BILL ANALYSIS �
SB 1342
Page 1
SENATE THIRD READING
SB 1342 (Emmerson)
As Amended June 7, 2012
Majority vote
SENATE VOTE :29-7
LOCAL GOVERNMENT 7-2
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|Ayes:|Smyth, Alejo, Bradford, | | |
| |Campos, Davis, Gordon, | | |
| |Hueso | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Knight, Norby | | |
| | | | |
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SUMMARY : Increases, from $3 to $10, the maximum fee that a
county can place on certain recorded real estate documents to
fund real estate fraud prevention and enforcement.
Specifically, this bill :
1)Increases, from $3 to $10, the maximum additional recording
fee that counties can impose on real estate instruments,
papers and notices for payment into a Real Estate Fraud
Prosecution Trust Fund (Fund).
2)Adds the following documents to the list of real estate
instruments that are subject to the 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; 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 or termination.
3)Clarifies that a "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
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tax.
4)Authorizes a portion of the resources in the Fund to be
directly allocated to the county recorder to support real
estate fraud prevention programs.
5)Requires the county auditor-controller to verify, before a
county may expend resources from its Fund, that the county
district attorney has complied with the existing September 1
annual reporting deadline.
6)Deletes the requirement that county district attorneys must
submit to the Legislative Analyst's Office (LAO) annual
reports on real estate fraud activity, and that the LAO must
annually compile and submit that information to the
Legislature.
7)Makes findings and declarations related to the insufficiency
of resources currently generated to support each county's
Fund.
8)Makes other technical and non-substantive amendments.
EXISTING LAW :
1)Authorizes the board of supervisors to adopt, by resolution, a
fee of up to $3 for each recording of a real estate
instrument, paper, or notice required or permitted by law to
be recorded, except as specified, which shall be placed in a
Fund.
2)Requires that money in the Fund be expended to support
programs to enhance the capacity of local police and
prosecutors to deter, investigate, and prosecute real estate
fraud crimes.
3)Defines the term "real estate instrument" to mean a deed of
trust, an assignment of trust, a reconveyance, a request for
notice, a notice of default, a substitution of trustee, a
notice of trustee sale, or a notice of rescission of
declaration of default.
4)Requires a district attorney in a participating county to
annually submit a report to the LAO on the effectiveness of
deterring, investigating, and prosecuting real estate fraud
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crimes funded by the recording fee, and requires the LAO to
report to the Legislature on these efforts, as specified.
FISCAL EFFECT : None
COMMENTS : This bill is intended to authorize counties to
increase funding for real estate fraud prevention and
prosecution by raising recordation fees for certain real estate
documents. In practice, it would permit counties to increase an
additional recording fee from $3 to a maximum of $10 per
document, increase the number of documents to which the fee
would apply, and allow the use of some of those funds to support
county recorder fraud prevention programs. The bill would also
clarify that the fees would not apply to documents recorded in
connection with transfers subject to the documentary transfer
tax (i.e., the sale of real property). Finally, the bill would
delete an unnecessary LAO report requirement. The measure is
sponsored by the California District Attorneys Association
(CDAA).
Under existing law, counties can impose a $3 recording fee on
certain real estate documents and put the money into a county
Fund. The sponsor estimates that roughly half of all counties
currently impose the $3 fee. County officials may expend money
from that Fund to deter, investigate, and prosecute real estate
fraud crimes, with an emphasis on fraud against individuals
whose residences are in danger of, or are in, foreclosure.
Administrative costs are capped at 10% of revenues.
State law assigns 60% of the Fund proceeds to the county
district attorney's office and 40% to eligible law enforcement
agencies. In order 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
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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 LAO on 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.
According to the most recent LAO report from October 2011, there
were 21 counties reporting real estate fraud prosecution
statistics and Fund expenditures. In fiscal year (FY) 2010-11,
those counties reported a total of 2,121 cases investigated, 931
cases filed and 268 convictions. Those counties also reported
Fund revenues of $14,169,000 and Fund expenditures of
$18,237,000.
According to the sponsor, "real estate fraud has emerged as the
fastest growing white-collar crime in the country. California
is currently one of the leading states in terms of the incidence
of mortgage fraud and this trend is likely to continue given the
high number of California families who find themselves at risk
of foreclosure."
CDAA adds that, according to the LAO, "the number of real estate
fraud cases investigated in 2009-2010 was almost double what it
was in 2008-2009, and the number of cases filed was almost
triple that of the previous year. Californians lost $619
million to real estate fraud in 2010-11. Fewer than half of the
real estate fraud cases investigated progress to actual charges
filed, and a mere 28% of those charges earn actual convictions.
This disparity is further intensified by a lack of adequate
funding. Despite the best efforts of local police and
prosecutors to stem this tide, their efforts are hampered by a
lack of individuals able to effectively investigate and
prosecute these crimes."
The sponsor contends that in order "to ensure that local police
and prosecutors are able to fight real estate fraud, an increase
in revenues earmarked for real estate fraud prevention and
prosecution is vital. Increasing the maximum amount a county
can opt to charge for a document recording fee and adding to the
pool of documents considered real estate instruments are two
reasonable ways to assist counties in addressing this problem."
SB 1342
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There is no current estimate for the total number of
transactions that would be affected or the amount of money that
might be raised statewide under this measure. However, CDAA's
own projected revenue estimates assume that the expanded list of
affected transactions proposed by this bill would increase the
number of transactions subject to the fee by roughly 25%.
Accordingly, CDAA estimates that, based on FY 2009-10 figures,
the proposed fee authority could bring in revenues in the
following general ranges, depending on the extent of the fee
increase ($3-$10):
Riverside County: $1,000,000 to $4,000,000
Ventura County: $300,000 to $1,000,000
Santa Cruz County: $100,000 to $400,00
It is possible that the fee increase contemplated by this bill
would constitute a tax pursuant to the terms of Proposition 26,
which was approved by the voters of California in November,
2010. Proposition 26 amended Article XIII C of the Constitution
to define a tax as any levy, charge or exaction of any kind
imposed by a local government, subject to seven specific
exemptions. A tax imposed at the county level would require
voter approval. General taxes, which provide discretionary
revenue to be spent as a local agency's governing body directs,
requires majority approval. Special taxes, the proceeds of
which may be spent only on specified purposes, require a
two-thirds voter approval.
Because the fee increase enabled by this bill would go towards
funding real estate fraud prevention and prosecution in the
authorizing county, and if no enumerated exemption is found to
apply, it may be classified as a special tax. If so, the board
of supervisors of the county would, if it chose to authorize the
increase by ordinance, need to secure approval of two-thirds of
the county voters before the increase could go into effect.
The Howard Jarvis Taxpayers Association has taken an 'oppose
unless amended' position on the bill, requesting that language
be inserted into the bill explicitly stating that the bill
authorizes a special local tax requiring two-thirds approval of
county voters.
SB 1342
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There are two bills from the 2011-12 legislative session that
contained provisions similar to those of this bill:
AB 1950 (Davis) would have, among other provisions, imposed a
fee of $25 to be paid at the time of recording a notice of
default to fund a state Real Estate Fraud Prosecution Trust
Fund. However, the bill was amended on May 21, 2012, to delete
the fee increase. The bill is currently pending in the Senate
Banking and Financial Institutions and Judiciary Committees.
SB 1220 (DeSaulnier) would have imposed a $75 fee on recorded
real estate documents, excluding any document recorded in
connection with a transfer subject to a documentary transfer
tax, and directed the money to a Housing Opportunity and Market
Stabilization Trust Fund. The Legislature could have then
appropriated these funds for the development, acquisition,
rehabilitation, and preservation of homes affordable to low- and
moderate-income households, including emergency shelters,
transitional and permanent rental housing, foreclosure
mitigation, and homeownership opportunities. The measure failed
passage (25-13) on the Senate Floor on May 31, 2012.
Support arguments: According to the sponsor, "SB 1342 will
ensure that local police and prosecutors are able to fight real
estate fraud by increasing revenues earmarked for real estate
fraud prevention and prosecution."
Opposition arguments: One might argue that a new recording fee
would place an additional financial burden on ordinary
Californians engaged in routine real estate transactions, while
draining local government staff resources to collect fees and
address unsatisfied customers.
Analysis Prepared by : Hank Dempsey / L. GOV. / (916) 319-3958
FN: 0004068