Document Recording FeesMay 16, 2006Taxation Committee
Housing Opportunity Committee
Local Governmental Relations Committee
Legislative CommitteeThe following is for study only and has NOT been approved by the Taxation Committee,  Legislative, or Executive Committees or the Board of Directors.Issue
Should C.A.R. continue its opposition to the imposition of document recording fees on real estate documents that are already subject toa documentary tax?Action
OptionalOptions
1. Do Nothing.  Maintain C.A.R.’s current position which is to oppose the imposition of document recording fees on real estate documents unless documents that are already subject to documentarytaxes are exempted.2. Change Position.  Change C.A.R.’s current position to allow the imposition of document recording fees within specified limits and/or for specified purposes.3. Other.Status/Summary
SB 521 (Torlakson) is a bill which authorizes Contra Costa County to impose a document recording fee of $1 per page after the first page on the recordation of real estate related documents.  The revenue collected would be used for the development of affordable housing for very low, lower and moderate income households.  C.A.R. has historically viewed document recording fees as a “transfer tax” if they apply to the recording of documents facilitating the transfer of property.  C.A.R. has dropped its opposition to bills imposing a document recording fee when the bills have been amended to exclude documents against which the “documentary transfer tax” (typically $1.10 per thousand dollars of the purchase price) has already been imposed.  Unless thereis a change in C.A.R. policy, C.A.R. will oppose SB 521 and any other measure that imposes a document recording fee without exempting documents already subject to the documentary transfer tax.DiscussionC.A.R. has a long standing policy to oppose documentrecording fees, as well as transfer taxes. Both are imposed at the point of transfer of real estate.  With regard to document recording fees, the state authorizes local governments to charge $4 for recording the first page and $3 for each additionalpage.  For example, in the sale of a typical home, the transfer documents may total twenty pages and, as a result, the homebuyer will pay a $61 document recording fee – $4 for the first page plus $3 multiplied by nineteen for the remaining pages.However, staff understands that some cities and counties consider each of the transfer documents a separate document and, consequently, the $4 fee is levied on the first page of each document thereby increasing the amount of the fee the home buyer is required to pay.  This is significant because there can also be per document recording fees which local jurisdictions calculate by simply increasing the fee for recording the first page since every document has a first page.  A first page recording fee of $7 is not unusual and thus, for example, if there are 5 documents in the twenty pages that are recorded, the recording fee on 5 pages would be $7 while the fee on the fifteen remaining pages would be $3 for a total of $80.In addition, the home buyer (and/or home seller depending on the county or city) will have to pay a documentary transfer tax.  Prior to 1966, the federal government required transfer tax stamps when a deed was recorded.  The federal transfer tax system was abandoned in the mid-1960s and counties were authorized by the legislature to impose a $1.10 per thousand dollars of the purchase price as a documentary transfer tax.  A general law city may also enact a documentary transfer tax at half the rate of the county tax; however, the amount of that tax is offset by the county tax.  In other words, in a general law city, the total amount of the county and city documentary transfer taxes will not exceed $1.10 per thousand dollars of the purchase price.Charter cities, however, can levy taxes without state authorizing legislation and, thus, are not subject to the $1.10 limit.  Currently, there are jurisdictions which have a transfer tax as high as $15.00 per thousand dollars of the purchase price.  The charter city documentary transfer tax is not offset by the county tax and, instead, is added to the county tax.  For example, in a charter city with a documentary transfer tax of $15.00 per thousand dollars of the purchase price, the total documentary transfer tax for a home purchased for $500,000 would be $8,050; $16.10 ($15.00 plus $1.10) multiplied by 500.(There is yet another major fee that some home buyers are being confronted with at the point of transfer of real estate.  “Private”reconveyance fees are fees – which can range up to 1% of the purchase price – that a developer agrees will be imposed on each buyer of a piece of real estate after the first buyer for periods that can range up to 25 years.  The funds generated by this fee are used for environmental mitigation, purchasing open space or for developing affordable housing.  A separate issues briefing paper has been prepared for consideration by the Taxation Committee on the June business meetings. Please see that paper for a more detailed discussion of this new “private” reconveyance fee.)Since the enactment of Proposition 13 there have been numerous threats to impose a transfer tax for a variety of reasons.  While no specific transfer tax proposal has emerged in the legislature, C.A.R. has remained vigilant and vocal about its opposition. Very recently, the Director of Housing and Community Development has been advocating a transfer tax as a way of funding the Statewide Housing Trust Fund.  C.A.R. has been very clear that it is opposed to the imposition of a transfer tax for any purpose and would oppose such an effort if it were advanced.Proposition 46 which passed the legislature and was subsequently enacted by the voters in 2002 was a $2.1 billion bond offering for housing.  The funds raised from the sale of those bonds will be exhausted by the end of this year.  State government, as well as local government, is concerned about generating the revenues necessary to fund about $500 million a year for housing that was generated by Proposition 46.  In fact, in early May, the Legislature approved Senate Bill 1689 (Perata) which places Proposition 1C on the November ballot.  If approved by the voters, this proposition would enact the Emergency Housing, Community Planning and Farmland Preservation Bond Act of 2006 to authorize the issuing $2.85 billion in general obligation bonds for state housing programs.(The Housing Opportunity Committee will be consideringan issues briefing paper at the June business meetings with an eye towards looking at a variety of different revenue sources to determine whether there is an acceptable dedicated revenue source to fund affordable housing trust funds.  Please see that paper for a more detailed discussion of the affordable housing problem and the variety of potential affordable housing funding mechanisms.)The proliferation of local housing trust funds throughout the state is, of necessity, begging the funding question.  Senator Torlakson’s SB 521 is an attempt to authorize Contra Costa County to impose a document recording fee on all real estate related documents with the proceeds committed to the development of affordable housing for very low, lower and moderate income households.  (Needless to say, this fee could be imposed in additional counties either by adding those counties to the provisions of SB 521 or through separate enabling legislation.)In addition to C.A.R.’s long standing policy inopposition to documentary transfer taxes, C.A.R. has also viewed document recording fees as “transfer taxes.”  In 1995, C.A.R. opposed SB 537 (Hughes) until C.A.R. amendments were adopted to exempt recordings related to real estate transfers.  As amended, the bill allowed a county board of supervisors to impose a fee of up to $2 on real estate recordings to fund real estate fraud enforcement activities by county district attorneys.  Ultimately, the bill was signed into law.  While the bill applied to real estate recordings, it did not apply to recordings facilitating a transfer.  In other words, the amendments exempted any recordings against which the documentary transfer tax was imposed.  C.A.R. felt comfortablethat with this amendment, the $2 per recording did not amount to an additional “transfer tax.”  Typical documents against which the fee applies are refinancing documents and quit claim deeds; again, real estate recordings other than thosetransferring real property.In 2004, AB 2783 (Simitian) was advanced imposing a $2 fee at the time of recording.  These fees were to be placed in a special account to fund programs dealing with financial abuse of elder and dependent adults.  Consistent with C.A.R.’s position on SB 537 in 1995, C.A.R. dropped its opposition when the author agreed that recordings affecting a transfer would not be subject to the fee.  Again, C.A.R.’s primary focus was making sure that the recordingfee did not add an additional cost beyond that imposed by the county and city documentary transfer taxes.  The bill passed the Legislature but was vetoed by the Governor.Consistent with our historic policy on document recording fees, C.A.R. could take a position of “oppose unless amended” on SB 521 seeking amendments to expand the recording fee to all documents and excluding those recordings affecting a transfer (i.e., against which the documentary transfer tax is already imposed). In other words, the per page document recording fee would be permissible on all recordings except those transferring real property.  This would be consistent with C.A.R.’s positions on SB 537 in 1995 and AB 2783 in 2004.  Although we havenot requested such an amendment at this point, staff believes such an amendment would be rejected because the targeted purpose of the revenues is housing, and to prohibit the imposition of the recording fee on transfer of housing would seem to be contrary to the purpose of the bill.  Under C.A.R.’s current policy, if the author is not willing to accept the above described amendment, C.A.R. would oppose SB 521 as an unacceptable “transfer tax.” It is also possible to consider some variant of our historic position.  For example, C.A.R. could consider neutrality or support for the measure if revenue from the recording fee is not used in jurisdictions with inclusionary zoning, rent control or other policies that restrict theavailability or affordability of housing.  Another possible approach would be to restrict the use of revenues collected to the same types of properties against which the recording fees were assessed.  If the recording fees are assessed against single-family housing transfers those proceeds would then be limited to the use and development of affordable single-family homes; revenues generated in connection with the transfer of multi-family properties would be restricted or limited to the development of affordable multi-family housing.  Of course, there are other variations as well. Note:  If SB 521 is enacted its provision may be challenged in the courts.  The bill labels the $1 per page charge a “fee” as opposed toa “tax.”  Generally, a fee covers the cost of the service the payer of the fee receives.  Unlike fees, however, all local taxes require ballot box approval and, thus, this “fee” could be challenged as really being a taxand as not having been approved by the local voters.  Also, since the bill dedicates the proceeds from the “tax” to affordable housing, the fee is arguably a special (i.e., for a specified purpose) transfer tax which is prohibited by Proposition 13.