Just like the steady reliability of the moon and stars, death and taxes, California citizens can rest comfortably knowing that every spring, between 2500 and 3000 new bills will be introduced in the Legislature to make their lives better. Of these, several dozen, at least, potentially relate directlyto escrow and real estate practices. All 3000 bills are read, and relevant measures are entered into a computer file which may be accessed on a password-protected basis by all CEA members.

The deadline for introducing new bills this year is Friday, February 24. For a variety of
reasons, almost all of the new bills are introduced on or near the deadline date. Thus it is impossible to know at this point what clever ideas may be contained in the new bills. But it is certainly possible, if not likely, that issues raised in Commissioner Garamendi’s “report” on the title and escrow industries will find their way into legislation.

The Commissioner has not indicated whether he will proceed with bills in the Legislature, or with Department of Insurance regulations, or with rate filing decisions, or with some combination of the above. Whichever course is chosen, CEA will be prepared to defend the value and integrity of the escrow function, whether performed in the context of title companies, independent escrow companies, broker escrows, or other. Watch for the spring issue of CEA News to see if one or more of the 3000 new bills relate to the Commissioner’s politically-motivated attack on title and escrow.

Because we are presently in the second year of the current 2005-2006 legislative session, there are also “two-year bills” carried over from last year. The good news is that three bills on which CEA had expressed concerns have been dropped or amended to remove our concerns. These bills relate to “title solicitors”, notary fraud, and “split-roll” property taxes.

Of the three bills, clearly the most significant for CEA was SB 728 relating to title solicitors. CEA members from last year will recall that this bill was sponsored by Commissioner Garamendi, to give the Department of Insurance additional tools to enforce the antirebate laws. Believing that current enforcement remedies against title companies had proven inadequate to prevent illegal rebates, the bill proposed to require registrations by “solicitors” within title companies. The idea was to give the Department regulatory authority over individuals as well as companies.

For CEA, CLTA and others, there were two main problems with SB 728. Especially of concern to CEA were vague definitions of what title solicitors were. While the intent was to cover true marketing specialists within title companies, the definition within SB 728 could easily have been construed to cover escrow officers and assistants. We asked that escrow personnel be deleted from the bill.

The second problem was that the bill provided no clarification on what constitutes an illegal rebate. CLTA in particular requested the Department to adopt a regulation defining the difference between reasonable meals and entertainment on one hand, and illegal activity on the other. The Department indicated that the difference could not be articulated in regulation, and instead contemplated a completely unworkable “zero-tolerance” standard.

Recently the author announced that she would not seek enactment of SB 728. It is unclear whether another approach to the rebate issue might be introduced this year, but we are likely to know after the bill introduction deadline on February 24.

The second bill which has been dropped is AB 1539, relating to notary fraud. This bill proposed a form of “mandated reporting”, where notaries would be required to report to law enforcement if they had reasonable suspicions of fraud. Just as with other mandated reporting laws, the failure to report would itself constitute a crime, with misdemeanor penalties against the notary.

Once again on this bill, CEA, CLTA, CAR and others worked together effectively. We argued that a voluntary reporting option made more sense than criminal liability. After lengthy discussions with the sponsor of AB 1539, looking unsuccessfully for common ground, the author recently indicated that the bill has been dropped.

Finally, a lengthy list of real estate and tax groups had expressed great concern about SB 17, which would have created a “split-roll” property tax system. Split-roll refers to the concept of treating residential and nonresidential property differently for tax purposes, on the theory that commercial property is transferred less frequently and thus avoids reassessment for long periods. While experts differ on whether or not this is true, there is no doubt that split-roll proposals which require automatic reassessments of nonresidential property would greatly increase property tax burdens on business.

Because property taxes are governed by Proposition 13, contained in the California Constitution, SB 17 could not have created a splitroll system without a corresponding ballot initiative passed by voters. But as an implementing measure, the bill was still strongly opposed by business groups. Recently SB 17 was amended to delete
the split-roll approach.

Now, for the next 3000 bills…

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

Three Down, 3000 to Go