September 17, 2008
Updated December 19, 2008
Updated September 12, 2009

Legislative Committee
Equal Opportunity Committee (Information)

(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 its own legislation setting up a pilot program to encourage a county recorder to test the use of software programs to remove historic unconstitutional restrictions from real property records?

Action:
Optional

Options:
1. Do Nothing. Existing policy would oppose legislation requiring removal at time of sale.
2. Support legislation of others. The California Land Title Association has 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. Wait until January 2010, when the fate of AB 985 will be known, to make a decision on legislation.
5. Other

Status/Summary:
AB 985 (De La Torre) has been passed to the Governor; C.A.R. continues to have an Oppose Unless Amended position on the bill because it creates an unlimited authority for local governments to surcharge real estate recordings. Whether or not the bill is signed by the Governor, should C.A.R. sponsor its own bill to adopt an alternative approach.

This issue has a lengthy history with organized real estate. 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. In  2008, 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. A similar bill was introduced in 2009 as AB 985.

The Real Estate Summit.   In January 2009, the Legislative Committee considered, but did not pass, a motion to sponsor C.A.R. legislation on this subject, and instead directed staff to seek the input of the Real Estate Leadership Summit, an umbrella organization of various ethnic real estate professions. Members of the Summit expressed opposition to the point of sale approach in the De la Torre legislation.

C.A.R.'s Equal Opportunity Committee. In June 2009, the Equal Opportunity and Cultural Diversity Committee went on record to support "C.A.R.’s existing policy to “OPPOSE UNLESS AMENDED” AB 985 (De La Torre) to replace the existing Point-of-Sale provision with an electronic screening approach based upon the existing social security number removal law. The legislation will be funded by a $1-$2 per page charge, not to exceed $10, on recorded documents on an ongoing basis."

Status of AB 985 (De La Torre) Consistent with existing policy, C.A.R. has pursued an Oppose Unless Amended position.  The author has retreated from a point of sale solution, but has also backed away from a comprehensive electronic screening approach like that in use for social security numbers (SSNs). As sent to the Governor, the bill now simply allows a person without an ownership interest in a property to use the existing mechanism to record a "sanitized" real estate document over the top of one containing an illegal discriminatory restriction. C.A.R. has continued to oppose because the bill creates a new recording fee authority for counties that has no "hard dollar" cap and need only be "reasonably related" to implementing the requirements of the bill. It is effectively a new tax on real estate recordings.

While AB 985 has been sent to the Governor, he may not make a final decision to sign or veto the bull until early October.

The question for REALTORS®, whether or not AB 985 is signed, is whether the issue is important enough for C.A.R. to sponsor its own legislation. If the bill is signed, it may make the area less likely to be successfully legislated.  On the other hand, if the bill is vetoed, the author might try yet again to pass some variation of a burdensome point of sale requirement to research old title documents in every transaction. Either way, the law will not contain the requirement to scan and purge all property records that C.A.R. has policy to support.
Discussion:

The AB 1168(Jones) approach. In 2007 Assemblyman Jones introduced legislation, which eventually became law, that required county recorders to use a new software program to "scrub" their electronic records and remove Social Security Numbers (SSNs). The legislation effectively creates a new property data base that is made available to the public, and which will not include the SSN in a reported title document. It has been suggested, and C.A.R has expressed support for using the same approach for illegal restrictions. At least one county recorder has indicated that he would be willing to attempt such a process on a pilot basis.

In 2009, the CLTA was unwilling to sponsor legislation creating the program, but would be supportive of legislation of others (i.e. C.A.R. or the recorders assn.) to do so.

The Previous legislation. 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." AB 985 (De La Torre) contains a "new and improved version of this advisory that will take effect only if the bill is signed into law. The new disclosure is more readable, but doesn't otherwise change the law.

Recent Legislation. The problem presented by recent 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 still discoverable in the property record if the owner wants to search back far enough.

Possible guiding principles for a legislative solution. In discussing a legislative solution for satisfying the concerns of REALTORS®, property owners and activists, suggestions have been made that it include (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, but a $1 or $2 per document cap has been suggested.
3. It will actually “redact” or remove the offensive language from the public data base, and not just put additional language on top 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.

A final 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. take any action at this time?