Legislature(2007 - 2008)HOUSE FINANCE 519
03/12/2008 01:30 PM FINANCE
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HOUSE BILL NO. 357 An Act requiring errors and omissions insurance for real estate licensees; renaming the real estate surety fund as the real estate recovery fund and relating to that fund, and redefining the procedures and criteria used by the Real Estate Commission to make an award from the fund to a person suffering a loss caused by certain misconduct of real estate licensees; requiring a real estate licensee to maintain an office in the state; and providing for an effective date. 1:49:12 PM ELEANOR WOLFE, STAFF, REPRESENTATIVE KURT OLSON (SPONSOR), informed the Committee that HB 357 was introduced at the request the Alaska Association of Realtors. The legislation is intended to mandate errors and omissions (E&O) insurance for real estate agents. The bill would also change the nature of the surety fund to a recovery fund that would be used if there is fraud or deceit. The E&O insurance would cover the majority of the complaints people now have against the surety fund. Representative Kelly asked if anyone was opposed to the bill. Ms. Wolfe said there had not been a lot of opposition. 1:52:57 PM MARK DAVIS, DIRECTOR, DIVISION OF CORPORATIONS, BUSINESS, PROFESSIONAL LICENSING, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, explained that HB 357 is in response to a 2007 legislative audit of the Alaska Real Estate Commission. The audit recommended that the Commission be continued and recommended changes in the surety fund. The fund has had difficulty providing consumers with protection. Other states have moved towards the mandatory E&O insurance proposed in HB 357. The policy would provide uniform protection for all realtors. The bill does not go into effect if a reasonable policy cannot be found. Representative Thomas noticed that the bill requires realtors obtaining a real estate license to have physical offices in the state and asked if that had been a problem. DAVE FEEKAN, ALASKA ASSOCIATION OF REALTORS, clarified the reason for changing the surety fund. The fund was put in place in 1974 in place of bonding. The fund is a self-funded program that covers fraud, deceit, misrepresentation, and conversion of trust. The fund has $250,000 to $500,000 by statute, but has been declining. In the past two years there have been an inordinate number of frivolous claims filed with resulting high administrative costs. Mandatory insurance would deal with some of the claims. 1:58:07 PM Mr. Feekan said the goal of the language is not restraint of business but supervision and record-keeping. A person can get a real estate license after only a forty-hour course and passing a test. This person then handles one of the largest financial transactions of most people's lives. The bill requires the licensee to have an office so that they can be supervised and keep the required records. Representative Crawford asked the difference in cost for E&O insurance and paying into the surety fund. Mr. Feekan did not think the surety expense would change from its current cost of $30 every two years. Judging from the cost in other states, the insurance cost would be approximately $150-200 per individual (as part of a group policy), for $100,000 coverage/$1,000 deductible. The majority of E&O claims are less than $10,000. 2:02:49 PM Representative Gara turned to page 9, line 12, and asked why the word "misrepresentation" was taken out. He wanted to make sure the legislation was not making it harder for someone who had been defrauded by a real estate agent to recover. Mr. Feekan did not know why it was taken out. Representative Gara asked if he would be comfortable leaving the word in. Mr. Feekan said the industry would not have a problem with that. Ms. Wolfe said she would get more information. GENE DUVAL, CHAIR, ALASKA REAL ESTATE COMMISSION, spoke in support of the bill. The Commission believes the changes will better protect the public and close loopholes. They thought the requirement of an office in the state was important because of the internet realtors, which are hard to supervise. 2:05:55 PM PUBLIC TESTIMONY CLOSED. Vice-Chair Stoltze MOVED to report HB 357 out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. CS HB 357 (L&C) was REPORTED out of Committee with a "do pass" recommendation and with attached zero fiscal note #1 by Department of Commerce, Community and Economic Development and zero fiscal note #2 by Department of Commerce, Community and Economic Development.