Summary of New Law: Starting July 1, 2022, any real estate agent who knows of a possibly discriminatory restrictive covenant in a deed, CC&Rs, or other instrument, should notify the seller and buyer accordingly, and inform them that they can have the language redacted through a new Restrictive Covenant Modification (RCM) process. 

Background: Old deeds and CC&Rs still in circulation contain unlawful discriminatory language restricting the purchase or use of a property by certain people, usually based on their race, ethnicity, or religion. Over the years, California has enacted various laws aimed at getting rid of these unlawful restrictions, such as by requiring the attachment of a cover sheet notifying buyers that a document may contain unlawful restrictions. Yet, according to the current California Legislature, cover sheets do not prevent us from seeing the offensive language in a deed or CC&Rs. The intent of this new law is to hasten the process of permanently removing the offensive language from recorded documents.

What Does the New Law Require? Starting July 1, 2022, any real estate agent, broker, escrow, or title company with actual knowledge that a possibly discriminatory restriction is contained in a deed, CC&Rs, or other instrument being directly delivered to an owner or future owner, must notify them about the restriction, and inform them that they can have the restriction removed through a Restrictive Covenant Modification process (Cal. Gov’t Code section 12956.2(a)(2)). The new law does clarify that, by just providing a document to a seller or buyer, you are not presumed to have read the document or have actual knowledge of its content (section 12956.2(a)(2)).

What Do I Do to Comply With This Law? If you know that a deed or CC&Rs contain a possibly unlawful restrictive covenant under fair housing laws, you would simply inform the seller and buyer in writing of that knowledge, and tell them that they can have the language removed through a Restrictive Covenant Modification (RCM) process. You can also direct them to their local County Recorder’s Office for more information. Make sure to get the parties’ signed acknowledgment of receipt of your written disclosure.

What is the Restrictive Covenant Modification Process? As a preliminary matter, any escrow or title company directly involved in a pending sales transaction must assist in preparing a Restrictive Covenant Modification (RCM) form if requested to do so before close of escrow (section 12956.2(a)(3)). The first step of the RCM process is to obtain a blank RCM form from the local County Recorder’s website. Next, the RCM form should be completed, and submitted for recordation to the County Recorder along with a copy of the deed or CC&Rs with the unlawful restriction redacted. Next, before recording the RCM, the County Recorder must have their County Counsel determine whether the language should be redacted based on fair housing laws (section 12956.2(b)(1)). The County Counsel must make that decision within a reasonable time not to exceed 3 months (absent extraordinary circumstances) (section 12956.2(b)(2)). Finally, the County Recorder will record an RCM form that has been approved by the County Counsel.

Who Can Submit a Request for an RCM Recordation? Anyone can. According to the law, a request can be submitted by a person who holds or is acquiring an ownership interest of record in a property that the person believes to be the subject of an unlawfully restrictive covenant under fair housing laws (section 12956.2(a)(1)). A request can also be submitted by a title company, escrow company, county recorder, real estate broker, real estate agent, or other person (section 12956.2(a)(1)) (see also next paragraph).

Is There Another New RCM Program? Yes. Aside from reviewing and recording RCM requests, all California County Recorders must, starting July 1, 2022, establish a new program to identify and redact any discriminatory restrictive covenant contained in their respective recorded documents (section 12956.3).

Source: The full text of this new law (AB 1466) (codified as California Gov’t Code sections 12956.1 et seq.) is available from the California Legislative Information website.

-Thank You to Karen Spechler and Erin Beck (Santa Barbara Office) for suggesting this week’s legal tip!

Copyright© 2022 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of August 22, 2022. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals. Written by Stella Ling, Esq.