For years, people around the country have thought that we here in California are just slightly, shall we say, off-kilter, but as Summer 2003 unfolds, we are really proving it now! Having cobbled together a budget, six weeks late, that still leaves us $8 or $10 billion in the hole for next year, with our debt rating near
junk-bond status, we are now embarking on recalling the Governor! The last time a sitting governor was removed from office by recall was 1921, some 82 years ago, in North Dakota. North Dakota! And you thought the world of escrow was crazy, chaotic, and weird!

And then, consider this: based upon past history, Governor Davis is going to receive 1200-1400 bills for his signature or veto, within days after the Legislature begins it’s fall recess on September 12. He will then have 30 days to sign or veto each bill, or roughly until October 15. But until the recall election on October 7, he is going to be, well, busy. This means that he either has to review 1200 bills while fighting the recall, or wait until after the election, when he or his successor will have roughly 8 days to act on a mountain of bills. Stay tuned!

Amazingly, the Legislature continues to function in all this madness. And big issues will be considered in the final four weeks of this legislative year. One of the biggest is privacy. Having refused at least twice to pass Senator Speier’s SB 1 on financial privacy, the Assembly Banking and Finance Committee will apparently consider the issue one more time before the fall recess. Meanwhile, backers of a financial privacy initiative indicate that they have the requisite signatures to place the issue on the March 2004 primary ballot if the Legislature refuses to enact SB 1. It could be a real mess if the initiative passes, because the language in the initiative is so vague that businesses, including ours, will have little guidance on how to comply. Years of litigation over the language could result.

Also to be considered during the final month of the session is electronic recording. This issue is contained within AB 578 (Leno). The bill has now been amended to differentiate between digitized documents (essentially the electronically transmitted documents in the current Orange County system) and digital documents, which are truly electronically created and acknowledges instruments. Counties would be given permission to move into digitized electronic recording now, with a very specialized pilot project dedicated to digital document electronic recording.

Having predicted earlier this year (and several times in years past) that the Legislature finally seems willing to expand the law on electronic recording, only to be proven wrong each time, I am finished making predictions in this area. AB 578 remains very controversial, with intense debate between district attorneys, title companies, lenders and others, and it does not appear likely that the bill will be approved this year. More likely the bill will become a “two-year bill”, and remain alive for potential passage next year. Having now predicted this result, the bill will probably pass this year!

Another issue remaining alive this year is the Cal-FIRPTA changes proposed in AB 1338 (Chavez). We have previously reported how original versions of the bill were very bad for escrow, since they included joint and several liability for escrow officers with buyers for failures to withhold. After very productive discussions between a coalition of real estate groups, including CEA, and Assembly Member Chavez, we are pleased to report that the bill has now been amended consistent with our recommendations. And no more joint and several liability!

Because AB 1338 still gives sellers an option to withhold on gain, rather than total sales price, the bill carries a potentially heavy price tag for the state. The revenue loss resulting from this change is estimated at roughly $30 million per year. Given the state’s precarious financial condition, it is uncertain whether the bill can be passed this year. But at least if it does pass, it now appears that it can be implemented fairly by escrow personnel.

Frankly it is impossible to make many predictions about the Legislature for the balance of the year, or how a Governor facing a recall election will react to the hundreds of bills sent to him for action. If things have always been a little weird in California, they are getting weirder by the day. Welcome to California!

by Michael D. Belote
California Advocates, Inc., Sacramento

Welcome to California!