BILL ANALYSIS �
SB 284
Page 1
Date of Hearing: June 14, 2011
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 284 (Harman) - As Amended: April 5, 2011
PROPOSED CONSENT
SENATE VOTE : 36-0
SUBJECT : REAL PROPERTY: MARKETABLE TITLE
KEY ISSUE : TO PREVENT RECORD NOTICE OF AN OPTION FROM
UNNECESSARILY CLOUDING TITLE TO PROPERTY AFTER THE OPTION ITSELF
HAS EXPIRED, SHOULD STATUS OF RECORD NOTICE OF AN OPTION BE
DETERMINABLE SOLELY BY REFERENCE TO TITLE RECORDS?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This non-controversial bill seeks to enact a recommendation by
the California Law Revision Commission to close an apparent gap
in the state's Marketable Record Title statute that may allow
record notice of an option to purchase property to unnecessarily
create a cloud on title after the option itself has become
obsolete, thus impairing the marketability of the property.
Although the status of record notice of an option in most cases
can be readily determined from the information provided in the
notice itself, a cloud on title may arise in circumstances where
the status of record notice cannot be determined from the title
records alone because the expiration date of the option is not
included in the record. This bill would clarify that record
notice of an option would expire six months after the expiration
of the option, if that date is ascertainable from the recorded
instrument, or, alternatively, would expire six months after the
recordation date of the instrument if the expiration date of the
option cannot be ascertained from the instrument. The bill
seeks to amend the Marketable Record Title statute so that it
would operate entirely on the basis of information that is
ascertainable from the recorded document. The provisions of
this bill do not become operative until January 1, 2013. This
bill was unanimously approved in the Senate and has no known
opposition.
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SUMMARY : Clarifies that an option to purchase real property
whose expiration date is not ascertainable from the recorded
instrument shall expire of record six months after recording.
Specifically, this bill :
1)Provides that, as of January 1, 2013, 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 times:
a) If the expiration date of the option is ascertainable
from the recorded instrument, six months after that
expiration date.
b) If the expiration date of the option is not
ascertainable from the recorded instrument or the recorded
instrument indicates that the option provides no expiration
date, six months after the date the instrument that creates
or gives constructive notice of the option is recorded.
2)Corrects a typographical error in a related section making
Legislative declarations.
EXISTING LAW :
1)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 times:
a) Six months after the option expires according to its
terms; or
b) 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. (Civil Code
Section 884.010. All further references are to this code
unless otherwise noted.)
2)Provides that upon the expiration of record of an option to
purchase real property, the recorded instrument that creates
or gives constructive notice of the option ceases to be notice
to any person or to put any person on inquiry with respect to
the exercise or existence of the option or of any contract,
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conveyance, or other writing that may have been executed
pursuant to the option. (Section 884.020.)
3)Declares as a matter of public policy that real property title
transactions should be possible with economy and expediency,
and the status and security of recorded real property titles
should be determinable to the extent practicable from an
examination of recent records only. (Section 880.020(a)(4).)
COMMENTS : This non-controversial bill seeks to enact a
recommendation by the California Law Revision Commission to
close an apparent gap in the state's Marketable Record Title
statute that may allow record notice of an option to purchase
property to unnecessarily create a cloud on title after the
option itself has become obsolete, thus impairing the
marketability of the property. Although the status of record
notice of an option in most cases can be readily determined from
the information provided in the notice itself, a cloud on title
may arise in circumstances where the status of record notice
cannot be determined from the title records alone because the
expiration date of the option is not included in the record.
This bill would clarify that record notice of an option would
expire six months after the expiration of the option, if that
date is ascertainable from the recorded instrument, or,
alternatively, would expire six months after the recordation
date of the instrument if the expiration date of the option
cannot be ascertained from the instrument.
Stated need for the bill. This bill is sponsored by the
California Land Title Association and would enact a
recommendation by the California Law Revision Commission (CLRC),
which has studied the problem in detail. According to the
author and CLRC:
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.
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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.
To address this potential problem facing title researchers, the
bill seeks to amend the Marketable Record Title statute so that
it would operate entirely on the basis of information that is
ascertainable from the recorded document.
Background on options to purchase real property and the
Marketable Record Title Statute. An option to purchase real
property essentially gives the option holder the right to
purchase the property subject to any deadlines or conditions
contained within the option. Upon the recordation of that
option, any future owner would have to purchase the property
subject to that option, unless the record notice of that option
expires, thereby lifting the cloud from title. Absent the
expiration of the option, title may be cleared by obtaining a
quitclaim deed from the option holder to convey any interest he
or she may have, or by the purchaser bringing a quiet title
action in court.
The Marketable Record Title statute, enacted in 1982 and also
based upon a CLRC recommendation, facilitates real property
title transactions in two general ways. In addition to
providing for the expiration of obsolete interests of record,
the statute enables a person to rely on title records in
determining the status of title. The CLRC's original 1982
recommendation paper noted that expiring record notice of those
options "�would] enhance the marketability of property . . . by
removing the cloud on title simply by the passage of time
without the need to resort to judicial proceedings." (See
Marketable Title of Real Property, 16 Cal. Law Revision
Commission Reports 401 (1982).) The statute would seem to
relieve in part the need for unnecessary lawsuits brought by
purchasers to quiet title when the only issue is uncertainty
about the expiration of an option to purchase.
Civil Code Section 884.010 is the provision of the Marketable
Record Title statute that governs record notice of an option to
purchase real property. It provides that such notice expires,
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by operation of law, six months after the option itself expires
pursuant to its terms, or if the option has no fixed expiration
date, six months after notice of the option is recorded. Once
record notice of an obsolete option to purchase real property
has expired under Section 884.010, it no longer presents a cloud
on title.
This bill ensures that the status of record notice of an option
can be determined from the public record. This bill addresses
the situation that arises when a person holding an option to
purchase property records an instrument giving notice of the
option rather than a copy of the option instrument itself, and
the recorded instrument is silent on whether the option has an
expiration date. Failure to include enough relevant information
in the notice to determine expiration of the option is probably
unintentional on the part of the option holder, but it is
sufficient to create a cloud on title for researchers who must
then turn to off-record information to resolve the issue. To
prevent such unnecessary cloud on title, this bill would provide
that where the expiration date of the option is not
ascertainable from the recorded instrument, the option expires
of record six months after recordation. By expiring the record
notice of those options six months after recordation of the
instrument that creates or gives constructive notice of the
option, this bill would allow the record notice status of those
options to be determined from the public record.
In addition, this bill appears to further the public policy of
the statute as originally codified by the Legislature,
specifically that "Real property title transactions should be
possible with economy and expediency (and) the status and
security of recorded real property titles should be determinable
to the extent practicable from an examination of recent records
only." (Section 880.020.)
This bill expires record notice of an option, but would not
extinguish any option . California, as a race-notice
jurisdiction, requires conveyances of real property to be
recorded in order to be valid against subsequent bona fide
purchasers (BFP). The key issue for a prospective purchaser is
whether there is record notice for an option in effect at the
time he or she acquires an interest in the property. If the
notice is effective, then the BFP takes subject to the option.
If the notice has expired, a subsequent BFP could take the
property free of the option, and the option holder may have a
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cause of action against the property seller for a breach of
contract.
In any case, this bill only modifies existing law that provides
for the expiration of record notices of option, and does nothing
to expire or wipe out any option itself. The only effect of
this bill, if enacted, would be to cause the expiration of
record notice that does not state the expiration date of the
underlying option. If this bill became law and caused the
expiration of a record notice of an option that continues to
have legal effect, the option holder could still record a new
notice of the option to continue his or her option, and that
notice would immediately take effect, until it too expires.
These provisions do not become operative until 2013. This bill
contains a deferred operation date of January 1, 2013.
Accordingly, if this bill is enacted, then the change in the
statute would be in print for a full year before taking any
legal effect. According to the author and CLRC, this is thought
necessary to ensure that all obsolete interests are extinguished
before the statute would go into effect, while providing option
holders with a window during which to record new notice. In
addition, the deferred operation date avoids creating potential
errors associated with prospective application of the statute
upon notice of options recorded before an effective date of
January 1, 2012 that would then be subject to a different rule
than existed when they were recorded.
REGISTERED SUPPORT / OPPOSITION :
Support
California Land Title Association (sponsor)
Opposition
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334