What Were They Thinking?

 

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(What) Were They Thinking?!

by:  Douglass W. Dewing

            In its peripatetic pursuit of financial solvency during the 2004 session, the General Assembly passed several bills that will impact on the recording process.  Several of them emerged, like Botticelli's Venus from the waves, shrouded in mystery.

            The most pressing change, and likely to have been implemented before this issue of the Examiner is printed, is the expansion of the types of recordings subject to the $10 increase in recording fees.  Just as happened two years ago in the case of deeds, this increase was hidden in a budget bill.  Among the interesting facets of its implementation is that the bill was effective April 15 (a day already infamous in its own right), the day it was approved by the Governor, but no one knew about it until May 26.  Clerk's offices (especially those suffering from delays in accepting documents for recording) are balancing the necessity of complying with the bill's implementation date with the inequity of rejecting documents already delivered for recording.

            The text of the relevant section of House Bill 29:

3-6.01 RECORDATION TAX FEE

There is hereby assessed a ten dollar fee on (i) every deed for which the state recordation tax is collected pursuant to 58.1-801A and 58.1-803, Code of Virginia: and (ii) every certificate of satisfaction admitted under 55-66.6, Code of Virginia. Revenue generated from such fee shall be deposited to the general fund. 2004 Acts of Assembly, Chapter 943.

            An unintended consequence of this secretive style of legislating fees is that settlement statements for transactions closed during the session are in error.  Buyers and sellers have gone on with their lives, spent their proceeds, but the prompt and tardy lender alike will deliver certificates of satisfaction to settlement agents across the Commonwealth for recording --  settlement agents who didn't collect enough money to record them.  Will they even get recorded?  Who is going to pay?

If the General Assembly had included these increases in legislation amending the fees that can be charged by the Clerks, for example 17.1-275, the bills might have been identified early in the session by the coastwatchers of the real estate industry, the members of the broker, lender, and land title associations who live (at least during the time the General Assembly is in session) by the maxim "No man's life, liberty or property is safe while the legislature is in session." (Popular credit for that goes to Mark Twain, but Bartlett's Quotations cites to Judge Gideon J. Tucker, Surrogate, in an 1866 report of the final accounting in the estate of A. B.New York Surrogate Reports, 1 Tucker (N. Y. Surr.) 249 (1866). Respectfully Quoted: A Dictionary of Quotations.  1989.)   Despite the admonition of Baron Otto von Bismark, "People who love sausage and respect the law should never watch either of them being made," there are any number of observers who sacrifice valuable time away from their jobs, their families or other pursuit of happiness to monitor the General Assembly.  A little legislation in the sunshine, instead of the dark, smoke-filled (Does anyone in Richmond still smoke?  Probably not, after the cigarette tax increase contained in the next bill) back rooms of the finance committees could have prevented this inevitable drain on the time and resources of the title industry.  Legislation by ambush is not in the Constitution, and responsibility for the surprise (to say nothing of the unrecorded instruments) caused by this enactment should be squarely laid at the steps of our General Assembly. 

            A second enactment, also in one of the budget bills, increased the rate of the state recordation tax from its current $.15 per $100 of valuation rate to $.25 per $100.  This increase is applicable to deeds, leases and deeds of trust.  The decreased rate available to deeds of trust in excess of $10 million is retained.  The new brackets will be $.25 per $100 for the first $10 million; $.22 per $100 for the second $10 million; $.19 per $100 for the third $10 million; $.16 per $100 for the fourth $10 million; and $13 per $100 for all amounts in excess of $40 million.  HB 5018, signed by the Speaker of the House on April 28, and by the President of the Senate on April 30, not assigned a reference in the Acts of the Assembly at the time of this writing.

            Unfortunately for the title examiner delivering instruments to the recording desk and the settlement agent computing the checks to go with them, there are two recordation taxes imposed on instruments submitted for recordation:  the state recordation tax and the local recordation tax.  The local recordation tax is computed " in an amount equal to one-third of the amount of state recordation tax."  58.1-814.  As a numerically challenged member of the population, I could be wrong, but, contrary to the statute in effect for as long as I've been involved in this industry, NONE of the tax rates is divisible by three!!  Is the new rule going to be "Always round up" which would be in keeping with the application of the recording tax brackets?  Are we permitted to apply the normal "rounding" rules learned, even if imperfectly, in grade school? 

            Reportedly due to a lack of collegiality in the General Assembly during the session, it ran overlong.  The effective date for this recording tax change, by application of Article IV, Section 13 of the Virginia Constitution, should be September 1.

            Lest I be accused of an overly critical opinion of the General Assembly, Senate Bill 241, Acts of the Assembly, Chapter 676, amended 17.1-279 to increase the Technology Trust Fund assessment from $3.00 to $5.00 per instrument.  This bill has the laudable goal of allowing the use of the Trust Fund for developing and updating land records automation plans for individual clerks' offices; modernizing land records in individual clerks' offices and providing secure remote access to land records statewide; obtaining and updating office automation and information technology equipment; preserving, maintaining and enhancing court records, including, but not limited to, the costs of repairs, maintenance, service contracts and system upgrades; and improving public access to court records. However, not all the funds may benefit the land records, as the bill allows the clerk to use the Trust Fund for technology improvements in the law and chancery and criminal divisions, theoretically after implementation of automation of land records with statewide secure remote access. The bill repeals the sunset provision of July 1, 2008, and declares that the intent of the General Assembly is that secure remote access be provided by all clerks by July 1, 2006.

            Senate Bill 73, Acts of the Assembly, Chapter 492, is another laudable attempt on the part of the General Assembly to be proactive.  On April 15, 2002 (there's that date again), the United States District Court for the Western District of Virginia struck the portion of the Virginia Constitution which prohibited churches from incorporating.  In order to facilitate the anticipated changeover of previously unincorporated associations to the corporate form, the General Assembly inserted a small change in the recording tax exemption statutes, essentially equating an incorporated church as grantor or grantee with the trustees of a church in 58.1-811(A)(2) (exemption from state recordation tax on deed to church) and 58.1-811(B)(2) (exemption from state recordation tax on deeds of trust from church).  Unfortunately, they tinkered a little too much, and when they amended 58.1-811(C)(5), they changed the language exempting "any church" from grantor's tax to exempting "the trustee or trustees of a church or religious body or from an incorporated church or religious body."  There is a third kind of church located in Virginia, that in which title to its real estate is held by an ecclesiastical officer.  The most notable examples of which are the Established Church which is the center of so much of Virginia's history (the Anglicans) and the Roman Catholic Church.  This third form of organization was recognized in 58.1-811(G), a definitional section in which "The words 'trustee' or 'trustees,' as used in subdivision 2 of subsection A and subdivision 2 of subsection B, mean the trustees mentioned in 57-8 and the ecclesiastical officers mentioned in 57-16.  The definitional section was not amended.  By replacing "any church" with the "trustees or incorporated church" language, and not amending the definition to make it applicable to sub-section C, the General Assembly has discriminated against one form of religious organization in the Commonwealth.  Catholics and Episcopalians may not have the best public relations campaigns going on at the moment, but any Delegate or Senator who rewrites a bill, or has it rewritten, ought to consider the implications of their proposed changes.  This session of the General Assembly provided numerous examples where such consideration was lacking.

            The last item of mention may have been foreseen by Justice Brandeis:  "Experience should teach us to be most on our guard to protect liberty when the government's purposes are beneficial."  Olmstead v. United States, 277 U.S. 438, 479 (1928).  As Justice Black once pointed out, "The motives behind the state law may have been to do good. But . . . [h]istory indicates that urges to do good have led to the burning of books and even to the burning of `witches.'" Beauharnais v. Illinois, 343 U.S. 250, 274 (dissenting opinion).  Although Justice Brandeis was dissenting on the subject of wiretaps, his words may be equally applicable to the subject of recording fees.   A public-spirited legislator convinced other well-meaning (even if lacking, only for the moment, full collegiality) members that the Virginia Outdoors Foundation (a beneficial organization, without a doubt) needed a few extra dollars.  Therein lies the genesis of HB 549, Acts of the Assembly, Chapter 990, which adds a $1 fee to recordings in some jurisdictions, but not others.

58.1-817. Fee for open-space preservation.

In addition to all other taxes and fees imposed by this chapter, beginning July 1, 2004, there is hereby imposed a $1 fee on every deed admitted to record in those jurisdictions in which open-space easements are held by the Virginia Outdoors Foundation. The fee shall be collected as provided in 58.1-812 and the clerk shall deposit all fees collected hereunder into a special fund within the state treasury which shall be created on the books of the Comptroller for this revenue. On a monthly basis, the Comptroller shall distribute all revenue collected from such fee to the Virginia Outdoors Foundation, which shall accept, hold and administer such funds in accordance with its purpose and powers as set forth in Chapter 18 ( 10.1-1800 et seq.) of Title 10.1.

            Fortunately, the beneficiary of this largess has prepared a chart showing the cities and counties in which the Foundation holds an open space easement.  One can but anticipate the eagerness with which localities not on the list will clamor for the creation of open space in their jurisdiction, so their arbitrage earnings may increase.  After delivery to the Foundation, established to promote the preservation of open-space lands and to encourage private gifts of money, securities, land or other property to preserve the natural, scenic, historic, scientific, open-space and recreational areas of the Commonwealth, the Foundation shall hold and administer these funds in accordance with its statutory purpose and powers.

            According to the Foundation, the jurisdictions in which the fee will apply are:

 

Accomack Frederick Orange
Albemarle Fredericksburg Page
Allegheny Galax (City) Patrick
Amherst Giles Pittsylvania
Appomattox Gloucester Powhatan
Augusta Goochland Prince Edward
Bath Grayson Prince George
Bedford Greene Prince William
Bedford (City) Halifax Pulaski
Botetourt Hanover Radford (City)
Buckingham Henrico Rappahannock
Campbell Henry Richmond
Caroline Highland Rockbridge
Carroll King and Queen Rockingham
Charles City County King George Russell
Charlotte King William Scott
Chesapeake (City) Lancaster Shenandoah
Chesterfield Loudoun Spotsylvania
Clarke Louisa Stafford
Craig Madison Suffolk (City)
Culpeper Middlesex Sussex
Cumberland Montgomery Virginia Beach
Essex Nelson Warren
Fairfax New Kent Washington
Fauquier Northampton Westmoreland
Floyd Northumberland Winchester (City)
Fluvanna Nottoway Wise
Franklin   Wythe

 

One can only hope the Foundation will provide regular updates as new jurisdictions are added to the list. 

As Will Rogers said, "I don't make jokes. I just watch the government and report the facts."

 

 

 

 

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