Stabilization Trust Fund.  The Legislature could have 
            then appropriated these funds for the development, 
            acquisition, rehabilitation, and preservation of homes 
            affordable to low- and moderate-income households, including 
            emergency shelters, transitional and permanent rental housing, 
            foreclosure mitigation, and homeownership opportunities.  The 
            measure failed passage (25-13) on the Senate Floor on May 31, 
            2012.

           3)Support arguments  :  According to the sponsor, "SB 1342 will 
            ensure that local police and prosecutors are able to fight 
            real estate fraud by increasing revenues earmarked for real 
            estate fraud prevention and prosecution."

             Opposition arguments  :  Arguably, a new recording fee would 
            place an additional financial burden on ordinary Californians 
            engaged in routine real estate transactions, while draining 
            local government staff resources to collect fees and address 
            unsatisfied customers.  
             
           
          REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California District Attorneys Association ›SPONSOR]
          California Association of Realtors
          County Recorders' Association of California
          Office of the California Attorney General
           








                                                                 SB 1342
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            Opposition 
           
          Howard Jarvis Taxpayers Association

           Analysis Prepared by  :    Hank Dempsey / L. GOV. / (916) 319-3958