Agenda Item
ASR
Control 24-000042 |
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MEETING
DATE: |
02/27/24 |
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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 (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: Extension
of Recording Fee for Real Estate Prosecution Fund
ceo CONCUR |
County Counsel Review |
Clerk of the
Board |
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Concur |
Approved Resolution to Form |
Discussion |
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3 Votes Board Majority |
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Budgeted: Yes |
Current
Year Cost: N/A |
Annual
Cost: N/A |
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Staffing
Impact:
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No |
#
of Positions: |
Sole
Source: N/A |
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Current Fiscal Year Revenue: $556,000
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Prior Board Action: 2/23/2021 #5, 2/27/2018 #14, 3/3/2015
#10, 3/20/2012 #12 |
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RECOMMENDED
ACTION(S):
1. |
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. |
2. |
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