• Beware Pitfalls Caused by New Requirements that Public Agencies Pay Recording Fees
  • February 14, 2013 | Author: Cyrus Torabi
  • Law Firm: Stradling Yocca Carlson & Rauth A Professional Corporation - Newport Beach Office
  • Many local governments in California continue struggling to balance their budgets.  Largely unable to raise taxes and having undertaken relentless expenditure cuts, they are also desperately searching for additional revenue sources.  It comes as no surprise, then, that the Orange County Recorder’s Office has invoked an obscure and seldom-used statute to require public agencies to pay a fee when recording lien termination documents.  While the recording fee is hardly substantial, failure to know about it and plan ahead can cause serious consequences to the project timeline.

    Public agencies are generally exempt from having to pay documentary transfer taxes and recording fees.  (Rev. & Tax Code, §§ 11921, 11922; Gov. Code, § 27383.)   There is an exception to this rule, however, for recording lien releases, involving public agencies, frequently used in many types of municipal financings; e.g., where municipal bonds are payable through a lease-revenue structure in which lease documents are recorded for the protection of bondholders, or in connection with development projects.

    Although public agencies have customarily paid no recording fees for such documents as lien releases, county recorder’s offices have the right to collect a fee:

    Notwithstanding any contrary provision of the law, the fee for recording every release of lien, encumbrance, or notice executed by the state, or any municipality, county, city, district or other political subdivision shall be eight dollars ($8) if the original lien, encumbrance, or notice was recorded without fee as provided by Section 27383 of the Government Code.
    (Gov. Code, § 27361.3.)

    Despite the fact that it has been on the books since 1974, this statute has been so rarely invoked that attorneys, title companies, recording agents, and other real estate professionals may not even know it exists.  But since late 2012, the Orange County Recorder’s Office has indeed been requiring public agencies to pay the $8.00 fee when recording lien releases, and no doubt other county recorders will soon follow suit.

    While an $8.00 recording fee can seem inconsequential, failure to properly prepare lien releases or to be prepared to pay the required fee when submitting documents for recording could delay the closing of a transaction involving a public agency, result in erroneous title records or (worst of all) cause a title insurance company to refuse to issue a title insurance policy.  For instance, the inclusion of the usual, standard language on the cover page of a lien release to the effect that the document is exempt from recording fees could lead a county recorder’s office to reject the lien release.  Also, recording agents will not pay the $8.00 fee without express authorization from the client, so it is important to ensure that the fee is included in the recording agent’s charges.

    In order to avoid these pitfalls, counsel experienced in representing public agencies should be appointed to oversee the process of recording lien releases in transactions involving a municipal entity.  Further, savvy practitioners of public agency law are keeping an eye out for other dormant statutes like section 27361.3, which county recorder’s offices might dust off and invoke in their attempts to find more revenues.