EXHIBIT 3-B
WATER DEMAND COMMITTEE
ITEM:		DISCUSSION ITEM
2.	REVIEW DISTRICT DEED RESTRICTION PROCESS
Meeting Date:			April 12, 2012	Budgeted:	N/A
From:			David J. Stoldt,	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			Stephanie Pintar	Cost Estimate:	N/A
General Counsel Review: N/A
Committee Recommendation: N/A
CEQA Compliance: N/A

SUMMARY: Deed restrictions are authorized for enforcement of District Rules and Regulations by Rule 116. Deed restrictions are used to enforce Water Permit and Water Distribution System Permit conditions, restrictions or violations, and to notify current and future property owners thereof. They are also used to enforce the District’s Conservation and Rationing Regulations, Well Monitoring Program, River Work, and River Access Permits. Deed restrictions are routinely prepared and recorded by the Water Demand Division, the Planning & Engineering Division, and by the Water Resources Division. This report primarily covers the use of deed restrictions by the Water Demand Division of the District.

Types of Deed Restrictions

The Water Demand Division uses three basic types of deed restrictions, with a number of permutations:

1. Notice & Deed Restriction Regarding Limitation on Use of Water on a Property

2. Notice & Deed Restriction to Provide Public Access to Water Use Data

3. Notices of Non-Compliance and Compliance

A “Notice and Deed Restriction Regarding Limitation on Use of Water on a Property” is the form recorded during the Water Permit process when an applicant voluntarily agrees to install High Efficiency appliances and/or High Efficiency Toilets (HET) to offset new water fixtures being added to the home. Without notice on the title, these water efficient appliances could be removed unknowingly without an amended Water Permit. Proposed changes to the conservation requirements that make HETs the District’s toilet standard will eliminate the need for a deed restriction for HETs. However, the addition of Ultra High Efficiency Toilets (UHET) to the list of appliance credits will add a deed restriction requirement for UHET installation.

“Notice and Deed Restriction Regarding Limitation on Use of Water on a Property” forms are also used to notify future owners of special requirements or restrictions related to (1) the use of a private well on a property; (2) the fact that Water Use Credits have been removed from a Site through a transfer or assignment process; (3) Second Bathroom Protocol restrictions; (4) native Landscaping requirements; (5) situations were Special Circumstances exist regarding the Estimated Annual Water use Capacity; and (6) removal of Lawn and replacement with low water use plants or permeable surfaces.

The second type of deed restriction, the “Notice and Deed Restriction to Provide Public Access to Water Use Data," provides owner authorization to retrieve, collect, compile and report water use data for a specific property. Obtaining this authorization releases the District from the restrictions of the Non-Disclosure Agreement between the District and California-American Water Company (Cal-Am). Use of this form enables the District to have access to consumption information which is used to assess the success of various programs.

The third type of deed restriction includes “Notices of Non-Compliance” and “Notices of Compliance.” Notices of Non-Compliance are recorded on a property title when there is an uncorrected violation of District Rules after sufficient notice to correct a violation. A Notice of Compliance is recorded when the violation is corrected, removing the Non-Compliance from the property title.

Benefits of Deed Restrictions

The Water Permit conditions and restrictions are printed on the Water Permit and are stamped on construction plans. However, past experience has demonstrated that relying on the conditions listed on the Water Permit to notify property owners of conditions and restrictions may not provide sufficient notice of the requirements. Most Water Permits are reviewed only when an application for a Water Permit or a water meter is submitted. Plans are often lost or misplaced after a project is completed. Additionally, experience has shown that the Jurisdictions do not always maintain a copy of the construction plans.

Staff’s experience has also been that most home buyers do not receive a copy of completed Water Permits, and most buyers are not informed of the conditions or restrictions related to a Water Permit. Staff has experienced numerous situations where the property owner was not aware of the Water Permit conditions, particularly if the permit was issued before deed restrictions were routinely recorded to notify property owners and interested parties of District Water Permit conditions (i.e., before 2001). In some cases, the property ownership had not changed, but an agent or contractor acting on the owner’s behalf had agreed to the Water Permit conditions. The current procedure requires the authorization and notarized signature of the owner(s) of record, eliminating any argument that they were unaware of the conditions. Similarly, the deed restriction itself provides notice to potential purchasers or owners of a property that specific conditions must be maintained and details the consequences of not complying with the conditions.

A deed restriction on the property title alerts new owners to the District’s regulations, making it easier to remove contingencies. It also informs them of any outstanding fees that would not be foreseen without a deed restriction on the title. Although deed restrictions do not guarantee that a property will exist continually in a state of compliance with the Water Permit, a deed restriction increases the probability that current and future property owners will be informed of the permit conditions.

The number of deed restrictions processed is generally a minority of all properties receiving Water Permits. For example, of the 633 Water Permits issued in 2011, 235 (37%) had a requirement for a deed restriction prior to issuance of the final permit. A portion of those properties had deed restrictions from a previous Water Permit that had to be updated. Primarily, the permits that require deed restrictions are the result of using a Water Use Credit.

Justification for the Deed Restriction Process

The District regulations that govern the Water Permit process require an accurate accounting of all water fixtures on a Site. The process looks at the number of fixture units or types of use pre-project and post-project to determine if compliance with the Water Permit conditions have been met. Many Water Permits are conditioned on the installation of high efficiency appliances. Installation of these devices is verified by Site inspection, and over time this condition must be re-verified to ensure that replacement of an appliance did not result in a higher water use fixture or use.

In the last few years, due to the high rate of foreclosures, a number of appliances, toilets and water fixtures have been removed from the properties by distressed owners or vandals. When a property is foreclosed, title is transferred to the foreclosing bank. As the new owner, the bank is responsible to bring the property into compliance with District law. However, banks have often refused to bring the properties into compliance, leaving the subsequent owner responsible for installation of the required appliances and replacement of fixtures or removal of unpermitted fixtures. Without deed restrictions, these future property owners may not be aware of specific requirements unique to their property. This also leaves a new property owner subject to the hassle of correcting a violation as the result of not knowing of the Water Permit’s restrictions and/or conditions at the time a property is purchased.

The following is a recent example of how deed restrictions are beneficial: A couple recently inquired about a property that they were considering purchasing. The property was listed as a two and one-half Bathroom home. A deed restriction was revealed as part of a title search done by their agent, indicating that the property was restricted to two Bathrooms after being permitted under the Second Bathroom Protocol (District Rule 24.3). The buyer contacted the District for confirmation on the permitted number of Bathrooms. The fact that the restriction was recorded alerted the buyers of the liabilities for the permit violations for the unpermitted half Bathroom and of the restriction that a third Bathroom was not allowed. The buyer decided not to continue with the purchase, knowing that the property had unpermitted water fixtures and restrictions.

General

To examine the use of deed restrictions by other agencies, staff contacted the Jurisdictions within the District. The City of Del Rey Oaks, due to its small population, was the only Jurisdiction that does not record deed restrictions to enforce permit conditions.

The deed restriction templates were reviewed prior to implementation with representatives from the Monterey County Association of Realtors, First American Title Company, Chicago Title Company, A.G. Davi Real Estate, the Mitchell Group, Coldwell Banker Del Monte Real Estate, and Old Republic Title Company. Information and copies of the deed restriction templates were also provided to Stuart Title Company.

The District’s Technical Advisory Committee (TAC) and Policy Advisory Committee (PAC) also reviewed the proposed deed restriction templates. The TAC/PAC took no action and expressed no concerns about the language in the templates. Changes to the templates must be reviewed and approved by the Rules and Regulations Committee.

Deed Restriction Guidelines

In December 2001, the Board of Directors adopted specific Deed Restriction Implementation Guidelines. Amended guidelines were subsequently reviewed and approved by the Rules and Regulations Committee and the Board in 2005. A copy of the current Implementation Guidelines for Deed Restrictions is provided as Exhibit 2-A.

Timing

A Water Permit with deed restrictions is normally processed within two weeks, if each step of the process (i.e. Water Permit process, deed restriction review, notarizations, courier trips, and recordation) is completed in a timely manner. A Water Permit that does not involve deed restrictions is usually processed within five working days. Delays of more than two weeks are usually the result of the applicant not providing all necessary information to process the Water Permit and/or prepare the deed restriction. Supplemental ownership information is often required for trusts, corporations and limited liability companies. Occasionally, the applicant does not submit the notarized deed restriction in a timely manner. This is often because of multiple signatures are required.

Problems with outside notarizations will cause the Monterey County Clerk Recorder to refuse the documents. This occurs when an outside notary’s stamp is unclear (not always obvious to District staff) or when the manner in which the document was notarized is in error. When this happens, the deed restriction is returned to the District to be properly notarized. This places District staff in a mediation position between the applicant and the recorder’s office. It requires that the applicant be contacted again to have their signatures notarized so the document can be re-submitted to the County Recorder. It also requires reprinting the deed restriction. When there is the need to re-notarize documents, there is a time delay.

Time/Effort/Actual Cost Correlation to Processing Fees

The fees and charges collected on the Water Permit when a deed restriction is involved are intended to have a positive correlation to the actual time, effort, and cost of providing the services and taking the actions set forth in the Fees and Charges Table (Rule 60). Processing fees include: The Water Permit processing fee ($210.00); legal review ($53.00 per deed restriction); courier services ($13.00); and recordation fees ($13.00 to $18.00 per deed restriction depending on the number of pages). If these costs increase, the processing fee is adjusted accordingly.

District staff also offers to “expedite” processing in cases where there is urgency. The District’s process is fast compared to the city/county approval process. Staff schedules weekly appointments with District counsel to complete the review process. However, additional review times are an option, and Legal Counsel is usually available to review urgently needed documents on short notice.

RECOMMENDATION: Staff recommends that the committee receive the report and that no further action be taken.

The District has the authority to enforce its Rules and Regulations, including its permitting and conservation requirements, using deed restrictions. The current deed restriction process has been very successful. Few people express concern about the specific language of the deed restrictions being recorded on the title of the property when a Water Permit is issued. Deed restrictions noticing violations and restrictions are efficient and effective.

EXHIBIT

2-A Implementation Guidelines for Deed Restrictions

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