BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Martha M. Escutia, Chair
2003-2004 Regular Session
AB 578 A
Assembly Member Leno B
As Amended July 3, 2003
Hearing Date: August 19, 2003 5
Government Code 7
GMO:cjt 8
SUBJECT
County Recorders: Electronic Recordation of Recordable
Instruments
DESCRIPTION
This bill would:
Allow a county to establish an electronic delivery and
recordation system for digitized instruments or records
that affect the right or title to, interest in or
possession of real property;
Require the Attorney General to adopt regulations for
certifying electronic recording delivery systems for
security and reliability and to approve computer security
auditors that would conduct initial and periodic security
testing procedures and audits;
Require fingerprinting and background checks of
authorized users of the electronic recording delivery
system;
Authorize the Attorney General or a district attorney to
bring an action for injunctive relief relating to
violations, and authorize the Attorney General, District
Attorney, or City Attorney to seek a civil penalty of up
to $50,000 for a violation of statute or regulations
adopted pursuant to statute.
Establish two pilot projects that would include 12
counties, the first to allow the recordation of specified
digital electronic records (those created and delivered
electronically) subject to the regulations adopted by the
Attorney General pursuant to this bill, and the second to
(more)
AB 578 (Leno)
Page 2
allow the use of a postcard notification of property
owners that an instrument has been recorded against their
property for the purpose of tracking fraudulent
recordings.
BACKGROUND
This bill is sponsored by the California Association of
Realtors, the California Mortgage Bankers Association, and
Fannie Mae (FNMA).
In July 1999 the Attorney General's Task Force on
Electronic Recordation presented its recommendations
pursuant to the charge given the Task Force by AB 1906
(Brewer, Chapter 463, Statutes of 1998). The Task Force
found that electronic recording of real property documents
could save local agencies and businesses plenty of time and
money. However, the Task Force 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 also approved pilot projects in Orange and San
Bernardino counties. While San Bernardino County's pilot
project never got off the ground, Orange County has
instituted an electronic recording system that utilizes
dedicated transmission lines between specified escrow/title
companies and the county recorder's office. The dedicated
lines appear to ensure both (1) the security of document
transmission and (2) the identity of the transmitter.
According to the Task Force Report, the results of the
Orange County pilot project have been promising: decreased
costs of doing business, decreased document processing
times and expedited public access to records. However, to
date, Orange County has not conducted any penetration tests
of the security of its system.
In the last three years, several bills were introduced to
allow specific county recorders to join the pilot projects
or establish new ones. When AB 1732 (Torlakson, 2000) was
heard in this Committee, the bill included regulation of
systems and contracts by the Attorney General. The bill
died at the Senate desk.
AB 2614 (Oller, 2000) would have allowed the Placer County
recorder to establish a system for electronic recording
AB 578 (Leno)
Page 3
that has been reviewed and approved by the Attorney
General, and to authorize the Attorney General to suspend
use of the system upon a finding that fraudulent activity
has 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.
The bill was held in this Committee. Negotiations among
the stakeholders ensued during the interim, but the
legislation was allowed to die the following year.
AB 578 is the product of further negotiations among the
county clerks, district attorneys, realtors, mortgage
bankers, escrow and title companies, to achieve a workable
scheme for the electronic recordation of instruments
relating to real property.
CHANGES TO EXISTING LAW
Existing law requires county recorders to record written
documents that transfer title to or impose liens on real
property, or give a right to a debt or duty.
Existing law authorizes county recorders to accept
digitized images from any local, state or federal agency,
so long as the technology used to create the image conforms
to all applicable statutes regulating document reliability.
The Uniform Electronic Transactions Act (UETA) provides
rules and procedures for the sending and receiving of
electronic records and signatures, the formation of
contracts using electronic records, and procedures
governing changes and errors in electronically transmitted
records. The UETA applies to all transactions in which
records or signatures are electronically transmitted by
parties who have agreed to conduct the transaction
electronically.
AB 578 (Leno)
Page 4
Existing law permits the recorders for the counties of
Orange and San Bernardino to accept digitized images for
recordation provided that the:
a. requester submitting the image is an entity or
instrumentality of the state or
federal government; or
b. if the requester is not an instrumentality of state or
federal government,
(1) the county recorder finds that the requester will
submit digitized records
in sufficient quantity and will take effective
precautions to prevent fraud and forgery and
(2) county recorder determines that accepting digitized
images serves the
public interest.
[Government Code Section 27279.1.]
This bill would allow a county recorder, upon approval by
the Board of Supervisors and system certification by the
Attorney General, to establish an electronic recording
delivery system for digitized electronic records, as
defined.
This bill would create a pilot project that would allow the
county recorder of 12 specified counties to also accept for
recordation, using the approved electronic recording
delivery system, digital electronic records, as defined.
This bill would establish standards for approval by the
county recorder of an application by a person or entity to
be an authorized submitter of electronic documents for
recordation and specify guidelines for the county recorder
to use when determining whether to enter into an agreement
for electronic recordation of documents with an authorized
submitter. The bill would authorize the county recorder to
terminate access of an authorized submitter or
representative or to suspend use of the electronic
recording delivery system under specified conditions.
This bill would require the Attorney General to adopt
regulations that establish standards for review, approval
and certification of electronic recording systems, provide
regulatory oversight of those systems, approve a list of
computer security auditors as defined, monitor security of
AB 578 (Leno)
Page 5
those systems and evaluate the pilot project relating to
recordation of digital electronic records by 12 counties
and report the results to the Legislature by June 30, 2007.
This bill would authorize a pilot project involving 11
counties, that would allow the recorder to require, as a
condition of recording a deed, quitclaim deed, or deed of
trust, that the party recording the document notify the
party who executed the instrument by postcard mailing, and
require the participating counties to report to the
Legislature by June 30, 2007, regarding discovery of
fraudulent instruments as a result of the notices. It
would also authorize the pilot project counties to collect
a fee not to exceed the cost of the notice or $4, whichever
is less, for this purpose.
This bill would authorize county reimbursement to the
Attorney General for certifying a proposed electronic
recording delivery system and for monitoring the system
once implemented. It would authorize the Attorney General
to charge a fee to cover the costs of processing
fingerprint and background checks and for storing and
maintaining applicant records.
This bill would authorize the county to impose a fee of up
to $1 for each instrument recorded by the county, which may
be limited to those recorded using the electronic recording
delivery system at the county's option. It also would
authorize the county to charge a fee on any vendor seeking
approval of software or other services as part of an
electronic recording delivery system and to charge a fee on
any person seeking approval as an authorized submitter.
This bill would authorize the Attorney General, in the
event of an emergency involving multiple fraudulent
transactions linked to one county's use of an electronic
recording delivery system, to suspend the use of the system
in any county or in multiple counties, for a period of up
to seven calendar days.
This bill would authorize the Attorney General, a district
attorney, or city prosecutor to seek civil penalties of
$50,000 for each violation of this bill or its implementing
regulations, and establish factors for a court to consider
when imposing this penalty.
AB 578 (Leno)
Page 6
The bill contains an urgency clause, for the purpose of
allowing county recorders to implement electronic recording
delivery systems at the earliest possible time in order to
alleviate fiscal constraints.
COMMENT
1. Need for the bill
According to the Attorney General's Report to the
Legislature on Electronic Recordation, "[t]he rapid
advance of telecommunication technologies has made it
possible to file property documents from remote
locations?Using such media as dedicated lines, email, and
the Internet, businesses and local government agencies
should be able to implement considerable efficiencies on
behalf of all those dealing with property records in the
state?However, the use of these new technologies, while
providing opportunities for substantial improvement of
service, also creates the possibility of exposing the
most sensitive of public records - property documents -
to corruption, damage, or destruction. The
implementation of any method of electronic recording
must, therefore, proceed with caution and with serious
attention to maintaining the security of the public's
official records in order that the integrity of our
property records not be dangerously compromised."
This bill results from many months of negotiations among
the stakeholders of an electronic recording system, and
after several bills were abandoned on the way to the
Governor's desk. While some county recorders and real
property brokers have claimed current statutes permit
e-recording of documents, the Attorney General opined in
September, 2002 that the county recorder has no authority
to engage in electronic recordation of documents, except
for the counties of Orange and San Bernardino which were
authorized by statute to implement pilot programs. The
author states that AB 578 will "resolve the ambiguity in
favor of the ability to use e-recording, and set out
guidelines for such programs."
AB 578 (Leno)
Page 7
The bill contains a comprehensive scheme for the
regulation of electronic recordation of digitized
documents (those paper documents that are scanned and
transmitted electronically) that would apply statewide,
and the recordation of digital documents (those created
and transmitted electronically) in a limited number of
counties.
2. High-tech in the county recorder's office: the
electronic recording delivery system
This bill would revolutionize the recordation of real
property documents by county recorders on a statewide
basis. While faxed documents have been accepted in the
courts and in other settings on a regulated basis, real
property documents have been recorded only in their
original paper form (except for those recorded
electronically as part of the Orange County pilot
project). Even Fannie Mae, whose representatives contend
that they are already conducting electronic recordation
of real property documents, can point only to an
insubstantial use of the system in a few states.
This bill has been forged by the various parties
interested in an efficient, convenient and secure system
of recordation of electronically created or transmitted
documents. The Attorney General and the district
attorneys, specifically, have been concerned that the
systems designed for use by the county recorders contain
safeguards prior to implementation, are monitored
continually for any fraudulent use, and is able to be
suspended when suspected fraud surfaces.
a. Electronic Recording Delivery System (ERDS)
requirements
This bill would establish the requirements for an ERDS
to be approved by the Attorney General. Those are:
A contract between the county recorder and an
"authorized submitter" that requires identification
and supervision of authorized staff, mutually agreed
upon standards of operation of the system,
permission by the authorized submitter for security
testing, termination of the contract, and submission
by the authorized submitter to the jurisdiction of
AB 578 (Leno)
Page 8
California courts as to any civil cause of action
related to the ERDS.
The county recorder must demonstrate, through
the evaluation of its proposed system by a computer
security auditor selected from a list compiled by
the Attorney General, that the ERDS is secure and
system certification has occurred. The AG must
provide a list of computer security auditors within
90 days of a request by a county recorder.
The proposed ERDS must comply with the
regulations adopted by the Attorney General pursuant
to this bill.
The ERDS must be subject to an audit at least
once during the first year and periodically
thereafter, as required by regulation and the
computer system certification by a computer security
auditor.
b. Staff security requirements: no conviction of
felony, theft, fraud or crime of moral turpitude
Under this bill, all individuals who would be handling
documents at both ends of a transmission must have
security access authority in order to use the ERDS,
including the authorized submitter, authorized
representative (of the submitter), and the computer
security auditor. Although the proponents state that
even the county recorder's staff assigned to
electronic recording is covered by this requirement,
this is not clear from the language of proposed
Section 27395(a).
SHOULD THIS BE CLARIFIED?
To gain security access authority, these individuals
must submit to fingerprinting and a criminal record
check for felonies or misdemeanors relating to theft,
fraud, or a crime of moral turpitude, including any
record of a previous out-of-state conviction. The
Attorney General would be the agency responsible for
these background checks (and for subsequent arrest
notification), and would deliver written notification
of the results of the records search to the
individual's employer, the authorized submitter, and
to the county recorder.
AB 578 (Leno)
Page 9
Suggested Amendment: The Attorney General has
requested amendments to delete the current language of
the bill pertaining to fingerprinting and background
checks, and replace it with language that the Attorney
General has drafted and is using for other bills that
deal with fingerprinting and background checks. The
new language incorporates the current procedure
followed for such activities.
c. Delivery of electronically recorded documents
Under this bill, once the digitized electronic record
or digital electronic record of a real property
document has been recorded, the county recorder would
transmit the recorded document back to the authorized
submitter or authorized representative or government
agency that requested the recordation.
This bill would then require the recipient of the
recorded document (i.e., the "authorized submitter" or
"authorized representative") to deliver by mail or
electronically a copy of the recorded document to the
person specified on the instructions for mailing upon
completion of recording.
This provision is what would create great cost
efficiencies for the county recorders. Currently,
paper documents are delivered to the county for
recording and after recordation the county recorder
mails the original recorded document to the person
specified on the document. This bill would eliminate
any requirement for the county recorder to mail the
original document back, because the original is in the
custody of the authorized submitter. Thus, the county
recorder would save not only the cost of mailing the
document, but more importantly, personnel costs. On
the other hand, the authorized submitter would
normally have to mail a thick package of documents to
the property owner anyway, and the inclusion of the
recorded document (which could be no more than 3 or 4
pages) would not create a new or insurmountable
burden.
AB 578 (Leno)
Page 10
3. What documents may be recorded using the ERDS
a. Digitized and digital electronic records
This bill would allow county recorders to establish an
electronic recording system to record two types of
electronic documents pertaining to real property:
i) digitized electronic records, which are scanned
images of original paper documents
These documents may be recorded by any county
recorder using an electronic recordation delivery
system, approved by the Board of Supervisors and
certified by the Attorney General.
ii) digital electronic records, which are records
that are created, generated, sent, received, or
stored by electronic means but not created in
original paper form
These documents may be recorded under the same
conditions as digitized electronic records, but only
in the counties of Alameda, El Dorado, Fresno, Los
Angeles, Orange, Placer, Riverside, San Bernardino,
San Mateo, Santa Clara, Tulare, and Ventura.
Further, participation in this pilot project would
be limited to the following "authorized submitters":
a title insurer or underwritten title company, or
an entity, agency, branch or instrumentality of
local, state, or federal government.
The pilot project would be evaluated by the Attorney
General and a report provided to the Legislature by
June 30, 2007. The bill would provide, however,
that any system that is in place and operating as of
that date may continue in operation until December
31, 2010. On January 1, 2011, the pilot project
would sunset.
b. Specific documents may be recorded in either form by
all counties
Under AB 578, three real estate documents may be
AB 578 (Leno)
Page 11
recorded by all counties using an approved electronic
delivery recording system, whether they are digitized
electronic records or digital electronic records:
reconveyances, substitution of trustees, and
assignment of deeds. These are documents related to
refinancing of property, which constitute the bulk of
the recordings that are requested today.
This provision is in the bill at the request of
mortgage lenders and government entities such as
Fannie Mae. Because of the high volume of refinancing
that is occurring under current economic and market
conditions, proponents believe that efficiency and
convenience of recording both digitized and digital
electronic records of these documents would increase
geometrically with passage of this bill.
c. Document origination and submitter must be in the
United States
The bill would restrict the source of the electronic
documents that may be recorded, by specifying that
only those documents that are originated and submitted
from within the United States may be recorded using
the approved system. This provision would add another
measure of security to the scheme proposed by this
bill, by preventing submissions of fraudulent
electronic records from outside the country.
4. Who may use electronic recording
Under AB 578, only "authorized submitters" and their
"authorized representatives" may deliver documents to a
county recorder for electronic recording. An authorized
submitter is any person or entity with whom the county
recorder has signed a contract to accept deliveries of
and record digitized or digital electronic records
affecting real property titles or liens. Thus, a
licensed realtor or title insurance company, among other
businesses, may seek to become authorized submitters.
a. County recorder may contract with any person
qualified to be an authorized submitter
AB 578 enumerates some factors that a county recorder
AB 578 (Leno)
Page 12
must consider in determining whether or not to enter
into an agreement with a person or entity that desires
to be an authorized submitter. Those factors are:
Whether accepting electronically delivered
records from the applicant is in the best interest
of the county and the public;
Whether the applicant has effective security
precautions in place to safeguard potential fraud
and forgery of documents during the recordation
process;
Whether the applicant demonstrates sufficient
financial ability to indemnify losses for which it
is responsible that might be suffered by the county
or members of the public;
Whether the volume and quality of electronic
records to be submitted will be sufficient to
warrant use of the ERDS;
Whether factors of cost, capacity or security
require limitation of providing access to persons or
entities that request participation in the ERDS,
based on past history and business reasons for
recording documents;
Whether the applicant is legally authorized to
conduct business in the state.
SHOULD THE RECORDER ALSO CONSIDER WHETHER THE PARTY
WILL SUBMIT DOCUMENTS GENERATED BY OUTSIDE SOURCES?
This latter eventuality could lead to cases of fraud.
(See Comment 5.)
The fact that a county recorder has entered into a
contract with an applicant (who then becomes an
authorized submitter) for the use of an ERDS does not
mean that a proposed system is fully operational. The
proposed system must be thoroughly evaluated by a
computer security auditor, reported to the Attorney
General, the Board of Supervisors of the county, and
the district attorney, and eventually certified by the
Attorney General.
b. Terminating or suspending a contract or access to
the ERDS
AB 578 (Leno)
Page 13
Under this bill, a county recorder has broad powers to
terminate access to an ERDS, or any part of the system
and may terminate access of any authorized submitter
or authorized representative, at any time he or she
deems it necessary:
To protect the public interest;
To protect the integrity of public records;
To protect homeowners or real property owners
from financial harm; or
In the event an authorized submitter or its
agents or employees violates any rules or
regulations established by the county recorder for
maintenance of the system or any term of the
contractual agreement between the county and the
authorized submitter.
In addition, if the county recorder, a computer
security auditor, a district attorney, or the Attorney
General reasonably believes that an ERDS is vulnerable
to fraud or intrusion, each of them shall be notified
and the county recorder would be required to take the
necessary steps to guard against compromise of the
ERDS, including, if appropriate, suspension of the
system.
By allowing suspension of a system in use, the bill
addresses situations where an approved system, because
of a defect, causes not fraudulent activity but simple
failures to record, or faulty recordation. Such
mistakes would be attributed to defects in capacity or
reliability and not to defects in security. While the
Attorney General would be limited, under a different
provision, to a seven-day suspension in the event of
multiple transactions involving fraud, this provision
does not specify the length of time that use of a
system would be suspended.
Suggested amendment : To clarify this point, the
following is suggested:
On page 11, line 12, after "system" insert:
until the system is recertified by the computer
security auditor to meet all applicable standards of
security and reliability.
AB 578 (Leno)
Page 14
This amendment should also be made to the provision
authorizing the Attorney General to suspend the system
for up to seven days, in the event seven days is not
sufficient to recertify the system as operational.
(See Comment 5c.)
5. Fraud issue for consideration
The most difficult problem that proponents of electronic
recordation of real estate documents had to surmount in
drafting this bill was how to ensure that fraudulent
documents are not recorded using the electronic system.
County recorders contend that, under existing law
governing paper documents, a recorder has only the
ministerial duty to record a document that appears
correct on its face, upon payment of proper fees. In
essence, the burden of authenticating the documents falls
on the "authorized submitter" who wants to use the ERDS
for convenience and speed. An "authorized submitter"
that contracts with a county recorder for use of the ERDS
thus is necessarily licensed in the State of California
(see Comment 4a), and any fraudulent recordation enabled
by an authorized submitter or its authorized
representatives would jeopardize the submitter's license
through action by other regulatory agencies.
However, the victim of real estate fraud, specifically
the recordation of a fraudulent digitized or digital
electronic record using the system authorized by this
bill, would have little or no recourse to recover any
losses resulting from e-recording of a fraudulent
document. All who participated in the construction of
this bill agree that the victims' compensation fund now
lodged in the Department of Real Estate (which deals with
actions of real estate brokers) does not and would not
address this issue. Thus, the creation of a specific
real estate fraud victims' fund, whether located in the
State Victims Compensation Fund or wherever appropriate,
should be an important component of this bill.
SHOULD A REAL ESTATE RECORDING FRAUD VICTIMS'
COMPENSATION FUND BE CREATED, TO RECEIVE THE CIVIL
PENALTIES AND DEDICATED FEES CREATED BY THIS BILL?
6. The Attorney General's role
AB 578 (Leno)
Page 15
In previous incarnations of this electronic recording
bill, the Attorney General was to authorize software to
be used for the system, develop a standardized contract
for use by county recorders, and in general be the
regulator of the county recorders. This approach was
resisted by the county recorders, who are themselves
elected officials.
This bill still contains some of the earlier regulatory
aspects attributed to the Attorney General, but leaves
the contents and parameters of the contract between the
county recorder and authorized submitters to the county
recorder's discretion.
a. Adopt regulations establishing standards
establishing standards and regulatory oversight of
systems
In consultation with the California County Recorders
Association and the California District Attorneys
Association, the Attorney General would adopt
regulations establishing standards for:
i) the review and approval of authorized submitters
and authorized representatives; and
ii) the review and approval by a county recorder of
systems and processes to conduct electronic
recording.
These regulations would require that an ERDS meet
minimum standards for security, capacity, uniformity
and reliability, including standards for and
frequency of security testing. These are the
factors that the Task Force on Electronic Recording
suggested would be critical elements of a system
that would meet the twin goals of efficiency and
integrity.
In addition, the regulations may provide for initial
certification of vendors offering software and other
services to counties for electronic recording
delivery systems, and for guidelines related to
source codes.
AB 578 (Leno)
Page 16
The regulations adopted would provide for the review
and certification of a system to be used by a county.
Under the bill, a computer security auditor must
assess a proposed system for security, reliability,
and capacity and submit a report on the system's
vulnerability as well as make recommendations to the
Attorney General, the county board of supervisors, and
the district attorney. The Attorney General would
then review the system as to all other requirements
established by regulation and, if those requirements
are met, issue a certification.
Additionally, the regulations would provide for the
regulatory oversight of the systems, after they have
been installed and implemented by the county
recorders.
b. Monitoring and enforcement: authority to seek
injunctive relief and $50,000 civil penalty
As the regulatory authority for counties' electronic
recording delivery systems (ERDS), the Attorney
General would monitor the security of all systems
statewide, in cooperation with the county recorders.
The bill does not specify the frequency of security
testing that must be performed, but leaves that item
for negotiation between the Attorney General and the
county recorder as part of the certification process.
Should there be some emergent problem involving
multiple fraudulent transactions, the Attorney General
(AG) would be authorized to suspend the use of the
ERDS by one or more affected counties for up to seven
days.
Suggested Amendment: see Comment 4b.
Additionally, the AG or a district attorney would be
authorized to seek declaratory or injunctive relief,
restitution, rescission, or other equitable relief
pertaining to an alleged violation of the provisions
of this bill or the regulations adopted pursuant
thereto.
Lastly, the AG or district attorney or city attorney
AB 578 (Leno)
Page 17
would be authorized to seek a civil penalty of up to
$50,000 for a violation of the provisions of this bill
or its implementing regulations. The bill provides
guidance to the court in making a determination of the
appropriate amount of the civil penalty, such as the
nature and seriousness of the misconduct, number of
violations, persistence of misconduct, willfulness of
the misconduct, and the defendant's ability to pay.
The California Land Title Association, in opposing the
bill, is concerned about this civil penalty provision,
contending that any civil action by the AG, DA or city
prosecutor would soon be followed by a Business and
Professions Code Section 17200 action. This is a
specious argument, retorts the supporters of the bill,
as it has been clear from the beginning that Section
17200 actions have no place in this bill.
Suggested amendment: In order to remove any
insinuations that this civil penalty provision would
encourage "bounty hunting" by the AG, DA or city
prosecutor, it is suggested that any civil penalty
collected pursuant to this provision be deposited into
the State Victims Compensation Fund, to be targeted
specifically to compensate victims of real estate
fraud, or to a specified "real property fraud victims
fund" if the SVCF is not available for non-violent
fraud victims. Supporters and the author have
indicated a willingness to take this amendment.
SHOULD ANY CIVIL PENALTY COLLECTED BE DEPOSITED INTO
THE STATE VICTIM COMPENSATION FUND OR OTHER
APPROPRIATE FUND, SPECIFICALLY FOR REAL PROPERTY FRAUD
VICTIMS?
f. Evaluation of pilot projects
AB 578 would establish pilot projects in 12 counties
to conduct electronic recording of both digitized
electronic records and digital electronic records,
subject to the terms of this bill and the implementing
regulations adopted by the Attorney General. Any
pilot project existing on June 30, 2007 would be
allowed to operate until December 31, 2010.
AB 578 (Leno)
Page 18
The Attorney General would be required to evaluate
electronic recording delivery systems for all
counties, including the pilot project counties, and
report to the Legislature on or before June 30, 2007,
so that the Legislature may consider whether to
expand, extend, limit or terminate the projects and
whether to revise the enabling statutes.
7. Postcard notification pilot project
Los Angeles County has been using postcard notification
to record owners of property when a document affecting
title to the property is recorded. According to
supporters of this bill, the practice has received
widespread approval, and has resulted in the discovery of
numerous fraudulent real property recordings in the
county.
This bill would create a pilot project in 11 other
counties to allow those counties to send postcard
notification to record owners similar to that already
used in Los Angeles County. The project would be funded
by the addition of a fee for the cost of the notice, but
not exceeding $4, to the recording fee. The involved
counties would report to the Legislature on or before
June 30, 2007 regarding the discovery of fraudulent
deeds, quitclaim deeds and deeds of trust.
These pilot project counties are the same as the other
pilot project, without Los Angeles County. The
California District Attorneys Association, supporters of
this bill, believes that postcard notification is a very
important tool for law enforcement to discover fraud in
the real property business. Further, they state that the
sooner a homeowner is aware their property may be the
subject of fraudulent activity, the sooner they are able
to seek aid through civil remedies and report the
possible crime to law enforcement. "Knowledge of the
recordation of fraudulent documents is essential to a
homeowner's ability to protect their ownership and
financial interest in their homes," the CDAA contends.
It has been suggested that counties charge a full fee of
$4 for this postcard notification (rather than a lesser
fee totaling the county's cost for the notice), with any
AB 578 (Leno)
Page 19
amount over the actual cost of the notice dedicated to
the real estate fraud victims fund described in Comment
5e.
SHOULD A $4 FEE BE CHARGED FOR POSTCARD NOTIFICATION,
WITH THE EXCESS OVER COSTS DEDICATED TO A REAL PROPERTY
FRAUD VICTIMS FUND?
In the case of Los Angeles County, it already charges in
excess of $4 (the county charges up to $7), because the
fee covers other programs such as a consumer information
unit in the real estate division, etc. For Los Angeles
County then, a specified amount should probably be added
for dedication to this real property fraud victims fund.
8. Who will pay for this new recording system?
a. Fees that may be imposed by county
The bill would allow a county to impose a fee of $1 on
every instrument to be recorded, but at the county's
option, impose those fees only on documents that are
to be recorded using the ERDS.
Additionally, the county may impose a fee on a vendor
seeking approval of software and other services
related to the ERDS, and a fee on a person seeking
approval as an authorized submitter.
The total fees collected by a county recorder under
this fee provision would be limited to the "reasonable
total costs of the electronic recording delivery
system, the review and approval of vendors and
authorized submitters, security testing as required?
and reimbursement to the Attorney General for
regulation and oversight" of the ERDS.
The fee for the postcard notification pilot project
would be separate from the fees collected for
implementation of the ERDS in a county.
b. Fees that may be collected by the Attorney General
Besides reimbursement from the counties for the cost
of adopting regulations and performing various duties
AB 578 (Leno)
Page 20
under this bill, the Attorney General would be
authorized to charge a fee "sufficient to cover the
cost of processing the fingerprint submission and to
cover the cost of the Department of Justice
maintaining and storing all applicant records."
The goal behind this provision is to make the Attorney
General's role in the implementation of electric
recording in the state cost-neutral.
9. No disclaimer or waiver of rights allowed in title
insurance policy or escrow instructions
This bill would prohibit any waiver or disclaimer of any
right to recover damages related to an electronic
recording delivery system in any title insurance policy,
escrow instruction, or other document pertaining to the
real estate transaction.
10. Amendment to remove urgency clause
This bill contains an urgency clause, based upon the need
of county recorders to implement electronic recording at
the earliest possible time and achieve cost efficiency in
these times of fiscal constraints.
However, the Attorney General would necessarily require
at least six months to draft and adopt implementing
regulations as required by the bill. Thus, it is
suggested that the urgency clause be deleted and replaced
by a provision that, except for the provision relating to
the adoption of regulations by the Attorney General, all
other provisions would become effective July 1, 2004.
SHOULD THE URGENCY CLAUSE BE REPLACED WITH THIS LANGUAGE?
11. Suggested technical amendments:
On page 4, line 1, after "person" insert:entity
On page 6, 24, after "General" insert:and the county
recorder
On page 6, lines 36 and 38, and on page 7, line 3, strike
out "person or entity" and insert:applicant
On page 7, line 18, strike out "authorized submitter" and
insert:
AB 578 (Leno)
Page 21
applicant
On page 8, line 6, strike out "substitutions" and insert:
substitution
On page 8, line 6, strike out "deeds" and insert:deed
On page 9, line 7, strike out "documents" and insert:
provides written evidence
On page 9, lines 10 and 11, strike out "submitter or
authorized staff" and insert:authorized
submitter, authorized representative, or
authorized county staff
On page 10, line 2, strike out "security" and insert:
computer security
On page 11, line 24, after "name" insert:, address, and
telephone number
On page 11, line 26, after "county" insert:and state
On page 18, line 31, after the period, insert: For
purposes of Section 27279, "digitized
electronic records" and "digital electronic
records" as defined in this article shall be
construed as one and the same.
Support: County Recorders' Association of California;
California Business Properties Association;
California District Attorneys Association (CDAA);
County of Riverside Assessor-County Clerk-Recorder;
County of Sacramento; Los Angeles County District
Attorney's Office; California Bankers Association;
Contra Costa County Clerk-Recorder; Office of the
Attorney General; County of San Bernardino
Auditor/Controller-Recorder; County of San Diego
Assessor/Recorder/County Clerk; El Dorado County
Recorder-Clerk; Alameda District Attorney's Office;
Orange County District Attorney's Office; County of
Placer; Charter One Mortgage; Citimortgage; First
American Title Insurance Company - Utah Division;
Peelle Management Corporation; American Release
Corporation: Alliance Mortgage Company
Opposition: California Land Title Association
HISTORY
Source: California Association of Realtors; California
Mortgage Bankers Association; Fannie Mae
AB 578 (Leno)
Page 22
(co-sponsors)
Related Pending Legislation: None Known
Prior Legislation: See Background
Prior Vote: Asm. L. Gov. (Ayes 9, Noes 0)
Asm. Appr. (Ayes 25, Noes 0)
Asm. Flr. (Ayes 78, Noes 0)
**************