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Agenda Item
ASR
Control 24-000648 |
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MEETING
DATE: |
08/27/24 |
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legal entity taking action: |
Board
of Supervisors |
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board of supervisors district(s): |
All
Districts |
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SUBMITTING Agency/Department: |
District
Attorney and Clerk-Recorder
(Approved) |
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Department contact person(s): |
Matthew
Pettit (714) 347-8440 |
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Keith
Bogardus (714) 347-0511 |
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Subject: Approval of State Authorized
Increased Real Estate Fraud Prosecution Fee
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ceo CONCUR |
County Counsel Review |
Clerk of the Board |
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Concur |
Approved
Resolution to Form |
Public
Hearing |
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3
Votes Board Majority |
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Budgeted: N/A |
Current Year
Cost: N/A |
Annual Cost: N/A |
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Staffing Impact: |
No |
# of Positions: |
Sole Source: N/A |
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Current Fiscal Year Revenue: $492,799
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Prior Board Action: N/A |
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RECOMMENDED
ACTION(S):
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1. |
Approve
the District Attorney Real Estate Fraud Prosecution Annual Report for FY
2023-24 pursuant to Section 27388, subdivision (d) of the California
Government Code. |
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2. |
Find that the
proposed fee is Statutorily Exempt from the provisions of the California
Environmental Quality Act (CEQA) pursuant to Section 21080(b)(8) of the
Public Resources Code and Section 157273 of the CEQA Guidelines as the
establishment of modification of rates, fees and charges, which are for the
purpose of meeting operating expenses, including employee wage rates and
fringe benefits, purchasing or leasing supplies, equipment or materials as
set forth herein. |
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3. |
Conduct
a Public Hearing. |
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4. |
Adopt
a Resolution that: |
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a. |
Rescinds
Resolution 24-017, effective October 1, 2024, and approves an increase in the
real estate fraud prosecution fee collected by the Orange County
Clerk-Recorder from $3 to $8 on certain specified real estate instruments
effective October 1, 2024 for a three-year term ending September 30, 2027, to
provide a continued funding source to investigate, prosecute and deter real
estate fraud crimes pursuant to California Government Code Section 27388. |
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b. |
Increases
the allocation of the real estate fraud prosecution fee for reimbursement to
the Clerk-Recorder’s Office from five percent to ten percent, and authorizes
the Clerk-Recorder to transfer ninety percent of the fee into the District
Attorney Real Estate Fraud Prosecution Trust Fund. |
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c. |
Finds
that the proposed fee meets the requirement set forth in subdivision (e)(3)
of Section 1 of Article XIII C of the California Constitution, and is
therefore exempt from the definition of a tax as used therein. |
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d. |
Finds
that the fee bears a fair or reasonable relationship to the payor’s burdens
on, or benefits received from, the applicable governmental services and the
revenue resulting from the fee established under the resolution will not
exceed the estimated reasonable cost to provide these services. |
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e. |
Authorizes
the Clerk-Recorder to collect the additional fees on behalf of Orange County.
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SUMMARY:
Approving the District Attorney Real
Estate Fraud Prosecution Annual Report covering FY 2023-24, pursuant to Section
27388, subdivision (d) of the California Government Code, and increasing the
current real estate fraud prosecution fee from $3 to $8 will allow the continued
investigation and prosecution of real estate fraud crimes in Orange County.
Increasing the Clerk-Recorder’s maximum
reimbursable share of this real estate fraud prosecution fee from five percent
to ten percent as authorized by Government Code Section 27388, will recover the
costs of real estate fraud detection efforts administered by the
Clerk-Recorder.
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 a $3 real estate fraud
prosecution fee on 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 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 Orange County District Attorney (OCDA) to distribute funds from the
Real Estate Fraud Prosecution Fund 12G.
In response, the OCDA, in partnership with
the Clerk-Recorder, established a Real Estate Fraud Prosecution Program that is
funded (in part) by this $3 real estate fraud prosecution fee. The real estate
fraud prosecution fee is a one-time fee borne by and benefitting those who use
the government resource: it is paid, as part of a real estate transaction, by
an individual or entity recording a document relating to real estate. This is
the exact group that enjoys the advantages of having a dedicated Real Estate
Fraud Prosecution Unit to combat real estate fraud crime across Orange County.
Since the initial establishment of this
fee, the Board has approved five three-year extensions of the real estate fraud
prosecution fee. Prior Board actions are summarized in the table below.
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Date |
Action |
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3/20/2012 |
Adopted Resolution 12-028 extending $3 real
estate fraud prosecution fee. |
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3/3/2015 |
Adopted Resolution 15-010 extending $3
real estate fraud prosecution fee. |
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2/27/2018 |
Adopted Resolution 18-015 extending $3
real estate fraud prosecution fee. |
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2/23/2021 |
Adopted Resolution 21-020 extending $3
real estate fraud prosecution fee. |
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2/27/2024 |
Adopted Resolution 24-017 extending $3
real estate fraud prosecution fee. Approved OCDA’s request to return to the
Board prior to three-year time period if the actual costs of administering
the Real Estate Fraud Prosecution Unit exceed the revenue collected. |
Real estate fraud has proven to be a
significant problem in Orange County, causing considerable harm and potentially
catastrophic financial losses for Orange County property owners. The Real
Estate Fraud Prosecution Unit is the primary law enforcement actor combating
these crimes in the county. The unit is
comprised of prosecutors, investigators and support staff with specialized
training and expertise in real estate fraud that enables them to effectively
investigate and prosecute real estate crimes. The Real Estate Fraud Prosecution
Unit handles an average of 100 reports of potential real estate fraud each
year.
The cases that are reported directly to
the Real Estate Fraud Prosecution Unit represent the vast majority of reported
real estate crime in Orange County. They also represent a serious criminal
threat to our local communities, with potential losses in the tens of millions
of dollars. In addition, real estate fraud cases are often referred to the Real
Estate Fraud Prosecution Unit from other law enforcement agencies. Over the
past three years, the Real Estate Fraud Prosecution Unit has worked closely
with local law enforcement partners, providing trainings and resources to local
agencies to ensure perpetrators of real estate fraud will be brought to justice
regardless of where those crimes are reported. Additionally, the Real Estate
Fraud Prosecution Unit is active in the community, meeting with concerned
groups, such as senior citizens and real estate professionals, to provide
insight and education for identifying, avoiding, combatting, and reporting real
estate fraud.
Two other key innovations made possible by
the real estate fraud prosecution fee and establishment of the Real Estate
Fraud Prosecution Fund are the Courtesy Notice program and the Real Estate
Fraud Prosecution Unit’s direct reporting portal. The innovative Courtesy
Notice program alerts homeowners via mail any time a document affecting title
to their property is recorded. This
system quickly notifies homeowners to changes to their property title, which in
turn allows them to discover and report any fraudulent activity to the OCDA
without delay. The direct reporting mechanism allows potential victims or
witnesses to real estate crimes to report directly to the Real Estate Fraud
Prosecution Unit for further investigation. This direct portal allows crime
victims to quickly reach subject matter experts who assess, investigate, and
prosecute these crimes.
Currently, investigators with the Real
Estate Fraud Prosecution Unit are actively investigating approximately 36 real
estate fraud cases. The attorneys are prosecuting approximately 25 filed felony
real estate fraud cases in which approximately 45 defendants are charged. Real estate fraud cases typically have tens
of thousands of pages of discovery, plus voluminous digital evidence. In
addition, the total restitution owed to victims in real estate fraud cases is
often over a million dollars. As a
result of the Real Estate Fraud Prosecution Unit’s efforts, over $25 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.
All of these efforts to obtain justice for
Orange County real estate fraud victims have been made possible by the real
estate fraud prosecution fee. At the time it was first adopted in 2009, Orange
County’s $3 real estate fraud prosecution fee was the highest allowable fee
permitted by Government Code Section
27388; and in 2009, that $3 fee generally covered the costs of the Real
Estate Fraud Prosecution Program. However, over the past few years, the housing
market has seen significant inventory decline because of rising interest rates.
As a result, significantly fewer real estate documents are being recorded,
which means less revenue for the Program. On the other hand, Program expenses
increase slightly year over year for the past 15 years since the $3 fee was
first adopted. As a result, the Real Estate Fraud Prosecution Program has been
under-funded for the past several years, with a chasm between program revenues
and expenses.
Additionally, home prices have risen
substantially since the Program was implemented. In August of 2009, the median
sales price of a home in Orange County was $427,750 according to data provided
by the County Executive Office in the FY 2009-10 Adopted Budget. By June of
2023, the CEO’s FY 2023-24 Annual Budget reported that the median home price in
Orange County had nearly tripled to $1,260,000. Thus, the relative value of the
$3 real estate fraud prosecution fee has decreased by nearly 66% since the fee was
adopted in 2009. For the fee to represent the same percentage in relation to
the average home price as it did in 2009, the fee would need to be raised to
$8.84.
|
Year |
Median Orange County Home Sales Price |
$3 Fee in Relation to the Median Cost
of a Home in Orange County |
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August 2009 |
$
427,750 |
0.00070% |
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June 2023 |
$
1,260,000 |
0.00024% |
In 2012, Government Code Section 27388 was
amended to allow counties to increase the fee up to $10. California’s counties
have overwhelmingly opted to increase the fees. Among California’s twelve most
populous counties, nine have chosen to raise the real estate fraud prosecution
fee. Only Orange County, San Diego County, and Contra Costa County elected to
stay at the $3 level.
It is also worth noting that many counties
outside of the twelve largest counties have also chosen to raise the real
estate fraud prosecution fee to support real estate fraud investigation and
prosecution. Santa Barbara, Solano, and Marin Counties have all elected to
raise the fee to the $10 level. San Luis Obispo, Monterey, and San Joaquin have
each opted for fees in the $6 to $8 dollar range.
Government Code Section 27388 also
explicitly contemplates the reimbursement of the county recorder’s office for
their actual and reasonable administrative costs incurred in implementing the
Real Estate Fraud Prosecution Program. While the statute permits deductions of
up to ten percent of the fees paid pursuant to Government Code Section 27388,
the Orange County Board of Supervisors has capped the amount that can be
deducted to reimburse the Clerk-Recorder at five percent. As a result, the
Clerk-Recorder’s costs have exceeded their reimbursement for several years.
The Orange County Clerk-Recorder’s Office
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 directly refers suspected fraudulent recordings to
OCDA for investigation. One example of
this fruitful partnership was a case in which a “Sovereign Citizen” recorded
multiple fraudulent quitclaim deeds on homes in which he had no ownership
interest. The Recorder’s Office recognized this as possible fraud, despite
being statutorily required to accept them for recordation, and alerted OCDA to
this potential crime almost immediately.
The OCDA was then able to quickly investigate and file charges against
that individual.
The Clerk-Recorder additionally plays a
pivotal role in the Real Estate Fraud prosecution program by alerting
homeowners to potential fraud by sending a courtesy notice, via USPS, to
homeowners any time a document affecting title to real property is recorded in
Orange County. Criminals engaged in real estate fraud tend to target the
elderly and unsophisticated. The real estate fraud trends in Orange County
suggest the current automatic, mail-based courtesy notice is an irreplaceable
tool for combating real estate crime in the County. In another example, OCDA
successfully investigated and filed criminal charges against an individual who
recorded multiple false documents on a property she previously lost to
foreclosure. OCDA was alerted to the false documents first by the
Clerk-Recorder, who recognized the documents as potentially fraudulent. OCDA
was then separately alerted to one of the two false documents by the subsequent
purchasers of the property, who received a Courtesy Notice in the mail shortly
after closing escrow.
This robust notification program cost the
Clerk-Recorder over $134,000 during Fiscal Year 2022-2023. In contrast, the
total recording volume was down significantly and thus, based on the $3 fee and
5 percent reimbursement, the Clerk-Recorder only received approximately $28,000
in revenues from the fees paid. In conjunction with increasing the fee to more
fully fund the Real Estate Fraud Prosecution Program, increasing the allowable
percentage deducted for reimbursing the Clerk-Recorder’s actual and necessary
administrative costs will also help close the deficits they face.
A one-time fee of under $10 to fund a
dedicated law enforcement team to investigate and prosecute real estate crime
is a tremendous value proposition for Orange County property owners. The
one-time fee, if increased from $3 to $8, remains small in the context of real
estate transactions often worth over a million dollars for even the average
transaction. Moreover, homeowners who may have never paid the fee or recorded a
document benefit from the program funded by the fee. However, a fee increase from $3 to $8 would
have a substantial positive impact on the Real Estate Fraud Prosecution Unit’s
ability to continue to investigate, prosecute, and deter real estate fraud in
the county. The Real Estate Fraud Prosecution Program has been running at a
deficit for several years and the additional funding would allow the program to
continue to operate at a high level. In
addition, the Courtesy Notice program, which allows for the early detection of
many real estate crimes, may not remain viable unless these funding deficits
are rectified.
The OCDA and Clerk-Recorder jointly
request Board approval of the increase of the $3 real estate fraud prosecution
fee to $8 on certain real estate instruments such as Grant Deeds, Quitclaim
Deeds, Deeds of Trust, Notices of Default, Notices of Trustee Sale, Trustee's
Deeds Upon Sale, and Mechanics’ Liens, for a three-year period beginning
October 1, 2024 following the adoption of the proposed resolution until September
30, 2027, when the fee comes up for renewal again, and in addition, increase
the cap on reimbursement for the Clerk-Recorder from five percent to ten
percent of the total fees collected for the same time period. The OCDA and the
Clerk-Recorder will have an opportunity at the next renewal to reevaluate the
fee amount and determine whether $8 continues to be the appropriate amount, or
whether changes in the real estate market necessitate raising or reducing the
fee.
This increased fee will provide the OCDA’s
specialized Real Estate Fraud Prosecution Unit with a necessary ongoing funding
source for the next three years to investigate, prosecute and deter real estate
fraud crimes as referenced in the Recommended Actions. Furthermore, this
increased funding will ensure the joint efforts of the OCDA and
Clerk-Recorder’s Courtesy Notice program – an important tool for combating real
estate fraud in the county – will continue.
Compliance with Proposition 26
The proposed fee does not fall within the
definition of a “Tax” under Proposition 26 because it is excepted by California
Constitution Article XIII C, Section 1, Subdivision (e)(3). Subdivision (e)(3)
excepts from the definition of tax, “a charge imposed for the reasonable
regulatory costs to a local government for issuing licenses and permits,
performing investigations, inspections, and audits, enforcing agricultural
marketing orders, and the administrative enforcement and adjudication thereof.”
This exception applies because the real estate fraud prosecution fees allocated
to the Real Estate Fraud Prosecution Program qualify as a statutory fee for the
deterrence, investigation, and prosecution of real estate fraud crimes. The
increased fees do not exceed the reasonable costs to the County for the Real
Estate Fraud Prosecution Program.
FINANCIAL
IMPACT:
N/A
STAFFING
IMPACT:
N/A
REVIEWING
AGENCIES:
Clerk-Recorder
ATTACHMENT(S):
Attachment
A - Real Estate Fraud Prosecution Unit Annual Report
Attachment B - Government Code Section 27388
Attachment C - Penal Code Section 115
Attachment D - Penal Code Sections 368 and 487
Attachment E - Real Estate Fraud Prosecution Fee - Draft Board Resolution
Attachment F - District Attorney Fee Checklist
Attachment G - Clerk-Recorder Fee Checklist
Attachment H - Notice of Public Hearing