Agenda Item AGENDA STAFF REPORT ASR Control 24-000042
MEETING DATE:	02/27/24
legal entity taking action:	Board of Supervisors
board of supervisors district(s):	All Districts
SUBMITTING Agency/Department:	District Attorney (Approved)
Department contact person(s):	Matthew Pettit (714) 347-8440
	Keith Bogardus (714) 347-0511

Subject: Extension of Recording Fee for Real Estate Prosecution Fund

ceo CONCUR

County Counsel Review

Clerk of the Board

Concur

Approved Resolution to Form

Discussion

3 Votes Board Majority

Budgeted: Yes

Current Year Cost: N/A

Annual Cost: N/A

Staffing Impact:

# of Positions:

Sole Source: N/A

Current Fiscal Year Revenue: $556,000

Funding Source: Other: 100% (Fees - Real Estate Prosecution Fund)	County Audit in last 3 years: No
Levine Act Review Completed: N/A

Prior Board Action: 2/23/2021 #5, 2/27/2018 #14, 3/3/2015 #10, 3/20/2012 #12

RECOMMENDED ACTION(S):

Renew the $3 recording fee on certain specified real estate instruments for a three-year period from April 1, 2024, to March 31, 2027, to provide a continued funding source to investigate, prosecute and deter real estate fraud crimes pursuant to Section 27388 of the California Government Code.

Adopt the resolution authorizing the Orange County Clerk-Recorder to continue collection of the $3 recording fee.

SUMMARY:

Renewing the $3 existing recording fee on certain specified real estate instruments will allow the District Attorney to continue to investigate, prosecute and deter real estate fraud crimes pursuant to Section 27388 of the California Government Code to protect the public.

BACKGROUND INFORMATION:

On March 3, 2009, by Resolution No. 09-020, the Board of Supervisors (Board) authorized: 1) the establishment of the Real Estate Fraud Prosecution Fund 12G to implement the provisions of California Government Code Section 27388 to collect the $3 recording fee on certain specified real estate instruments for the sole purpose of enhancing the capacity of local efforts to investigate, prosecute and deter real estate fraud crimes, 2) the Orange County Clerk-Recorder (Clerk-Recorder) to begin collection of the fee on April 13, 2009, and 3) the establishment of the Real Estate Fraud Prosecution Committee composed of the County Executive Officer, the Clerk-Recorder and the District Attorney (OCDA) to distribute funds from the Real Estate Fraud Prosecution Fund 12G.

Since the initial establishment of this fee, the Board has approved the extension of the recording fee on March 20, 2012, March 3, 2015, February 27, 2018, and February 21, 2021, by Resolution No. 12-028, 15-010, 18-015 and 21-020, respectively. The current extension is expiring on March 31, 2024. At present, over 30 counties in the State of California have adopted the provisions of Government Code 27388 and implemented this recording fee.

Moreover, pursuant to Government Code section 27388, subsection (d), the OCDA is required to submit an annual report to the Board on or before September 1 of each year. The chart below details what the OCDA reported in its annual reports for the total recording fees collected each year since FY 2018-19.

Fiscal Year	Amount
2018-19	$1,197,670
2019-20	$1,792,563
2020-21	$2,790,400
2021-22	$1,476,250
2022-23	$ 565,662

As indiciated in the above chart, revenue from the recording fee fluctuates based on conditions of the local real estate market. The decline in revenue in Fiscal Years 2021-22 and 2022-23 can be attibuted to the slowdown in the housing market.

Real estate fraud has proven to be a significant problem in Orange County. Common real estate fraud cases involve fraudulent transfers of title, real estate investment fraud, foreclosure schemes and rental fraud crimes involving vacant and foreclosed property. These crimes harm large numbers of County residents including: seniors who invest in real estate or are targeted for fraudulent recordings on their homes; individuals whose identities are unwittingly used by criminals to acquire real estate; distressed homeowners who are targeted for tempting schemes to delay foreclosure or refinance; and banks, construction workers and real estate professionals who depend upon a stable real estate market for their incomes. Other victims include investors who are promised high returns for “flipping” foreclosed properties. Some victims of loan modification schemes lack strong English language skills and are defrauded by members of their own communities. As the housing market changes, the types of fraud schemes change and evolve.

As authorized by the Board, in April 2009, the OCDA established a Real Estate Fraud Prosecution Unit comprised of prosecutors, investigators and support staff with specialized training and expertise in real estate fraud to investigate and vertically prosecute criminal real estate fraud cases.

Since its inception, the program has been very effective. In the past three years, the OCDA received approximately 309 referrals directly from alleged victims seeking investigation/prosecution. These referrals involved a variety of allegations including foreclosure/loan modification schemes, fraudulent recordings, rental schemes and real estate investment fraud. As financial predators continue to target distressed homeowners, loan modification allegations continued to account for the largest number of referrals. Each of these referrals was reviewed first by a paralegal and then by an attorney and referred to OCDA investigators for investigation, if appropriate. Referrals that could not be prosecuted criminally were often referred to other agencies for action. For example, complaints have been referred for action to licensing agencies such as the California Department of Real Estate and the State Bar of California. Both agencies are active in suspending or revoking licenses of individuals who engage in unethical practices. In addition to the cases originated and entirely investigated by OCDA investigators, which comprise well over 78 percent of the cases filed in the unit, cases are often referred to the Real Estate Fraud Prosecution Unit from local, state and federal law enforcement agencies.

Currently, investigators with the Real Estate Fraud Prosecution Unit are actively investigating approximately 36 real estate fraud cases. The attorneys are prosecuting approximately 20 filed felony real estate fraud cases in which 40 defendants are charged. Real estate fraud cases typically have tens of thousands, if not hundreds of thousands, of pages of discovery, plus voluminous digital evidence. In addition, the restitution owed to victims in real estate fraud cases is typically over a million dollars; as a result of the Real Estate Fraud Prosecution Unit’s efforts, over $27 million in restitution orders have been awarded to real estate fraud victims in the last three years. As one may deduce from these numbers, these cases are among the largest and most complex cases the OCDA prosecutes, requiring extensive and sophisticated litigation both before and after conviction. Summaries of some of the significant cases prosecuted by the Real Estate Fraud Prosecution Unit in the last three years are included in Attachment E.

The Clerk-Recorder has been one of the key partners of the OCDA’s Real Estate Fraud Prosecution Unit in fighting real estate fraud crimes. It is supportive of investigation and prosecution efforts and refers suspected fraudulent recordings to OCDA for review and action. During the last year, the Clerk-Recorder partnered with OCDA to update courtesy notices sent out to homeowners whenever certain documents are filed that affect title to their property. The updated notices provide homeowners with an OCDA hotline to call whenever fraud is suspected, as well as referrals to the Clerk-Recorder’s website that contains important information about real estate fraud. This partnership and OCDA’s newly-created fraud hotline have provided homeowners in Orange County immediate access to real estate fraud investigators who can quickly determine if a title filing is fraudulent or not. The Clerk-Recorder staff continue to refer suspicious recorded documents directly to the OCDA for review. These are important safeguards that have resulted in the discovery of fraud relating to multiple title records in Orange County.

Other partners include the Franchise Tax Board, which the OCDA Real Estate Fraud Prosecution Unit involves when real estate frauds result in the filing of false tax returns, and other District Attorney offices, e.g., San Diego, Ventura, Riverside, Los Angeles, with whom the OCDA coordinates when a case involves Orange County suspects who are active in those regions as well; this is not uncommon as real estate crimes frequently cross county lines.

The OCDA requests the Board's approval of the extension of the $3 recording fee on certain real estate instruments such as Quit Claim Deed, Deed of Trust, Grant Deed, Notice of Default, Notice of Trustee Sale, Inter-spousal Transfer, Trustee's Deed upon sale, Notice of Rescission and Assignment of Rent for a three-year period from April 1, 2024, to March 31, 2027, to provide the OCDA’s specialized Real Estate Fraud Prosecution Unit with necessary ongoing funding source to investigate, vertically prosecute and deter real estate fraud crimes as referenced in the Recommended Actions.

Although this action renews the recording fee for three years, the OCDA would reserve the right to return to the Board prior to that time period if the actual costs of administering the Real Estate Fraud Prosecution Unit exceed the revenue collected.

FINANCIAL IMPACT:

The revenue for Real Estate Recording fee is included in the District Attorney’s FY 203-24 Modified Budget, Fund 12G Real Estate Prosecution Fund and will be included in the budgeting process for future fiscal years upon Board approval of the extension of the $3 recording fee.

STAFFING IMPACT:

N/A

ATTACHMENT(S):

Attachment A - Government Code Section 27388
Attachment B - Corporations Code Section 25401
Attachment C - Penal Code Sections 368 and 487
Attachment D - Real Estate Recording Fee - Draft Board Resolution
Attachment E - Summary of Cases