BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 284|
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CONSENT
Bill No: SB 284
Author: Harman (R)
Amended: 4/5/11
Vote: 21
SENATE JUDICIARY COMMITTEE : 4-0, 3/29/11
AYES: Evans, Harman, Blakeslee, Leno
NO VOTE RECORDED: Corbett
SUBJECT : Real property: marketable title
SOURCE : California Land Title Association
DIGEST : This bill provides a January 1, 2013 sunset date
on existing law relative to an option to purchase real
property, as specified, and after
January 1, 2013, this bill provides that an option to
purchase real property expires of record six months after
the date the instrument that creates or gives constructive
notice of the option is recorded.
ANALYSIS : Existing law provides that if a recorded
instrument creates or gives constructive notice of an
option to purchase real property, the option expires of
record if no conveyance, contract, or other instrument that
gives notice of exercise or extends the option is recorded
within the following timeframe:
Six months after the option expires according to its own
terms; or
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If the option provides no expiration date, six months
after the date the instrument that creates or gives
constructive notice of the option is recorded.
This bill provides that the above provisions sunset on
January 1, 2013.
After January 1, 2013, this bill revises those timeframes
to, instead, expire those options of record:
six months after an expiration date that is ascertainable
from the recorded instrument; or
six months after the recordation of the instrument that
creates or gives notice of the option if (1) the
expiration date of the option is not ascertainable from
the recorded instrument, or (2) the recorded instrument
indicates that the option provides no expiration date.
This bill also makes a technical/typographical change to a
related section.
Background
Recording statutes play an important role in resolving
conflicts as to who may own a piece of property.
California, a "race-notice" jurisdiction, requires
conveyances of real property to be recorded in order to be
valid against other purchasers of the same property from
the owner, provided certain conditions are met. A
subsequent purchaser of the same property for value "wins"
if they had no knowledge of the prior transfer, and they
record before the prior purchaser. As a result of that
principle, prospective purchasers must search records to
see if there are any adverse records that may create a
cloud on title, and, upon purchase, must record as soon as
possible to preserve clear title. (Essentially, a cloud on
title is a property interest that prevents a party from
receiving a clear title to the property.)
To address issues relating to obsolete recorded interests,
the California Law Revision Commission (CLRC) recommended
enacting several provisions to address some of the most
common title-clouding interests in California. That
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recommendation resulted in the enactment of the Marketable
Record Title statute in 1982, which included a provision
that recorded notices of options to purchase real property
expire, by operation of law. Those options give the
potential purchaser the ability to purchase the property
during the stated option term, subject to the conditions of
the contract. Under existing law, those notices expire of
record either within (1) six months after the option
expires according to its own terms; or (2) if there is no
expiration date, six months after the notice of option is
recorded. (Civil Code Section 884.010.) It should be
noted that the statute expires the "record notice" of the
option, not the actual option itself; that record notice is
important due to California being a "race-notice"
jurisdiction.
In 2009, the CLRC identified a gap in coverage of the above
statute that could cause an obsolete option to cloud title
in cases where "off-record" information is used to
determine the option's expiration. This bill, sponsored by
the California Land Title Association, implements the
CLRC's recommendation to clarify that an option whose
expiration date is not ascertainable from the recorded
instrument expires of record six months after recording.
Need for a deferred operative date
CLRC has recommended a one-year operative date "�i]n order
to avoid any unfair surprise to those who have recorded
notice of an option to purchase real property under
existing law ?" That delayed operation is necessary so as
to "provide sufficient time for those who have recorded
notices to adjust to the change in the law."
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 4/5/11)
California Land Title Association (source)
ARGUMENTS IN SUPPORT : According to the author:
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"In most cases, the status of record notice of an option
can be readily determined from the information provided
in the notice itself, without any need to consult
off-record information. However, there are circumstances
in which the status of record notice cannot be determined
from the title records alone.
"That is because the status of record notice of an option
depends on the expiration date of the option (if any).
That information might not be included in the record, in
which case off-record information would be required to
determine the status of the record notice.
"That would make it difficult or impossible for a title
researcher to determine whether the record notice is
effective, creating a cloud on title that may persist
long after the underlying option has become obsolete.
Judicial proceedings could be required to determine the
status of title."
The author notes that this bill corrects this issue, after
January 1, 2013, by allowing the statute at issue to
"operate entirely on the basis of information that is
ascertainable from the recorded document."
RJG:mw 4/6/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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