The Rule
On Sept. 29, 2017, California Gov. Jerry Brown signed Senate Bill 2, the Building Homes and Jobs Act, authored by Senator Toni Atkins (D-San Diego).
The act creates a new source of funding for affordable homes by charging a $75 fee for recording certain types of real estate documents. It is estimated that the new fee will generate $250 million each year.
The act, which became effective immediately, is part of a comprehensive package of legislation that aims to address California’s housing dilemma by imposing a new duty on counties to send quarterly revenues from this fee, after deduction of administrative costs, to the state controller for deposit in the Building Homes and Jobs Fund, created within the State Treasury.(1)
The act adds California Government Code section 27388.1, requiring a $75 fee per document to be paid, commencing Jan. 1, 2018, at the time of the recording “of every real estate instrument, paper, or notice required or permitted by law to be recorded … per each single transaction per parcel of real property.”
The fee is capped at $225 for transactions involving the recording of multiple documents.
Section 27388.1(a)(1) defines “real estate instrument, paper, or notice” to mean “a document relating to real property, including but not limited to, the following: deed, grant deed, trustee’s deed, deed of trust, reconveyance, quit claim deed, fictitious deed of trust, assignment of deed of trust, request for notice of default, abstract of judgment, subordination agreement, declaration of homestead, abandonment of homestead, notice of default, release or discharge, easement, notice of trustee sale, notice of completion, UCC financing statement, mechanic’s lien, maps, and covenants, conditions, and restrictions.”(2) The statute does not limit the definition to a finite list; other real property related documents not specifically listed in the code section also remain subject to the fee, unless an exception applies.
Exceptions
Section 21388.1(a)(2) provides for certain exceptions to the $75 fee, including transactions involving a transfer/sale of real property that is subject to the imposition of a documentary transfer tax, as defined by California Revenue and Taxation Code section 11911. Transactions covered by the documentary transfer tax under Revenue & Taxation Code section 11911 involve a purchase and sale or change of ownership when the consideration or value of the interest or property conveyed exceeds $100.(3) This exception would apply to transfers of real property by court order, or pursuant to an eminent domain judgment, for example, since Revenue & Taxation Code section 11911 is not limited to voluntary vs. involuntary sales.(4)
Additionally, easements that may potentially endure for a substantial period of time, such as perpetual easements and easements for life, are also subject to the provisions of the Documentary Transfer Tax Act, and thus also should be subject to an exception from the new fee.(5)
Section 2 of the Bill further describes the intention of the exception as follows: “In order to promote housing and homeownership opportunities, the recording fee imposed by this act shall not be applied to any recording made in connection with a sale of real property. Purchasing a home is likely the largest purchase made by Californians, and it is the intent of this act to not increase transaction costs associated with these transfers.”
Section 21388.1(a)(2) also provides an exemption from the new fee in connection with a transfer of property to a grantee who will occupy the dwelling as a principal residence, even if the documentary transfer tax is not imposed on the transfer. Thus, documents recorded as part of a refinance loan on an owner occupied property, including, for example, transfer deeds, i.e., in and out of a trust, are exempt. However, in the same type of refinance transaction regarding a non-owner occupied property, the fee would be imposed as to both the deed transferring the ownership interest out of the trust and the deed transferring it back into the trust.
As a practical matter, county recorders do not take it upon themselves to determine whether a document is subject to the fee or the exception. Title companies have confirmed with the county recorders that any exception for payment of the fee on an individual document must be set forth on the face of the document or in a cover sheet when the document is presented for recording. A few select counties require inclusion of a declaration under penalty of perjury that an exception applies.
Interpreting the $225 Fee Cap
For purposes of the $225 fee cap, documents included in a single transaction are those presented together and related to the same parties and property.(6) The Legislature’s imposition of the cap “per each single transaction per parcel of real property” suggests that the $225 fee limit is not intended to be for the life of a loan, but rather is a cap for all documents submitted simultaneously in one transaction.
Multiple documents that relate to a sale or transfer transaction of real property received from one party may include multiple “SB2” transactions. If not otherwise exempt, the fee would be $75 for each recorded document, up to the cap of $225.
Trailing documents that come in days or weeks after the other documents in a transaction would not be included in the calculation of the $225 cap and would require payment of the $75 fee if not otherwise exempt. Thus, for example, a transfer or assignment of a loan after origination (other than a simultaneous assignment of the loan upon origination), commencement of foreclosure proceedings, or reconveyance of the loan would be considered separate transactions for purposes of the statute, even though they may relate to the same parties to the loan.(7)
Practical Applications for Lenders and Loan Servicers
From a practical standpoint, lenders and loan servicers should now begin to include in their payoff demand statements an additional $150 in recording fees for the recording of a Substitution of Trustee and Full Reconveyance ($75.00 for each “title” on the document), necessary for the release of the loan following a full payoff.
Additional examples of a multiple title document include a Substitution of Trustee and Notice of Default, Deed of Trust with Assignment of Rents (also $150), and an Assignment of Deed of Trust, Substitution of Trustee and Notice of Default combination ($225). Title companies and county recorders have advised that such multi-purpose documents will be assessed the new fee for each title.
With respect to the disclosure of fee estimates on a new loan, it is advisable to obtain an estimate from the title company handling the closing, so that the loan estimate is as close as possible to the actual fees to be incurred.
While there is currently some uncertainty about the disclosure of good faith fee estimates for transactions and how many documents will need to be recorded in each transaction, once the act is put into practice and closing agents gain experience, the fee estimates will become easier.
In the meantime, it appears that the preferred method is to disclose the transaction maximum of $225,(8) as a refund can be given through an amended settlement statement in the event actual recording fees are lower. Otherwise, if the lender under-discloses and the difference exceeds applicable tolerances, the lender would be responsible for payment of the tolerance cure on every such transaction.(9) These amounts could certainly add up over the course of many transactions.
