BILL ANALYSIS
AB 985
Page 1
Date of Hearing: April 21, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 985 (De La Torre) - As Introduced: February 27, 2009
SUBJECT : Real Property: Discriminatory Restriction
KEY ISSUE : Should a title insurance company involved in the
transfer of deeds or other documents relating to title in
property be required to strike unlawful and Exclusionary
restrictive covenants before transferring the documents to the
buyer?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This bill addresses one of the many ugly legacies of our
nation's long history of racism. Until at least the late 1940s,
racially exclusionary covenants attached to real property were
used to keep persons of color out of certain neighborhoods. Not
only did such devices perpetuate de facto segregation, they
often denied persons of color the many benefits of home
ownership, not the least of which is the ability to accumulate
wealth and property and pass it along to children. In the 1940s
the United States Supreme Court made such covenants
unenforceable. Subsequent state legislation prohibited such
covenants altogether and later extended the prohibition to
include other forms of discrimination. However many of these
restrictive covenants still exist in a property owner's chain of
title and sometimes show up in the deeds and other documents
that are sent to buyers prior to the transfer of property. Past
legislation has attempted to address this issue by, among other
things, requiring any person or entity that transfers deeds or
covenants to buyers to include a cover sheet declaring that such
covenants are void and unenforceable and informing the buyer how
they might go about removing the restrictive covenant if one
exists. This bill would require a title insurance company that
transfers any deeds or other documents to a buyer to strike the
restrictive covenant before sending the documents, and it would
specify that the property cannot be transferred until the
covenant is stricken. The bill is similar to last year's AB
2204, which passed out of this Committee by a vote of 9-1. A
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broad representation of civil rights groups support the measure.
It is opposed by the title and escrow associations on the
contention they are not the proper entities to undertake various
responsibilities under the bill.
SUMMARY : Requires a title insurance company involved in the
transfer of a deed or other written instrument relating to title
in real property to strike any provision in the deed or other
documents that impose an unlawful and unenforceable covenant, as
specified. Specifically, this bill :
1)Requires a title insurance company involved in any transfer of
property that provides a copy of a deed or other written
document relating to title to real property, to strike from
the deed or other written documents any provision that
purports to forbid, restrict, or condition the right of any
person to sell, buy, lease, rent, use or occupy the property
on account of certain characteristics of that person,
including, but not limited to, race, color, religion, sex,
marital status, national origin, ancestry, familial status,
disability, source of income, or sexual orientation.
Specifies that the provisions must be stricken from the deed
or other written instruments before the property is
transferred.
2)Specifies that with respect to provisions relating to familial
status, nothing in this bill shall be construed to apply to
housing for older persons or senior citizens, as defined.
EXISTING LAW :
1)Generally prohibits any discrimination in housing
accommodations, as specified, and declares as void and
unenforceable any provision in any deed or other written
document relating to title to property that purports to
condition the right to sell, lease, rent, use, or occupy the
property to any person based upon that person possessing some
specified characteristic, including race, color, religion,
sex, marital status, national origin, ancestry, familial
status, disability, source of income, or sexual orientation.
(Government Code Sections 12955 through 12956.1; Shelley v
Kramer (1948) 334 U.S. 1; Hurd v Hodge (1948) 334 U.S. 24.)
2)Provides that a person or entity, as specified, that transfers
a deed or other written documents relating to title to
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property to include a cover sheet providing notice to the
buyer that certain prohibited covenants, conditions, or
restrictions are void and unenforceable. Provides further
that the person or entity transferring the deed or documents
must notify the recipient how he or she may go about removing
the void and unenforceable covenant, condition, or
restriction. (Government Code Section 12956.1.)
3)Permits a person with an ownership interest in a property to
file a "Restrictive Covenant Modification" (RCM) form in order
to remove any void or unenforceable covenant, condition, or
restriction, as specified, and permits the County Recorder to
waive any fees for filing the RCM. (Government Code Section
12956.2.)
COMMENTS : In the 1948 companion decisions of Shelley v Kramer
334 U.S. 1 and Hurd v Hodge 334 U.S. 24, the United States
Supreme Court held that state court enforcement of racially
restrictive property covenants violated the due process and
equal protection clauses of the 14th Amendment of the U.S.
Constitution. While the Supreme Court ruling made such
covenants unenforceable, subsequent state legislation makes
racial discrimination in housing accommodations in any manner,
including the use of exclusionary covenants, unlawful. Although
originally targeting racial discrimination, these laws have
subsequently been amended to include discrimination on other
grounds, such as gender, religion, or sexual orientation, among
others. (Government Code Section 12955 et seq.)
However, despite their unlawfulness and unenforceability, these
offensive exclusionary restrictions - especially those based
upon race - can still appear in existing CC&Rs that are
transferred to the buyer, unless the restrictions have been
previously stricken, modified, or recorded over. This bill is
not the first to address this issue. For example, SB 1148
(Burton, Chapter 589, Stats. of 1999) allowed a homeowner to
submit a questionable provision to the Fair Employment and
Housing Commission for review and, if FEHC determined the
provision was invalid, the owner could ask the county recorder
to strike the objectionable provision. SB 1148 also required a
title insurer or escrow agency, or any other person or entity
sending documents to a buyer, to attach a cover page and stamp
notifying the buyer that the document might contain unlawful
restrictions and that those provisions are not enforceable.
More recently, AB 394 (Niello, Chapter 297, Stats. of 2005)
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permitted any owner who believed that there was an unlawful
covenant attached to his or her property to file a "Restrictive
Covenant Modification" (RCM) form that effectively recorded over
the impermissible covenant and operated to remove the offensive
covenant from any subsequent documents that would be sent to
future buyers. AB 394 also modified the required cover sheet to
notify that buyer of his or her right to file an RCM with the
county recorder. (This was seen as less cumbersome than the
FEHC process.) The RCM permitted by AB 394 effectively "records
over" the existing covenant, so as not to remove all traces of
this practice from the historical record. This way the
offensive language would be removed from any subsequent
documents sent to future buyers, but it would not remove
important historical evidence showing precisely when, where, and
how often this practice occurred. The goal of the previous
legislation, like this bill, is not to remove all traces of the
covenants from the historical record and pretend that this
practice never occurred; rather, the purpose of prior
legislation was to empower persons to take affirmative steps to
remove the unlawful and offensive language from the chain of
title; the purpose of the present bill is apparently to prevent
buyers from having to see the offensive language in the first
place.
Existing law, in short, notifies a buyer that the documents may
contain such provisions and of the buyer's right to file an RCM
with the county recorder. Once an RCM has been filed, the
county recorder must have county counsel review the covenant to
ensure that the covenant is indeed invalid before striking.
While the invalidity of some restrictions may be obvious, it is
necessary to have some form of review in order to ensure that an
owner does not attempt to unilaterally remove a valid covenant
or restriction.
Which Is The Most Logical Entity That Should Be Tasked With
Striking Covenants ? This bill seeks to hasten the removal of
the offensive covenants by requiring the title insurer to strike
the covenant prior to sending the documents to the buyer and
before title to the property may be transferred. This measure
is identical to last year's AB 2204 by the same author, which
passed out of this Committee. At that time, the Committee
recommended that the author evaluate whether the title insurers
were indeed the most appropriate persons to remove the
restrictive covenants from the documents provided to the
prospective buyer. At that time, the author chose to amend the
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bill to have the county recorders, rather than title insurers,
remove the covenants. However, placing the duty on county
recorders had the undesirable affect of raising new fiscal
challenges in the efforts and that bill was ultimately held in
the Senate Appropriations Committee.
ARGUMENTS IN SUPPORT : According to the author, this bill
"addresses one of the most disgraceful discriminatory practices
in California's history." Although racially restrictive
covenants may no longer be enforceable, the author argues, the
deeply offensive language is still often imbedded in documents
sent to the prospective buyer. This measure, the author
believes, will put into a place a system that will
systematically eliminate these offensive provisions from the
documents before they are received by buyers.
The author contends that the existing law, which permits
individual buyers and owners to record over the covenants, is
insufficient because the process "is underutilized and public
awareness on the issue is low. The passiveness of current law
allows restrictive covenants to remain in the title documents.
Ignoring the problem does not mean that the problem does not
exist. Therefore, this legislation will take a major step
toward resolving the issue."
The Mexican American Legal Defense and Educational Fund
(MALDEF), co-sponsor of this bill, argues that this bill will
"work to remedy this shameful and hurtful issue from
California's past" and prevent buyers from having to confront
what may be to them deeply offensive language. The California
NAACP, also a co-sponsor, adds that this measure
will send a message, to all Californians and the
world, that the architects of discriminatory and
offensive title covenants could not maintain their
shameful and hurtful practices in a new America. By
requiring that offensive language be removed upon
transfer, the bill will set into motion a much needed
system-wide approach to make it clear that there is no
room for discrimination when our citizens have worked
hard to realize the American Dream.
For reasons similar to those articulated by MALDEF and the
NAACP, this measure is supported by several other civil
rights groups, including Equality California, several local
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and regional chapters of the Japanese American Citizens
League, the League of United Latin American Citizens, and
Asian Americans for Civil Rights and Equality.
ARGUMENTS IN OPPOSITION : This bill is opposed by the California
Escrow Association (CEA) and the California Land Title
Association (CLTA).
Although facially the bill only applies to title insurers, CEA
points out that as a practical matter this requirement will be
performed by escrow officers, whom the title insurers employ and
who are primarily responsible for sending deeds and CC&Rs to
buyers. CEA opposes this bill for two primary reasons:
First, CEA argues that this bill would require title insurers
and escrow officers to read and make legal determinations
about covenants in deeds and similar documents even though
title insurers and escrow officers may not be lawyers. In
many cases, CEA contends, the illegality may be obvious; but
in others it may be more ambiguous. CEA believes that it
would be inappropriate for title insurers and escrow offices
to unilaterally strike provisions from documents without a
determination by county counsel or similar entities that the
restrictions are unlawful.
Second, this bill would require title insurers and escrow
officers to search back through the chain of title to
determine the presence of unlawful covenants. This extensive
search requirement, CEA contends, would convert modern title
insurers into something they are not: title searchers (what
used to be called "abstractors") instead of title insurers.
Title insurers, that is, are not paid to search out and find
all possible defects in title, but to insure against (i.e.
absorb the risk) should defects be subsequently discovered.
While supporting the intent of this bill, CEA encourages the
author to explore other methods, such as "broadening the class
of persons under current law who can request the re-recording of
documents with the offending provisions, and allowing for
modifications to be recorded on entire subdivisions, rather than
on a parcel-by-parcel basis."
CLTA, like CEA, applauds the salutary intent of this bill and
the goal of better targeting offensive restrictions. However,
CLTA opposes the bill, unless amended, because the particular
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approach taken by this bill "unfairly targets title companies,
is in conflict with existing law, and will not achieve the
objective [that the author] seeks." Specifically, CLTA alleges
the following problems:
Under existing Government Code Section 12956.2(a) only "a
person who holds an ownership interest of record" can submit a
Restrictive Covenant Modification, and title companies do not
have an ownership interest in the property. CLTA claims that
in enacting Government Code Section 12956.2, the Legislature
made it clear that the right to modify was limited to owners
to ensure that only interested parties can record documents
that affect the title to their property.
This measure would increase costs to consumers and delay the
transfer of real property. CLTA claims that this bill will
require title insurers to obtain more documents from county
recorders, manually review those documents, obtain a legal
determination on whether a restriction is illegal, and then
redact the unlawful restriction. CLTA estimates that the need
to perform all of these tasks could add "thousands" of dollars
to the cost of each property transaction and delay the
property transfer by an additional 30 to 45 days.
This bill unfairly targets title companies who are merely
"messengers" of older recorded documents that may contain
offensive restrictions. The title company obtains copies of
existing records from the county recorder and passes them
along to the buyer. CLTA argues that if the author wishes to
target the restrictive covenants at their source, then the
bill should require that the striking be done by the county
recorders who are in possession of the records. CLTA points
out that title insurers and other escrow handlers - who do not
normally read through CC&Rs since they do not insure against
them - are already required to attach a cover sheet notifying
the buyer that the documents may contain unlawful restrictions
and informing the buyer of his or her right to remove the
covenant under existing law.
Finally, CLTA argues that there are other approaches that may
more effectively target the remaining restrictive covenants
without imposing the same costs and delays. Specifically, CLTA
suggests a pilot project by which county recorders would take
a pro-active approach to removing offensive language from the
documents that reach the buyer. (At least two county
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recorders offices have indicated a willingness to participate
in such a project.) In particular, CLTA recommends an approach
similar to that taken in AB 1168 (Chapter 627, Stats. of
2007), which created a system for redacting social security
numbers by creating two sets of records: a "public" record
that is released, and an "official" record that is maintained
by the county recorder. As applied to this issue, this
approach would begin a systematic process that would remove
the offensive language from any copy that may ultimately find
its way into the hands of a buyer, while maintaining the
official historical record.
REGISTERED SUPPORT / OPPOSITION :
Support
California Conference of the NAACP (co-sponsor)
Mexican American Legal Defense and Educational Fund (MALDEF)
(co-sponsor)
Asian Americans for Civil Rights and Equality
Equality California
Japanese American Citizens League (JACL)
League of United Latin American Citizens
San Francisco Japanese American Citizens League
Sanger Japanese American Citizens League
Watsonville-Santa Cruz Japanese American Citizens League
Opposition
California Escrow Association
California Land Title Association
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334