BILL ANALYSIS Ó
AB 2143
Page 1
Date of Hearing: April 6, 2016
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Susan Talamantes Eggman, Chair
AB 2143
(Irwin) - As Introduced February 17, 2016
SUBJECT: County recorder: electronic recording.
SUMMARY: Allows additional persons and entities to deliver
electronic records to county recorders for recording and expands
the types of electronic records that may be delivered to a
county recorder for recording. Specifically, this bill:
1)Deletes current law that limits the types of documents that
can be submitted electronically for recording, pursuant to a
contract between a county recorder and a title insurer,
underwritten title company, institutional lender, or an entity
of local, state or federal government, to the following: a
digitized electronic record that is an instrument affecting a
right, title, or interest in real property.
2)Allows any digital or digitized electronic record that is
required to be recorded by a county recorder, as specified, to
be submitted electronically for recording, pursuant to a
contract between a county recorder and a title insurer,
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underwritten title company, institutional lender, or an entity
of local, state or federal government.
3)Allows a county recorder to enter into a contract with an
authorized submitter not authorized pursuant to 2), above, for
the delivery for recording, and return to the party requesting
recording, of a digital or digitized electronic record that is
required to be recorded by a county recorder.
4)Allows a contract between a county recorder and an authorized
submitter described in 3), above, to provide for the delivery
of documents by an agent, and prohibits an agent from being a
vendor of electronic recording delivery systems.
5)Requires an authorized submitter described in 3), above, and
any agent submitting documents on behalf of an authorized
submitter to provide proof of financial responsibility by
providing a certificate of insurance evidencing an amount of
general liability coverage of at least $1 million.
6)Requires the Attorney General (AG) to adopt regulations
governing the requirements for general liability coverage
required by 5), above.
7)Amends provisions that allow a county recorder to include in
the county's electronic recording delivery system (ERDS) a
secure method for accepting for recording a digital or
digitized electronic record that is an instrument of
reconveyance, substitution of trustee, or assignment of deed
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of trust from specified submitters who can forgo a security
audit and a criminal records check if the county recorder and
the AG certify certain security measures for these
submissions.
EXISTING LAW:
1)Authorizes, pursuant to the Electronic Recording Delivery Act
of 2004 (ERDA), a county recorder to establish an ERDS upon
approval by the county board of supervisors (Board) and
certification by the AG.
2)Allows county recorders to contract with the following
entities to accept the following types of documents through
their ERDS:
a) Title insurers, underwritten title companies,
institutional lenders, or any entity of local, state or
federal government may submit a digitized electronic record
that is an instrument affecting a right, title, or interest
in real property. These submitters must complete security
clearance measures, including a computer security audit and
a criminal records check; and,
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b) Title insurers, underwritten title companies,
institutional lenders, or any entity of local, state or
federal government may submit a digital or digitized
electronic record that is an instrument of reconveyance, a
substitution of trustee, or an assignment of deed of trust.
These submitters can forgo the computer security audit and
criminal records check if the county recorder and the AG
certify that the method of submission will not permit a
submitter or its employees and agents, or any third party,
to modify, manipulate, insert, or delete information in the
public record, maintained by the county recorder, or
information in electronic records submitted pursuant to a),
above.
3)Allows a county recorder to refuse to enter into a contract
with any party or to terminate or suspend access to a system
for any good faith reason including, but not limited to, a
determination by the county recorder that termination or
suspension is necessary to protect the public interest, to
protect the integrity of public records, or to protect
homeowners from financial harm, or if the volume or quality of
instruments submitted by the requester is not sufficient to
warrant electronic recordation.
4)Allows a county recorder to also terminate or suspend access
to a system if a party commits a substantive breach of the
contract, the requirements of ERDA, or the regulations adopted
by the AG pursuant to ERDA.
5)Prohibits any ERDS from becoming operational without system
certification by the AG and outlines the requirements for
certification including, but not limited to, security testing
and operating procedures to ensure security and lawful use of
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the county ERDS. The AG may withdraw certification for good
cause.
6)Requires the AG, in consultation with interested parties, to
adopt regulations for the review, approval, and oversight of
ERDS. These regulations include such items as: technological
specifications; requirements for security, capacity,
reliability, and uniformity; requirements as to the nature and
frequency of computer security audits; procedures for the
initial certification of vendors offering software and other
services to counties for ERDS; requirements for system
certification and oversight; requirements for fingerprinting
and criminal record checks on those who have access to the
ERDS; and, other items.
7)Requires an ERDS to be subject to local inspection and review
by the AG, as specified, and requires specified computer
security audits, reports, and monitoring of a county's ERDS.
8)Requires that if a county recorder, a computer security
auditor, the county's district attorney (DA), or the AG
reasonably believes that an ERDS is vulnerable to fraud or
intrusion, the county recorder, the county board, the DA, and
the AG must be notified immediately.
9)Requires a county recorder to immediately take the necessary
steps to guard against any compromise of the ERDS, including,
if necessary, the suspension of an authorized submitter or of
the ERDS.
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10)Prohibits a person from being a computer security auditor or
from being granted secure access to an ERDS if he or she has
been convicted of a felony, has been convicted of a
misdemeanor related to theft, fraud, or a crime of moral
turpitude, or if he or she has a pending criminal charge for
any of these crimes.
11)Requires any person who has secure access to an ERDS to
undergo state and federal criminal background checks.
12)Authorizes the AG to request subsequent arrest notification
service for all computer security auditors and individuals
with secure access to the ERDS.
13)Requires the AG to monitor the security of ERDS statewide, in
close cooperation with county recorders and public
prosecutors.
14)Authorizes the AG to suspend any system in the event of an
emergency involving multiple fraudulent transactions linked to
one county's system, and to bring a court action seeking
injunctive relief, restitution, rescission, or other equitable
relief.
15)Requires the AG to conduct an evaluation of ERDS and report
to the Legislature by June 30, 2009.
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16)Defines a "digital electronic record" as a record containing
information that is created, generated, sent, communicated,
received, or stored by purely electronic means, but not
created in paper form.
17)Defines a "digitized electronic record" as a scanned image of
the original paper document.
18)Defines an "authorized submitter" as a person who has entered
into a contract with a county recorder pursuant to 2) a),
above, and is not disqualified pursuant to ERDA's security
clearance requirements, as specified.
FISCAL EFFECT: This bill is keyed fiscal.
COMMENTS:
1)Bill Summary. This bill expands the ERDA to allow a greater
number of people and institutions to submit electronic records
to county recorders under the provisions of the ERDA. It
deletes provisions that allow only title insurers,
underwritten title companies, institutional lenders, or any
entity of local, state or federal government to submit
electronic documents and allows any person or entity that
provides a certificate of insurance evidencing an amount of
general liability coverage of at least $1 million to submit
electronic records. The bill also expands the types of
records that can be submitted, to include digital records. (A
digital record is a record that was not created in paper form,
but contains information that is created, generated, sent,
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communicated, received, or stored by purely electronic means.)
ERDA is currently limited to digitized records (a scanned
image of the original paper document), except in very limited
instances. This bill is sponsored by the County Recorders
Association of California.
2)Author's Statement. According to the author, "Current law
allows specified title organizations and financial
institutions to electronically record certain legal documents
with county recorders provided that they register with the
Department of Justice and meet minimum liability requirements.
AB 2143 will expand electronic recording to all entities that
register with the Department of Justice and hold minimum
liability insurance. Since 2004, electronic recording has
proven to be safe, efficient, and cost effective for both
private enterprise and government entities. It's time to
expand this to all entities and bring California into the 21st
century."
3)Background. County recorders are responsible generally for
examining and recording all documents that deal with
establishing ownership of land in counties. This includes the
recording of title documents, notes, and home loan payoffs by
homeowners, title companies, mortgage companies and government
agencies involved in real estate transactions. The recording
process traditionally has involved the transmission of
original paper documents.
AB 578 (Leno), Chapter 621, Statutes of 2004, established ERDA
and created a statewide system for county recorders to record
electronic records of real property instruments.
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AB 578 required the AG to adopt regulations for certification
and oversight of ERDS and associated software and other
services. AB 578 followed several years of legislative action
regarding electronic recording.
Pursuant to the requirements of AB 1906 (Brewer), Chapter 463,
Statutes of 1998, the AG's Task Force on Electronic
Recordation (Task Force) presented its recommendations in July
1999. The Task Force found that by transmitting digital
images of documents over telecommunication lines, rather than
delivering them in person to county offices, business
representatives could save local agencies and themselves time
and money. However, the Task Force warned, "the use of these
new technologies, while providing opportunities for
substantial improvement of service," also exposes the most
sensitive of public records to the possibility of "corruption,
damage, or destruction." In addition, pilot projects in
Orange and San Bernardino counties were approved by the
Legislature in 1996 and 1998.
In order to establish an ERDS, a county recorder must be
authorized by resolution of the county board and must obtain
system certification from the ERDS Program, which is
administered by the AG. A county's ERDS must meet specified
security standards and all persons with a secure access role
are required to undergo fingerprint criminal history checks
(with one exception, which will be discussed below).
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Among its many provisions, ERDA required the AG to conduct an
evaluation of ERDS and report to the Legislature by June 30,
2009. Due to the lengthy regulatory process, the report was
completed before any ERDS were certified. The report focused
largely on the activities of the AG in complying with the
requirements of ERDA as they pertained to the development of
regulations and program procedures. However, the report also
included information from the experiences of Orange County and
San Bernardino County. Both counties reported significant
cost savings and potential improvements in security and real
estate fraud prevention due to the security protections built
into their electronic recording systems.
Both the AG and the County Recorders Association of
California, sponsor of this measure, attest that there have
been no instances of fraud connected with the use of ERDS
since it became operational. To date, the AG has certified
ERDS for 24 counties.
The County Recorders Association of California are seeking to
allow a number of high-volume submitters, such as attorneys
and companies that submit numerous real estate documents in
paper form today, to electronically submit records to
recorders. They state that the bill is not intended to allow
individuals to submit single documents electronically. The
safeguards in existing law, as well as the liability insurance
requirement in this bill, appear to be sufficient provisions
to achieve this intent.
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4)Suggested Amendments. The Committee may wish to consider the
following amendments:
a) Clarify Intent by Striking Section 3. Section 3 of the
bill amends a code section that allows certain submitters
who are submitting only an instrument of reconveyance,
substitution of trustee, or assignment of deed of trust to
avoid a security audit and a criminal records check if the
county recorder and the AG certify certain security
measures for these submissions. This code section was put
into place because both the submitters and the documents
being submitted were considered to be very low-risk for
fraud. The amendments to this code section appear to have
been a drafting error, and do not reflect the intent of the
bill. The Committee may wish to strike Section 3 of the
bill.
b) Sunset Date. This bill represents a substantial
increase in the types of documents that can be submitted
electronically for recording, as well as the people and
entities that may do so. The 2009 report from the AG was
not able to adequately evaluate the program or propose any
suggestions for legislation (which was intended to include
recommendations for expanding ERDA). The Committee may
wish to add a sunset date of January 1, 2027, to this bill
in order to guarantee legislative review of the bill's
expanded authorizations.
c) Technical Amendment. ERDA contains a definition of
"authorized submitter" that does not encompass the
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additional submitters that this bill would authorize. The
Committee may wish to make technical amendments to ensure
an accurate cross-reference.
5)Previous Legislation. AB 1738 (Committee on Local
Government), Chapter 520, Statutes of 2005, required a federal
background check to be conducted before any person could be
authorized secure access to an ERDS.
AB 578 (Leno), Chapter 621, Statutes of 2004, established ERDA
and created a statewide system for county recorders to record
electronic records of real property instruments.
AB 1906 (Brewer), Chapter 463, Statutes of 1998, extended
the pilot program allowing Orange County and San Bernardino
County to accept digitized property records from title
companies, and required the AG to appoint a task force to
address technical, legal, security, and economic issues
associated with electronic recordation.
AB 3296 (Brewer), Chapter 842, Statutes of 1996, allowed
Orange County and San Bernardino County to accept digitized
property records from title companies under specified
conditions, until January 1, 1999.
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6)Arguments in Support. The County Recorders Association of
California, sponsor of this bill, writes, "The 2004 Electronic
Recording Delivery Act (ERDA) authorized specified entities to
electronically record documents. Millions of documents have
been recorded by means of an electronic recording delivery
system since the enactment of ERDA. In California there are
no known instances of fraud perpetrated by use of electronic
recording delivery systems. County Recorders and authorized
submitters have experienced positive results from the ERDA?The
process of recording digital and digitized documents?is
expedited and more efficient compared to paper documents."
7)Arguments in Opposition. None on file.
REGISTERED SUPPORT / OPPOSITION:
Support
County Recorders Association of California [SPONSOR]
California Association of Realtors
California State Association of Counties
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Opposition
None on file
Analysis Prepared by:Angela Mapp / L. GOV. / (916) 319-3958