Nancy O’Malley Cut Real Estate Fraud Prosecution Funding by 85%

As we reported previously, Alameda County District Attorney Nancy O’Malley has proclaimed that her office will aggressively pursue cases of mortgage fraud. The previous post noted that in 2011 when the video below was recorded, O’Malley held a press conference and said, “we will aggressively prosecute those individuals who commit loan fraud, who commit real estate fraud.”

What O’Malley failed to mention is that under her “leadership” the Alameda County District Attorney’s office had cut funding for real estate fraud prosecution by 85 percent.

Passed in 1995, SB 537, codified California Government Code section 27388 (27388) which allows each county the option of assessing a fee on recorded real estate documents to fund a Real Estate Fraud Prosecution Trust Fund (Trust Fund). According to the 2010 report from the Legislative Analyst’s Office (LAO), as many as 27 counties in California might be participating, but in a 2012 report, the LAO was only able to document the participation of 22 counties. The original version of the law allowed up to two dollars per recorded document to be collected. SB 1396, passed in 2008 increased the fee limit to three dollars, and in 2012, SB 1342 amended the law again allowing up to a ten dollar fee per recorded real estate document. The 2009 increase was intended to be a cost of living increase, while the 2012 increase was expected to increase the amount of funding for the program by three to four times the previous amount. Alameda County passed a resolution assessing the two dollar fee on December 5, 1995 and increased the fee to three dollars on January 13, 2009. On November 20, 2012, at the request of O’Malley and County Auditor Patrick O’Connell, the Alameda County Board of Supervisors passed a resolution increasing the fee to ten dollars.

Our first public records request on this issues went to the Alameda County Board of Supervisors asking for information on, and an accounting for, the Trust Fund. 27388 subdivision (d) requires that “the county board of supervisors shall annually review the effectiveness of he district attorney in deterring, investigating, and prosecuting real estate fraud crimes based upon information provided by the district attorney in an annual report. The district attorney shall submit the annual report to the board on or before September 1 of each year.” We requested all of the annual reports, which we expected to include accounting for the Trust Fund. The only annual report to the Board of Supervisors that we received was dated April 4, 1999. We also received an undated 2004 report, but we cannot verify that it was ever presented to the Board.

27388 subdivision (e) says “[a] county shall not expend funds held in that county’s Real Estate Fraud Prosecution Trust Fund until the county’s auditor-controller verifies that the county’s district attorney has submitted an annual report for the county’s most recent full fiscal year pursuant to the requirements of subdivision (d).” Our second records request was submitted to the Auditor, Patrick O’Connell, “for copies of reports showing the county’s auditor-controller verified that the District Attorney ‘has submitted an annual report for the county’s most recent full fiscal year.'” The request to the Auditor also said, we “would expect this would also include the most recent accounting for the Trust Fund.” O’Connell’s office immediately sent the request to District Attorney O’Malley’s office. O’Malley’s office then replied several day later with some records, but no annual reports to the Board of Supervisors.

The response from O’Malley’s office included a table of expenses for the Real Estate Fraud Program for the fiscal years 2006/2007 through 2011/2012.  For the years 2006/2007 through 2008/2009 the Alameda County DA’s office spent $4,802,343 on mortgage fraud prosecutions. O’Malley was appointed District Attorney in September 2009, just after the start of the fiscal year, and for the first three years she ran the office, (2009/2010 through 2011/2012) the office spent $724,649 on mortgage fraud prosecutions, a decline of 85 percent from the previous three years. The question is whether O’Malley was responsible, or was this a result of the 2008 agreement amongst prosecutors to not prosecute predatory lending. Either way, O’Malley’s statements made in 2011 are directly contradicted by the numbers provided by her office.

27388 restricts the use of Trust Fund monies “for the exclusive purpose of deterring, investigating, and prosecuting real estate fraud crimes.” The response from O’Malley’s office shows that in fiscal year 2007/2008 the District Attorney’s office spent $103,622 of Trust Fund monies for a Rehab Counselor II and $77,372 for a Mental Health Specialist III. The following fiscal year, 2008/2009, the District Attorney’s office again spent Trust Fund monies on a Mental Health Specialist III in the amount of $84,036. All of this information confirms that in Alameda County Trust Fund monies are being expended without the county’s auditor verifying “that the county’s district attorney has submitted an annual report for the county’s most recent full fiscal year” and they are being spent for purposes other than “deterring, investigating, and prosecuting real estate fraud crimes.”

After our inquiry we still do not know how much money is in the Alameda County Trust Fund to fight real estate fraud. With the increase in the fees on recording of real estate documents in 2013, Alameda County is probably collecting more than $2 million per year for prosecuting this fraud.  The even bigger question will be if the Trust Fund was not used legally for the last almost 15 years, does Alameda County owe the Trust Fund for all the money that was spent without the required approvals? If so the Real Estate Fraud Prosecution Trust Fund should be able to fund a robust program to prosecute predatory lending and other real estate frauds.