BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
AB 2143 (Irwin)
Version: June 6, 2016
Hearing Date: June 21, 2016
Fiscal: Yes
Urgency: No
TH
SUBJECT
County Recorder: Electronic Recording
DESCRIPTION
Upon approval by resolution of the board of supervisors and
system certification by the Attorney General, existing law
authorizes a county recorder to enter into a contract with a
title insurer, underwritten title company, institutional lender,
or an entity of a local, state, or the federal government for
the delivery for recording, and return to the party requesting
recording, of a digitized electronic record affecting a right
title or interest in real property.
This bill, until January 1, 2027, would authorize a county
recorder to enter into a contract with additional third parties
for such functions, provided the third party provides proof of
financial responsibility evidencing an amount of general
liability coverage of at least $1,000,000.
BACKGROUND
In July 1999, the Attorney General's Task Force on Electronic
Recordation presented its recommendations pursuant to AB 1906
(Brewer, Ch. 463, Stats. 1998), which, among other things,
required the Attorney General to appoint a task force to meet on
a regular basis to address technical, legal, security, and
economic issues associated with electronic recordation,
recommend which persons and entities should be authorized to
digitize and record documents electronically, and prepare and
submit recommendations to the Governor and the Legislature. The
AB 2143 (Irwin)
Page 2 of ?
task force found that while electronic recording of real
property documents could save local agencies and businesses
significant time and money, it warned that the use of these new
technologies also "exposes the most sensitive of public records
to the possibility of corruption, damage, or destruction. AB
1906 approved electronic recordation pilot projects in Orange
and San Bernardino Counties, and while San Bernardino County's
pilot project was slow to get off the ground, Orange County
quickly instituted an electronic recording system that utilized
dedicated transmission lines between specified escrow/title
companies and the county recorder's office. These dedicated
lines ensured both the security of document transmission and the
identity of the transmitter. According to task force reports
evaluating the pilot, Orange County's program decreased the
costs of doing business, decreased document processing times,
and expedited public access to records.
Following the initial pilot program, several bills were
introduced to allow specific county recorders to join the
program or establish new ones. When AB 1732 (Torlakson, 2000)
was heard in this Committee, the bill provided for the
regulation of document transmission systems and private sector
participant contracts by the Attorney General. That bill died
on the Senate inactive file. AB 2614 (Oller, 2000) would have
allowed the Placer County recorder to establish a system for
electronic recording that has been reviewed and approved by the
Attorney General, and would have authorized the Attorney General
to suspend use of the system upon a finding that fraudulent
activity had occurred as a result of a system defect in the
electronic recording of documents. AB 2614 was vetoed by
Governor Davis, citing unbudgeted costs to the Attorney
General's office, and raising a concern about security and
integrity of records accepted for recordation. SB 407 (Sher,
2001) would have established pilot projects in 12 counties for
electronic recording using a system reviewed and approved by the
Attorney General and requiring the counties to select a security
consultant from a list of computer security experts prepared by
the Attorney General. That bill was held in this Committee.
AB 578 (Leno, Ch. 621, Stats. 2004) made elements of the pilot
program permanent by enacting the Electronic Recording Delivery
Act of 2004. That bill established a statewide system to record
digital electronic records of real property instruments, and
required the Attorney General to adopt regulations for
certification and oversight of electronic delivery systems,
AB 2143 (Irwin)
Page 3 of ?
associated software, and related services. The bill authorized
counties to pay for costs associated with regulation and
oversight, and to collect a $1 fee from every recording of an
instrument in the county to pay for costs associated with the
system. The bill also authorized a county recorder, upon
approval by the board of supervisors and certification of the
system by the Attorney General to establish an electronic
recording delivery system. AB 578 limited the parties with
which a county recorder could contract to title insurers,
underwritten title companies, institutional lenders, and
entities of a local, state, or the federal government. The
following year, AB 1738 (Cmte. on Local Gov., Ch. 520, Stats.
2005) required the Attorney General to conduct federal
background checks for those who access an electronic recording
delivery system.
This bill would, subject to a 10-year sunset, authorize county
recorders to enter into contracts with additional third parties
for the delivery and return of digitized electronic records and
instruments affecting rights, titles, or interests in real
property, provided these third parties obtain general liability
coverage of at least $1,000,000.
CHANGES TO EXISTING LAW
Existing law , the Electronic Recording Delivery Act of 2004,
authorizes a county recorder to establish an electronic
recording delivery system upon approval by resolution of the
board of supervisors and system certification by the Attorney
General. (Gov. Code Sec. 27391(a).)
Existing law provides, upon system certification, a county
recorder may enter into a contract with a title insurer, an
underwritten title company, an institutional lender, or an
entity of local, state, or federal government for the delivery
for recording, and return to the party requesting recording, of
a digitized electronic record that is an instrument affecting a
right, title, or interest in real property. Existing law
specifies that the contract may provide for the delivery of
documents by an agent, but that the agent shall not be a vendor
of electronic recording delivery systems. (Gov. Code Sec.
27391(b).)
Existing law provides that no electronic recording delivery
system may become operational without system certification by
AB 2143 (Irwin)
Page 4 of ?
the Attorney General. This certification shall affirm that the
proposed county system conforms to all legal requirements, that
security testing has confirmed that the system is secure and
that the proposed operating procedures are sufficient to assure
the continuing security and lawful operation of that system.
Existing law provides that the Attorney General shall approve
software and other services for electronic recording delivery
systems. (Gov. Code Sec. 27392.)
Existing law requires the Attorney General to adopt regulations
for the review, approval, and oversight of electronic recording
delivery systems. These regulations are to include, among other
things, the following elements:
establishment of baseline technological and procedural
specifications for electronic recording delivery systems;
requirements for security, capacity, reliability, and
uniformity;
requirements as to the nature and frequency of computer
security audits;
requirements to place of a copy of the operating system,
source code, compilers, and all related software associated
with each county's electronic recording delivery system in an
approved escrow facility prior to that system's first use;
requirements to ensure that substantive modifications to an
operating system, compilers, related software, or source code
are approved by the Attorney General;
procedures for initial certification of vendors offering
software and other services to counties for electronic
recording delivery systems;
requirements for system certification and for oversight of
approved systems; and
requirements for fingerprinting and criminal records checks.
(Gov. Code Sec. 27393.)
Existing law states that to be eligible to establish an
electronic recording delivery system, a county recorder shall
contract with, and obtain a report from, a computer security
auditor selected from a list of computer security auditors
approved by the Attorney General. Existing law specifies that
electronic recording delivery systems shall be audited at least
once during the first year of operation and periodically
thereafter, and that audits shall include:
examinations of the safety and security of the system,
including the vulnerability of the electronic recording
delivery system to fraud or penetration;
AB 2143 (Irwin)
Page 5 of ?
results of testing of the system's protections against fraud
or intrusion, including security testing and penetration
studies; and
recommendations for any additional precautions needed to
ensure that the system is secure. (Gov. Code Sec. 27394.)
Existing law specifies that no person shall be a computer
security auditor or be granted secure access to an electronic
recording delivery system 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
pending criminal charges for any of these crimes. (Gov. Code
Sec. 27395.)
This bill would, until January 1, 2027, authorize a county
recorder to enter into a contract with an authorized submitter
not otherwise authorized for the delivery for recording, and
return to the party requesting recording, of an electronic
record that is an instrument to be recorded.
This bill would specify that an authorized submitter and any
agent submitting documents on behalf of an authorized submitter
shall provide proof of financial responsibility by providing a
certificate of insurance evidencing an amount of general
liability coverage of at least $1,000,000.
This bill would expand the scope of documents that may be
delivered via an electronic recording delivery system to include
"digital" electronic records.
COMMENT
1.Stated need for the bill
The author writes:
Often recording paper documents in person through the county
recorder is a time-consuming and costly process, especially
for entities that submit a high volume of documents.
Electronic recording has proven to be an efficient, safer, and
cost-effective method of recording documents. 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 (Irwin)
Page 6 of ?
This bill seeks to expand the types of documents that can be
recorded electronically and those who may record them provided
certain security measures are in place. It allows a county
recorder to enter into a contract with an authorized submitter
who is not already mentioned in existing law (title insurers,
institutional lenders, government entities) to record
digitized and digital records if they have proof of insurance
for one million dollars in general liability coverage. The
[Attorney General] must also adopt regulations governing the
requirements for this insurance and a county recorder may
still refuse to enter into contract with any party for any
good faith reason. Recent amendments have set a sunset date
of January 1, 2027, to allow for legislative review of the
increased size of the system.
AB 2143 will expand electronic recording to all submitters
that register with the Department of Justice and hold minimum
liability insurance. Allowing more entities to record
documents electronically will save costs for all parties
involved, allow documents to be recorded more quickly, and
help bring the infrastructure of local government into the
21st century.
2.Security of electronic recording systems
Existing law imposes fairly rigorous security standards,
implemented through regulations promulgated by the Department of
Justice, to ensure the security and reliability of electronic
recording delivery systems. These regulations not only require
baseline security procedures and testing of the computerized
delivery systems, but also require periodic system audits and
restrict who can have access to these systems. As presently
implemented, participation in the electronic recording delivery
system is limited by statute to title insurers, underwritten
title companies, institutional lenders, and entities of a local,
state, or the federal government, and only "digitized" records
may be delivered across a system. This bill would authorize
additional third parties to enter into contracts with county
recorders for the delivery for recording, and return, of
electronic records affecting interests in real property,
provided those parties obtain a certificate of insurance
evidencing an amount of general liability coverage of at least
$1,000,000. This bill would also expand the scope of documents
that may be delivered via an electronic recording delivery
AB 2143 (Irwin)
Page 7 of ?
system to include "digital" electronic records.
The security implications of the two changes proposed by this
bill deserve some consideration. First, expanding the scope of
participating entities to third parties other than those
currently authorized, could, without more, undermine the
integrity of a county's electronic recording delivery systems.
However, in context, it is clear that this bill would subject
these additional third parties to the same oversight and system
certification standards that are required of existing
participants. Additionally, this bill would require these
additional third parties to demonstrate financial responsibility
in the amount of $1 million dollars to cover potential legal
liabilities. Given the cost of real property in California,
liability from a systematic defect in an electronic recording
delivery system that impacts multiple parties could, rather
quickly, exceed this amount. Although stakeholders in support
of this bill report that these systems have not suffered
significant security breaches of the type seen with other
computerized record systems, the Committee might, nonetheless,
wish to consider whether this required amount of financial
responsibility is sufficiently high to cover potential losses.
Second, expanding the scope of records transmitted across these
systems to include "digital" records could introduce new
reliability concerns that warrant further consideration. Under
existing law, only "digitized" records - such as computer
scanned copies of paper forms - may be transmitted via an
electronic recording delivery system. Depending on the security
standards built into a particular system, digital records -
those which are completely computer generated - may not have the
same level of reliability. The Committee may wish to consider
directing the Attorney General to investigate whether expanding
the types of records transmitted across these systems warrants
any changes to the security regulations governing this program.
Support : California Association of Realtors; California
Mortgage Association; California State Association of Counties
Opposition : None Known
HISTORY
Source : County Recorders Association of California
AB 2143 (Irwin)
Page 8 of ?
Related Pending Legislation : None Known
Prior Legislation :
AB 1738 (Cmte. Local Gov., Ch. 520, Stats. 2005) See Background.
AB 578 (Leno, Ch. 621, Stats. 2004) See Background.
SB 407 (Sher, 2001) See Background.
AB 2614 (Oller, 2000) See Background.
AB 1732 (Torlakson, 2000) See Background.
AB 1906 (Brewer, Ch. 463, Stats. 1998) See Background.
Prior Vote :
Assembly Floor (Ayes 77, Noes 0)
Assembly Appropriations Committee (Ayes 20, Noes 0)
Assembly Local Government Committee (Ayes 9, Noes 0)
**************