BILL ANALYSIS Ó
SB 1342
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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 ÝSPONSOR]
California Association of Realtors
County Recorders' Association of California
Office of the California Attorney General
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Opposition
Howard Jarvis Taxpayers Association
Analysis Prepared by : Hank Dempsey / L. GOV. / (916) 319-3958