Q: At our office meeting there was considerable debate as to precisely what the County Recorder’s offices are now charging to record transaction documents as part of the Affordable Housing Fund law that went into effect on January 1, 2018. There have been multiple instances where the transaction should have been “exempt” from paying the recording fee but the principals were charged for that fee anyway. I recently heard from a Title Officer than each County is creating their own rules and forms to comply with the new law but that does not make sense if it is a statewide law. What should we tell Buyers and Sellers about these new recording fees?
BOTTOM LINE: The new law is not going as smoothly as anticipated and “clean-up” legislation and/or new regulations may be needed.
A: To help create affordable housing in California, a new document recording fee is now required in every County under Government Code Section 27388.1 (formerly SB 2). A minimum fee of $75.00 per recorded document with a cap of $225.00 must be charged each time there is a recording of documents. C.A.R. worked with the Legislature to carve out two exemptions to imposition of that recording fee in residential real estate transactions to protect consumers.
As noted in the recent C.A.R. Legal Q&A entitled “Affordable Housing Funding Document Recording Fee” (at https://www.car.org/en/riskmanagement/qa/property-tax-folder/The-Affordable-Housing-Funding-Document-Recording-Fee ), it was anticipated that it was yet to be determined when this new documentary transfer tax would be required and how much would be charged.
The exemptions state that no fee is to be charged for documents:
- Recorded in connection with a transfer subject to the imposition of a documentary transfer tax as defined in Section 11911 of the Revenue and Taxation Code; or,
- Recorded in connection with a transfer of real property that is a residential dwelling to an owner-occupier.
Although this may seem simple enough, the County Recorders are having difficulty in understanding precisely when the exemptions apply. Some, but not all, of the questions and concerns that have been raised by the County Recorders and others within the real estate industry include:
- Does “a residential dwelling” include a single interest in a common interest development? Does it include residential 1 to 4 units which is the typical industry meaning of that word but there is no statutory definition for that term in this context. Alternatively, does it mean a residential dwelling of any number of units? The confusion stems from the insertion of the word “a”.
- There is no definition for the term “owner-occupier” in this statute and that terminology differs in various contexts such as with the federal guidelines for an owner-occupier loan. As used in this statute, does it mean a full-time occupier, or will a part-time occupancy with a second home, for example, still qualify?
- There is no definition for the term “transfer of real property” in this statute. Would this exemption include transferring a partial interest to new owners such as when adding children or spouses to title? Would it include changing the ownership from an individual to a trust created for the benefit of that individual?
- Who determines if exemptions 2 and 3 above are applicable to the transaction? Currently the escrow companies prepare the closing papers and are responsible for itemizing the expenses to be charged to each principal. The question that some Escrow Officers have raised is whether the Escrow Officer’s job now includes determining if this is a “a transfer of real property that is aresidential dwelling to an owner-occupier”?
- In many Counties they will not record documents unless there is a cover sheet or some other form accompanying the documents to indicate the correct amount of the fee to be charged and/or if there is an exemption. Several Counties are creating their own forms for this purpose. Who fills out the form, what information needs to be on the form and who, if anyone, needs to sign that form has been disputed and debated. In some instances, the “cover sheet” debate has prevented some documents from being recorded in a timely fashion.
- Recorders do not track “transactions,” they track concurrent recordings. If some documents are recorded in the morning and other documents are filed later in the day or the next day that all relate to the same transaction, it is difficult for the County Recorders to discern whether that recording is “in connection with” one particular transaction. Several Recorders have indicated that they will calculate and charge a new fee on those subsequent recordings even if the maximum fee was paid as part of the original recordings, and/or the original recording documents were exempt. The Recorders are indicating that they do not have the people power to double check on whether subsequently recorded documents relate to a prior recording.
As to why the County Recorders are creating their own rules and forms, it is important to understand the enforcement aspects of this new law. To make certain that each County Recorder’s Office collects the new recording fee, the State of California will be auditing each County to determine if the Recorders are in full compliance. If an Auditor determines that a Recorder’s Office is not collecting the full fee when legally required, the Recorders will be fined for the differential as determined by the auditors and some other penalties may be imposed; if they charge too much, there is currently no fine. Concern over fines and penalties is the reason that some Counties are potentially overcharging Consumers.
PRACTICE TIPS
- Real estate professionals should not try to calculate or explain the new recording fee since it uncertain what will be happen with any clean-up legislation and/or new regulations.
- Real estate professionals should warn their clients about this issue and provide appropriate guidance. To do that, the best advice is to provide clients with the following statement:
“Sellers and Buyers are advised that, as a result of a recently-enacted state law, there is a new recording fee which may be imposed at the close of escrow by the County Recorder’s Office. How that fee is calculated and who pays it are currently questions without definitive answers. Real estate professionals are not qualified to, and cannot, determine the amount of the fee. Sellers and Buyers who want to know what the recording fee will be in their transaction should discuss the issue with the Escrow Officer.”
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