Legislature(2007 - 2008)HOUSE FINANCE 519

03/12/2008 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHB 338(FIN) Out of Committee
Moved Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved Out of Committee
Moved Out of Committee
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                                                                   
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.                                                                                   

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