BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1342 HEARING: 5/2/12
AUTHOR: Emmerson FISCAL: No
VERSION: 4/24/12 TAX LEVY: No
CONSULTANT: Weinberger
RECORDING FEES
Increases, from $3 to $10, the maximum fee that a county
can place on specified recorded documents to fund real
estate fraud deterrence, investigations, and prosecutions.
Background and Existing Law
Counties can impose an additional $3 recording fee on real
estate documents and put the money into a county Real
Estate Fraud Prosecution Trust Fund (SB 532, Hughes, 1995).
County officials can use the Fund to deter, investigate,
and prosecute real estate fraud crimes. They must focus,
to the extent possible, on fraud against individuals whose
residences are in danger of, or are in, foreclosure.
Administrative costs are capped at 10% of revenues (SB 762,
Hughes, 2000).
State law assigns 60% of the Fund to the district
attorney's office and 40% to eligible law enforcement
agencies. To be eligible, a law enforcement agency must
either have a unit or division devoted to real estate
investigation or prosecution, or have been actively
involved in such cases for the prior three years. A Real
Estate Fraud Prosecution Trust Fund Committee allocates the
40% by reviewing and approving applications from law
enforcement agencies. The Committee has four members: the
county's chief administrative officer, the district
attorney, the chief officer responsible for consumer
protection, and the chief officer of one law enforcement
agency that receives monies from the Fund. If a county has
no eligible law enforcement agencies, the entire Fund goes
to the district attorney.
District attorneys in counties that impose the additional
fee must provide an annual report to the county board of
supervisors and the Legislative Analyst's Office (LAO) on
SB 1342 -- 4/24/12 -- Page 2
past-year expenditures, the number of filed complaints of
real estate fraud, and program outcomes. The LAO must
annually compile the information submitted by participating
counties and report to the Legislature (AB 901,
Ridley-Thomas, 2005).
In 2008, legislators increased the maximum amount of the
additional recording fee that counties may impose on real
estate documents from $2 to $3 (SB 1396, Cox, 2008). Faced
with a growing number of cases of real estate fraud and
rising law enforcement costs, county law enforcement
officials again want to increase the revenues that go into
counties' Real Estate Fraud Protection Trust Funds.
Proposed Law
Senate Bill 1342 increases, from $3 to $10, the maximum
additional recording fee that counties can impose on real
estate instruments for payment into the Real Estate Fraud
Protection Trust Fund.
SB 1342 adds the following documents to the list of real
estate instruments that are subject to an additional fee:
an amended deed of trust, an abstract of judgment, an
affidavit, an assignment of rents, an assignment of a
lease, a construction trust deed, covenants conditions and
restrictions (CC&Rs), a declaration of homestead, an
easement, a lease, a lien, a lot line adjustment, a
mechanics lien, a modification for deed of trust, a notice
of completion, a quitclaim deed, a subordination agreement,
a release, a trustee's deed upon sale, and any Uniform
Commercial Code amendment, assignment, continuation,
statement and termination.
The bill specifies that "real estate instrument" does not
include any deed, instrument, or writing recorded in
connection with a transfer subject to the imposition of a
documentary transfer tax as defined in state law.
SB 1342 allows a portion of the funds in the Real Estate
Fraud Prosecution Trust Fund to be directly allocated to
the county recorder to support county recorder fraud
prevention programs.
SB 1342 -- 4/24/12 -- Page 3
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Real estate fraud is a rapidly
growing crime that can result in foreclosures, credit
problems, and other devastating consequences for its
victims. FBI statistics indicate that, in 2010, mortgage
fraud activity remained elevated throughout the country.
The FBI ranked California among the top states for mortgage
fraud activity in 2010. Investigating and prosecuting real
estate fraud and related crimes are costly. Prosecutors
and investigators handling real estate fraud crimes require
substantial training and expertise. Real estate fraud
schemes typically involve multiple jurisdictions,
complicating prosecution efforts. Nearly all law
enforcement and prosecution agencies lack sufficient
resources to address this growing problem. Many counties
report that their real estate fraud enforcement costs far
exceed the revenues that they receive through the Real
Estate Fraud Prosecution Trust Fund program. By increasing
the maximum additional fee that counties can impose and
expanding the types of real estate instruments that are
subject to an additional fee, SB 1342 ensures that counties
will have the fiscal resources they need to combat the
growing problem of real estate fraud.
2. Compliance . To encourage compliance with the program's
annual reporting requirements, the 2008 Cox bill required
district attorneys to submit annual reports to the board of
supervisors and the LAO by September 1 and prohibited a
county from expending money from a Real Estate Fraud
Protection Trust Fund if a district attorney has not
submitted an annual report for the most recent full fiscal
year. In its 2010 report to the Legislature on the Real
Estate Fraud Prosecution Trust Fund program, the LAO notes
that although as many as 27 counties may be participating
in the program, only 18 district attorneys submitted
reports for 2008-09 and 21 district attorneys submitted
reports for 2009-10. To ensure that all participating
counties comply with the annual reporting requirements, the
Committee may wish to consider amending SB 1342 to require
a county auditor-controller to verify, before a county
SB 1342 -- 4/24/12 -- Page 4
makes expenditures from a Real Estate Fraud Prosecution
Trust Fund, that the district attorney has complied with
the September 1 reporting deadline.
3. Reporting . The LAO suggests that compiling and
reporting Real Estate Fraud Prosecution Trust Fund
information every year does little to enhance legislative
oversight. It recommends that the Legislature consider
eliminating any further reporting by local authorities to
the LAO and the requirement that the LAO report this
information to the Legislature. The LAO notes that
oversight of the program would continue at the local level,
as county boards of supervisors would continue to collect
the same data locally to determine the effectiveness of the
program as required by state law. The Committee may wish
to consider amending SB 1342 to eliminate the requirements
that counties must submit annual reports to the LAO and
that the LAO must submit this information to the
Legislature.
4. Fee or tax ? In the November 2010 election, California
voters approved Proposition 26, which amended the
California Constitution to expand the definitions of local
taxes and tax increases that require voter approval.
Under Proposition 26, any levy, charge, or exaction of any
kind imposed by a local government is a tax, requiring
voter approval, except for:
A charge for a benefit or privilege conveyed
directly to the payor and not conveyed to those not
charged.
A charge for a service or product provided directly
to the payor and not provided to those not charged.
A fee to cover certain costs of regulation.
Entrance fees for state or local property .
Fines imposed by a court or a local government.
A charge imposed as a condition of property
development.
Assessments and property related fees governed by
Proposition 218.
It is unclear whether county fees on recorded real estate
documents to fund real estate fraud prevention and
prosecution qualify under any of Proposition 26's
exceptions. According to Legislative Counsel, the
state-imposed charges on recorded real estate documents
imposed by SB 1220 (DeSaulnier, 2012) are state taxes under
Proposition 26's definitions. Similarly, counties' real
SB 1342 -- 4/24/12 -- Page 5
estate fraud fees on recorded documents may be local taxes
under Proposition 26's definitions, which would require
counties to get two-thirds voter approval before imposing
or increasing those fees.
5. Related legislation . On April 25, the Committee heard
SB 1220 (DeSaulnier, 2012), which imposes a $75 fee on
recorded real estate documents, excluding any document
recorded in connection with a transfer subject to a
documentary transfer tax. The Committee passed SB 1220 on
a 5-2 vote.
Support and Opposition (4/26/12)
Support : California Attorney General Kamala Harris,
California District Attorneys Association.
Opposition : Unknown.