Analysis of the 2008-09 Budget Bill: General Government

Department of Real Estate (2320)

The primary mission of the Department of Real Estate is to protect the public in real estate transactions. It carries out this mission through its licensing, enforcement and recovery, and subdivisions programs. The Licensing program conducts examinations to ensure that individuals who wish to work in the real estate industry meet specific qualifications. The Enforcement and Recovery program conducts compliance audits of licensees and administratively prosecutes violations of the Real Estate Law. The Subdivisions program issues public reports with relevant information on subdivided lands for sale.

The budget proposes total expenditures of $45 million, mostly from the Real Estate Fund, for support of the department in 2008–09. This represents a decrease of $2.4 million, or 5 percent, compared to the current–year level. The decrease primarily reflects adjustments for expiring one–time costs. The budget proposes a staffing level of 336 positions for 2008–09, which is a slight decrease compared to the current year.

Real Estate Fraud Prosecution Trust Fund Program

Current law requires the Legislative Analyst’s Office to report annually to the Legislature certain information related to real estate fraud cases in counties that participate in the Real Estate Fraud Prosecution Trust Fund Program. The report must also include information on the types of expenditures made by the law enforcement agencies of those counties.

Background. In 1995, the Legislature enacted Chapter 942, Statutes of 1995 (SB 535, Hughes), which created the Real Estate Fraud Prosecution Trust Fund Program. The program allows counties to establish a fee of up to $2 for certain real estate documents filed with the county to support local law enforcement activities to fight real estate fraud.

Counties that opt into the program are required to deposit any fee revenues into a Real Estate Fraud Prosecution Trust Fund for use by local police, sheriffs, and district attorneys to “deter, investigate, and prosecute real estate fraud crimes.” Local law enforcement agencies get 40 percent, and district attorneys get 60 percent of program allocations from the fund. In counties where the district attorney exclusively does the investigation, 100 percent would go to that office.

Recipients of the monies are required to provide an annual report to the county board of supervisors on past–year expenditures, the number of filed complaints of real estate fraud, and program outcomes. Chapter 531, Statutes of 2005 (AB 901, Ridley–Thomas) amended the law to require the county board of supervisors to submit those annual reports to the Legislative Analyst’s Office (LAO). It further required the LAO to annually compile the information in the reports and report to the Legislature.

No Reports to LAO Until 2007. In October 2007, our office received reports from Sacramento and Santa Clara Counties. These are the first reports that have been submitted to our office since the enactment of Chapter 531. However, it is our understanding based on anecdotal information that as many as 22 counties may be participating in the program. This suggests that many counties may not be aware of their obligation to report on the program.

Summary of Local Expenditures. In Sacramento and Santa Clara Counties, the Real Estate Fraud Prosecution Trust Fund monies have been used to establish and maintain a real estate fraud unit within their respective district attorney’s offices. The units are similar in size and composition: Sacramento has five positions dedicated to its unit, and Santa Clara has six positions. Generally, these units consist of attorneys, investigators, and paralegal staff. In Sacramento, the funds also have been used to establish real estate fraud investigative units within the sheriff and police departments.

Figure 1 shows 2005–06 expenditures for the reporting counties. This is the latest year for which complete data were available. As the figure shows, Sacramento spent $1.3 million and Santa Clara spent $936,000. Of these amounts, about 80 percent was used to cover salaries and benefits and the remaining 20 percent was used for services, supplies, and overhead.

Current law places a 10 percent cap on the amount of fee revenues that can be used for administrative costs. However, we could not determine based on the available information whether the reporting counties complied with this requirement.

Summary of Program Statistics. Figure 2 shows the program statistics reported by Sacramento and Santa Clara Counties for fiscal year 2005–06. As the figure shows, these counties reported similar statistics for 2005–06.

Recommend Coordination of Local Reporting Procedures. Based on anecdotal information, it is our understanding that as many as 22 counties may be participating in the program. Yet, we have only received reports from two counties. This suggests that many counties are unaware of the statutory reporting requirement. The Legislature may wish to direct the Department of Real Estate at budget hearings to conduct outreach to the counties regarding this program and reporting requirement.

We would also note that in compiling the information for this report, we encountered a number of issues with the reported data. For example, the counties reported on different fiscal years. Sacramento County provided reports for 2004–05 and 2005–06, while Santa Clara provided reports for 2005–06 and 2006–07. Additionally, some of the program outcomes, such as the number of cases investigated, were defined differently by the reporting counties. These types of data problems can make it very time consuming to reconcile the county reports and provide summary information for all participating counties. More importantly, such problems diminish the quality and usefulness of the data for purposes of county–to–county comparisons and statewide review.

The Legislature may wish to further direct the department to work with the participating law enforcement agencies to develop a standard approach to reporting the data. This likely would improve the quality and comparability of the data, as well as allow for more efficient delivery of the statewide report on activities supported by the Real Estate Fraud Prosecution Trust Fund program.