By Michael J. Arnold & Michael Belote, Esq.
Legislative Advocates

As the California Legislature finishes its work for 2017, two issues important to CMA are among the final big issues to be considered. The first issue relates to housing, and the proposal in SB 2 to create a “permanent source” of funding for affordable housing. Second, the legislature is considering a package of bills to move program administrators for “PACE” assessments under the regulatory umbrella of the Department of Business Oversight, in a manner similar to the regulation of California Finance Lenders and brokers.

On the housing issue, California legislators have fashioned a series of bills to build and finance affordable housing. From a dollar perspective, the biggest of the proposals would place a $3-4 billion bond measure on the 2018 ballot. Ironically, this is probably the least controversial of the housing bills. Conversely, the greatest share of controversy revolves around perhaps the smallest proposal from a dollar perspective-the idea of imposing a $75 surcharge on the recording of real estate documents, in order to create a permanent source of money for affordable housing.

SB 2 creates a non-exclusive list of real estate documents whose recordation would face the surcharge of $75 per document, up to a maximum of $225 for each set of documents in a given transaction. Documents relating to transactions subject to the documentary transfer tax would be exempt, although the scope of this exemption is not exactly clear. Presumably grant deeds would be exempt, but what about purchase money deeds of trust?

Proponents of SB 2 generally state that the surcharge would be imposed on refinancings, although the bill specifically covers notices of default, notices of sale, reconveyances, quit claims, easements, assignments and many more. CMA and a number of other real estate organizations have opposed SB 2, not because the need for affordable housing is not evident, but because it is poor public policy to effectively tax the recording of certain documents to pay for a general statewide need like housing.

Inherent in SB 2 is the paradox that a purchaser of a multi-million dollar residence would be exempt from the surcharge for the transfer documents, while a person wishing to save a home from foreclosure would pay the surcharge in order to reinstate or redeem, or to refinance the loan to save the home.

SB 2 requires a two-thirds vote of each house of the legislature, because of state constitutional requirements on imposing fees and taxes. Recently a separate bill was amended to provide refunds of the surcharge in the case of “hardship” refinances. Whether or not a 2/3 majority can be achieved on SB 2, coming as it does behind previous bills increasing gas taxes and others, will be one of the final showdown issues of the legislative year.

The second major issue of interest to CMA relates to “PACE” assessments. For those not familiar with this growing form of real estate financing, PACE stands for “property assessed clean energy.” Typically cities and counties contract with a company acting as a “PACE administrator,” which in turn employ “PACE solicitors” to work with homeowners and business to install energy efficiency improvements like HVAC, insulation, windows, and the like.

The “assessment” is added to the property tax bill, giving it superpriority over traditional financing. PACE programs are popular with local government officials and policymakers, because they are intended to finance improvements in energy efficiency, but at the same time abuses have come to light, where solicitors have sold homeowners on improvements which they do not need or cannot afford.

To address the growing litany of issues, AB 1284 proposes to regulate PACE program administrators and solicitors through DBO, with language which largely parallels current provisions for CFLs. It is important to note that the bill does not impose any new standards or duties on finance lenders or brokers. More controversially, AB 1284 imposes underwriting standards on PACE financing, standards which are both greater than contained in current law, but lesser than standards imposed by state and federal law on institutional and private lenders.

CMA has been supportive of the mission to regulate PACE administrators and solicitors, but believes that greater care should be taken to insure that PACE underwriting and ability to pay protections appropriately mirror standards on traditional financing.