September 17, 2008

Legislative Committee
Equal Opportunity Committee (Information)

Unconstitutional Covenants in Title Records

(This material is for discussion purposes only and has not been approved by the Legislative, Equal Opportunity or Executive Committees nor by the Board of Directors)

Issue:
Should C.A.R. sponsor legislation setting up a program to remove historic unconstitutional restrictions from real property records?

Action:
Optional

Options:
1. Do Nothing. The restrictive covenants that remain in title records are unenforceable and it may be very expensive, especially at time of sale, to search them out and remove them.
2. Support legislation of others. Both the California Land Title Association and the county clerks association have expressed interest in proactive legislation to “scrub” title records in a way that does not add prohibitive costs to the recording process.
3. Sponsor or Co-Sponsor C.A.R. legislation to either mask or redact the offensive covenants.
4. Other

Status/Summary:
The title records of older housing stock sometimes contain offensive restrictive covenants that attempt to impose a "whites only" ownership limitation, or other unconstitutional limitations, on ownership or occupancy. While these covenants have been illegal for decades and unenforceable since the 1950s, they may none the less give offense to owners or prospective owners that discover them in the course of researching title. This year C.A.R. successfully opposed legislation (AB 2204, De La Torre) imposing a time of sale purging requirement that was estimated to cost hundreds of millions of dollars. Absent some resolution of the issue, similar legislation is likely to continue to be proposed. C.A.R. has been approached to consider co-sponsoring title "clean-up" legislation with the California Land Title Association.

Discussion:

Restrictive covenants have been the subject of corrective action since 1948, when racially restrictive covenants were struck down by the U.S. Supreme Court as unconstitutional.

The issue has been the subject of frequent legislation as well. In fact, C.A.R. was the first interest group in California to successfully sponsor legislation (SB 716, Lockyer, Chap. 500, Stat.s of 1987) on the subject. That legislation, by operation of law, eliminated racial restrictions from real estate documents. Unfortunately, the illegal restrictions are still in the historical record, and continue to inspire legislation. Indeed, just since 1999 the legislature has passed at least four different measures on the subject. The area appears ripe for further activity, because appearances continue to trump legal reality.

Existing law (Government Code 12956.1) requires deeds, governing documents and other documents delivered in a transaction to have a cover sheet or stamp that says:

“If this document contains any restriction based on race, color, religion, sex, sexual orientation, familial status, marital status, disability, national origin, source of income as defined in subdivision (p) of Section 12955, or ancestry, that restriction violates state and federal fair housing laws and is void, and may be removed pursuant to Section 12956.2 of the Government Code. Lawful restrictions under state and federal law on the age of occupants in senior housing or housing for older persons shall not be construed as restrictions based on familial status.”

Existing law also provides a standardized form for a property owner to use in recording a corrected set of CC&Rs that eliminates the restrictive covenant.

The problem presented by AB 2204 and related legislation is twofold:
First, they attempt to "fix" the problem at time of sale, and don't take a comprehensive approach that avoids burdening escrows with untimely delays and costs.
Second, no matter what, the old illegal documents are ultimately discoverable in the property record if the owner wants to search back far enough.

Possible guiding principles for a legislative solution. An ideal solution for protecting the sensibilities of property owners and activists would have (at least) the following features:
1. It would be comprehensively applied, and not be triggered by a transfer.
2. It would not excessively increase costs or create delays of title or transfers. Sponsors will have to decide what level of cost is acceptable.
3. It will actually “redact” or remove the offensive language and not just put additional language in front of it in the chain of title.
4. It will not unduly burden county recorders and result in costs that ultimately fall to transactions.
5. It will be self-executing and not require property owner intervention.

The Social Security Number model. In 2007 the legislature passed AB 1168, Jones, a bill that requires “truncation” or elimination of Social Security Numbers (SSNs) in the publicly accessible record. In the portion of the bill regarding recorded documents, the county recorders were required to create two databases of recorded documents. The first is the existing database which will consist of existing (and new) recordings stored as electronic images. Those images will be reviewed or “scrubbed” by a software program to detect and remove SSNs. The processed documents then become a “public” database, which is the only place (except under court order) where a processed document is accessible to the public. The program is phased into operation as documents are processed and the legislation’s fee authority is due to sunset in 2017. The program may be funded out of existing recorder modernization funds, or it may be funded by a new $1 surcharge on all recorded documents.

Would a $1 surcharge on recordings be an acceptable limit on costs for redacting racially restrictive covenants as well?

What about other restrictions on access to property records? If recorders were to develop an automated system that is powerful enough to detect racial restrictions, it might prove valuable for other sorts of searches too. For example, current law forbids the release of a government official’s home address over the internet. Because there is no practical way for recorders to keep track of and restrict just those records, they have been forced to restrict access for all. If government officials that wished to mask their home address could do so by request, it could free up significant resources of the recorder by making the public database available on line. With appropriate controls, an electronic public database could also lend itself to requests to mask the home address not only of officials, but public safety employees and victims of stalking or domestic violence as well.

The California Land Title Association, which opposed AB 2204 along with C.A.R., is interested in possible joint sponsorship of proactive legislation to purge title records of illegal restrictions. CLTA also favors broadening the usability of the AB 1168 "scrubbing" process.

A note on the value of history - the restrictive covenants that exist today are artifacts of an earlier, less enlightened time. They are potentially offensive reminders of conduct that is now neither allowed nor enforceable. Is it appropriate to remove these evidences of the past, or should they be preserved as reminders of a past that should not be repeated? C.A.R. has no policy on the point, but the question has been raised in previous discussions.

Should C.A.R. sponsor legislation to purge title records if it meets the criteria expressed above?