Legislature(2003 - 2004)
04/21/2004 01:15 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 421 - DEED OF TRUST RECONVEYANCE Number 1033 CHAIR McGUIRE announced that the next order of business would be HOUSE BILL NO. 421, "An Act relating to reconveyances of deeds of trust." [Before the committee was CSHB 421(L&C).] REPRESENTATIVE ANDERSON, speaking as the sponsor, relayed that HB 421 is legislation proposed and requested by the Alaska Land Title Association (ALTA), and opined that it will help clear land records of paid off mortgage liens. After a mortgage or a deed of trust has been paid off, a title insurance company could, through the procedures established via HB 421, record the reconveyance. A title insurance company acting as trustee under a deed of trust could release, by deed of reconveyance, a lien after notice to the lender if the title company paid off the deed of trust through a closing. The lender would then be given 60 days to object to the proposed release of the lien. REPRESENTATIVE ANDERSON said it is common in Alaska for the company servicing the mortgage on a home to be located out of state, and so HB 421, which is based on Idaho law, would be helpful in cleaning up many old liens that have been unreleased by lenders who may be out of state or who have [gone out of business]. The net result, he predicted, will be quicker closing and fewer hassles for sellers, lenders, and agents. For example, any previous liens on the deed could be cleared away before they become burdensome on any future transactions or sales of the property. REPRESENTATIVE ANDERSON indicated that the intent of HB 421 is to provide a clear and clean process, allowing liens to be cleared from deeds after satisfactory evidence of payment has been presented to the title company. This bill does not establish any additional risks or opportunities for fraud, and it is not intended to create any unnecessary burdens upon Alaskan mortgage lenders. REPRESENTATIVE GARA said he wanted assurance that HB 421 won't jeopardize someone's property rights. REPRESENTATIVE ANDERSON said he did not think HB 421 would cause such to happen, but suggested that industry representatives could respond to that concern as well. Number 1244 BRYAN MERRELL relayed that he is the immediate past president of the Alaska Land Title Association (ALTA), and is a member of the ALTA's legislative committee. He went on to say: The Alaska Land Title Association is a trade organization representing title insurance agents and underwriters who do business in ... Alaska. ... Over the past few years we've been very active in attempting to clear title records as best we can, to assist the consumer and our customers, and this bill would essentially help us to do that, as Representative Anderson has described. To respond to Representative Gara's [concern]: ... I think that this bill is protective of the property rights of owners of real property in that in a situation where a mortgage lender, for whatever reason, does not release a paid off deed of trust or mortgage that is attached to a piece of property, this would allow the title company to assist that consumer in [releasing] that mortgage debt with notice to the mortgage lender, who has been paid, when we have sufficient evidence that payoff has occurred. And so in that sense it is protective of the property rights of individuals. Number 1353 TERRY E. BRYAN, President, First American Title of Alaska, relayed that his company operates in 10 separate communities in Alaska and perceives HB 421 as being consumer-oriented legislation based on statutes similar to those in Idaho and Oregon. He went on to say: I am currently working with an elderly lady in Anchorage on a 1983 deed of trust for a small amount of money that we know is paid off - we have evidence that it's paid off - but ... the mortgage lender is out [of state], and if they do not reconvey the property, she cannot take advantage of refinance because this old lien ... is there. This bill will allow a title company, only, ... to - upon acknowledgement and having verification of substantial evidence that it has been paid off by the ... canceled check and so forth - in effect, reconvey the property as trustee for the individual. Then she can subsequently sell, refinance, or remove the cloud from the title. ... This happens on a daily basis. ... The Alaska Land Title Association has received ... written support from ... the Alaska Home Builders Association, the Alaska Mortgage Bankers Association, [and] Wells Fargo Bank. Initially there [were] concerns [relayed] ... by the Alaska Bankers Association and, after discussions with them last week and this week, they removed their opposition and concerns regarding the legislation. And it's primarily (indisc.) the need to assist consumers for outside lenders, ... which we see is going to be an increasing role in the Alaska economy due to mailing programs, due to the Internet ... marketing for mortgages for consumers. Number 1466 MR. BRYAN continued: I just did a quick check in our office in Anchorage, ... [and found that] I have 1,485 non-reconveyed deeds of trust in the (indisc.) recording district that have been paid off [but] the people cannot easily refinance or sell until we go through the gyrations of trying to get the lender to do what they should have done [a long time ago]. And we have an obligation to the consumer ... to assist them in the flow of commerce, assist them in closing the transaction. And we are a controlled industry and feel that restricting this ability [to] the title insurance industry is a safeguard for the consumer and for the state of Alaska, and that's one of the reasons we're incorporating the actual forms utilized into the statute. So it would be an established standard and an established process; ... reconveyances could not be done frivolously by non-insurance companies. ... REPRESENTATIVE GARA said he wants to ensure that HB 421 isn't written such that resolving one problem will create another. He directed attention to subsection (f) on page 4, lines 10-12, and asked whether the language therein might extinguish someone else's valid interest in a piece of land. MR. MERRELL replied: Because of the safeguards that have been put into the bill in terms of notice to the lender, and because of the requirement that we have sufficient evidence that the loan has indeed been paid off, I don't think that parties are going to be at risk of losing a valid debt, because we're going to have proof of payment. And that proof is going to [have to] take the form of a ... written statement from the lender [detailing] how much is owed [and] a canceled check showing that that lender got the money sufficient to pay it off, before we would even be willing to do it. ... And in any event, ... we would be liable for a wrongful reconveyance to that lender ..., so I don't think that we're solving this problem on the backs of lenders at all. They've got plenty of ability to protect themselves through the payoff process and through objection to the notice that they would receive in order to protect themselves. And again, ... we've received support from lenders as well, so it isn't like they think that that's going to happen. Number 1669 REPRESENTATIVE GARA clarified that his concern is for persons who have a valid claim to an interest in a property, rather than for lenders. MR. MERRELL opined that HB 421 only speaks to the issue of reconveyances of deeds of trust - releases of the mortgage instrument - which is the preferred mortgage instrument in Alaska. Under the deed of trust form, the trustee has the ability to release the deed of trust when instructed by the beneficiary who is the mortgage lender; as a matter of common law, that's when a mortgage lien typically gets released. Again, HB 421 only addresses the issue of releasing mortgage loans; it has nothing to do with release of other interests in property, whether it be ownership interest, easement interest, or any other kind of interest. REPRESENTATIVE GARA asked whether "trust deed" is defined in statute. MR. MERRELL indicated that "trust deed" is described in the bill and defined elsewhere in Title 34. REPRESENTATIVE ANDERSON noted that members should be in possession of two proposed amendments. MR. MERRELL indicated that he would be willing to speak to those amendments at the appropriate time. Number 1806 MICHAEL PRICE, Owner, Mat-Su Title Insurance Agency, Inc., and Fidelity Title Agency of Alaska, LLC, relayed that before he owned these companies he'd practiced real estate law for 27 years. He said he would speak in favor of both HB 421 and the proposed amendments. He indicated a desire to assure the committee that the bill would not be a problem with what are considered local lenders, those who are domiciled in Alaska. He said that such lenders often send his companies requests for reconveyances and the mortgages are then released. The current problem is a result of both failed lending institutions and Internet banking, and a lot of loans come from companies in other states that are not as responsive about providing the appropriate paperwork to the consumer when they are paid off as are local lenders. For example, for Anchorage property, a Mississippi company will send the release to Ketchikan and record it there. Additionally, in the '80s and early '90s, in the Matanuska-Susitna valley, there were many individual loans made, but when they were paid off, the individuals didn't realize that the deed of trust needed to be released, and such is creating an impediment to commerce. Number 1897 REPRESENTATIVE ANDERSON made a motion to adopt Amendment 1, which read [original punctuation provided]: DESCRIPTION Currently the bill requires the title insurance company to notify the beneficiary or the servicer of the deed before a reconveyance can be recorded. This amendment will change the "or" to "and" so that notification must be sent to both parties. On page 1, line 13 Delete "or a" Insert "and the" On page 1, line 14 Delete "or" Insert "and" On page 1, line 15 Delete "or" Insert "and" On page 2, line 1 Delete "or" Insert "and" On page 2, line 3 Delete "or" Insert "and" On page 2, line 29 Delete "or" twice Insert "and" twice DESCRIPTION Amendment [sic] the number of days that must elapse after mailing a notification from 60 days up to 90 days. The change from 60 to 90 days should occur in the following places: Page 2, line 24 Page 3, line 4 Page 4, line 1 Number 1920 REPRESENTATIVE GRUENBERG objected for the purpose of discussion. He suggested that Amendment 1 be divided into Amendments 1a and 1b, with the "description" verbiage delineating the two. Should his suggestion be adopted, he surmised, Amendment 1a would encompass changing "or" to "and" in several places to indicate that notification should be sent to both the beneficiary and the servicer of the deed, and Amendment 1b would change the number of days that must elapse after mailing notification. [Although no formal motion was made, Representative Gruenberg's suggestion to divide Amendment 1 into Amendments 1a and 1b was treated as adopted.] Amendment 1a then read [original punctuation provided]: DESCRIPTION Currently the bill requires the title insurance company to notify the beneficiary or the servicer of the deed before a reconveyance can be recorded. This amendment will change the "or" to "and" so that notification must be sent to both parties. On page 1, line 13 Delete "or a" Insert "and the" On page 1, line 14 Delete "or" Insert "and" On page 1, line 15 Delete "or" Insert "and" On page 2, line 1 Delete "or" Insert "and" On page 2, line 3 Delete "or" Insert "and" On page 2, line 29 Delete "or" twice Insert "and" twice REPRESENTATIVE GRUENBERG, referring to Amendment 1a, remarked that if Amendment 1a is adopted, the drafter should also correct the corresponding syntax regarding "notice" and "address" where appropriate. MR. MERRELL concurred with Representative Gruenberg regarding the purpose of Amendment 1a, and relayed that it came at the request of members of the banking industry who wanted to ensure that those who have an interest in the loan receive notice as well. Number 2039 REPRESENTATIVE GRUENBERG asked that Amendment 1a be adopted. There being no objection, Amendment 1a was adopted. REPRESENTATIVE GRUENBERG directed attention to page 1, lines 9- 11, which read: (b) Not less than 30 days after payment in full of the obligation secured by a trust deed and receipt of satisfactory evidence of payment in full, a title insurance company shall". He asked why the title insurance industry would want to wait 30 days, since that could result in slowing down the procedure. MR. MERRELL replied: It was something that came through from the Idaho statute, and we never really considered changing that. ... And, perhaps more importantly, I think that that is, in a sense, sort of a cooling off period ...; if there are any questions relating to whether or not a payoff was sufficient, they're going to come up within the 30 days after a transaction is closed. ... [With the 30-day stipulation] you have the opportunity to resolve those things in advance of attempting to reconvey. Plus ... it does give the lender the opportunity to do the right thing and take care of it themselves. MR. MERRELL, in response to a further question, said that in situations wherein there is an "ancient deed," the 30-day time frame would have long since passed, and so should not result in any problems. Furthermore, if a lender is ready to proceed with the reconveyance, the lender would have initiated the process rather than the title company having to take care of it on behalf of the consumer. REPRESENTATIVE GRUENBERG directed attention to Amendment 1b, and surmised that it would provide the beneficiary and servicer 90 days within which to object. Amendment 1b read [original punctuation provided]: DESCRIPTION Amendment [sic] the number of days that must elapse after mailing a notification from 60 days up to 90 days. The change from 60 to 90 days should occur in the following places: Page 2, line 24 Page 3, line 4 Page 4, line 1 REPRESENTATIVE GRUENBERG asked why 60 days is not sufficient. Number 2186 MR. BRYAN replied: Two issues. One is, this was a change made [by request] of several representatives within the Alaska [Bankers] Association, and their thought was ... that some of the organizations are quite large and, [in] receiving notification, they wanted to ensure that they could do the right thing and respond and do the reconveyance, and they did not want the documentation provided from the title company to be internally lost. And [it] just gave them more time to respond. And as a matter of compromise with the [Alaska Bankers Association] we ... accepted their recommendation, [and are now requesting] that change. ... This action is not to replace the obligation of the lender or the individual beneficiary being paid off; they still have the obligation to reconvey. This only is appropriate when they have not ... reconveyed the property - which, traditionally, is never within the first 30 days - or the lender cannot be found or [is] not cooperative. So it would be 30 days after the ... original payoff before it would even be of concern (indisc.) the title company ...; the 30 day window is an extremely narrow window. ... The committee took an at-ease from 2:40 p.m. to 2:41 p.m. Number 2291 REPRESENTATIVE GRUENBERG made a motion to adopt Amendment 1b. REPRESENTATIVE GARA objected for the purpose of discussion. He asked whether, if a former owner is owed compensation but says nothing within 60 days of receiving notice, he/she looses the right to compensation. MR. MERRELL said no. He reiterated that the title company cannot use this procedure unless it has satisfactory evidence that that person has been paid. Additionally, he remarked, one of the forthcoming amendments will stipulate that satisfactory evidence must include a payoff statement in writing from the person who has been paid off and a canceled check showing that he/she received the money. Without satisfactory evidence, title companies would be liable for any damages plus an additional penalty. REPRESENTATIVE GARA indicated that he was satisfied. TAPE 04-69, SIDE B Number 2369 CHAIR McGUIRE asked whether there were any further objections to Amendment 1b. There being none, Amendment 1b was adopted. REPRESENTATIVE HOLM asked what the distinction is between a deed of trust, a title, and a mortgage lien. MR. MERRELL explained that a deed of trust is a consensual lien instrument that's signed by the borrower, and that deed of trust and trust deed are interchangeable terms. Essentially signing this consensual lien instrument says that the borrower is giving a lien to the bank to secure the debt. CHAIR McGUIRE noted that Representative Gruenberg's wife and some students were present to watch the proceeding, and invited them to introduce themselves, which they did. Number 2281 REPRESENTATIVE ANDERSON made a motion to adopt Amendment 2, which read [original punctuation provided]: On page 1, line 8 Delete "the" Insert "any" On page 2, line 2, after the word "section", insert the following: ", and to the address for a beneficiary and servicer personally known to the title insurance company" On page 2, line 16, following the word "information" Insert "for a trust deed" On page 2, following line 20 Insert " Recording information for current assignment of trust deed: Serial number:……………… or Book number:……………… Page number:………………." On page 3, following line 3 Insert "(Phone number)" On page 4, following line 27, insert a two new definition as follows: " 'beneficiary' means both the record owner of the beneficiary's interest under a trust deed, including successors in interest." " 'satisfactory evidence' of the full payment of an obligation secured by a trust deed means a payoff letter, the original cancelled check or a copy, including a voucher copy, of a check, payable to the beneficiary or a servicer, and reasonable documentary evidence that the check was intended to effect full payment under the trust deed or an encumbrance upon the property covered by the trust deed." Renumber the new and existing definitions accordingly. On page 5, following line 1, insert a new section as follows: (j) If a title insurance company reconveys a trust deed without having satisfactory evidence of payment required under (b) or without providing the prior notice to the beneficiary and servicer as required under this section, the title insurance company is liable to the beneficiary, the heirs, successor interest, representatives and assigns of the beneficiary, for all damages occasioned by such neglect or willful act. A title insurance company shall pay a penalty of $300 to the department." Number 2274 REPRESENTATIVE GRUENBERG suggested dividing Amendment 2 into Amendments 2a-2g as follows: Amendment 2a: On page 1, line 8 Delete "the" Insert "any" Amendment 2b: On page 2, line 2, after the word "section", insert the following: ", and to the address for a beneficiary and servicer personally known to the title insurance company" Amendment 2c: On page 2, line 16, following the word "information" Insert "for a trust deed" Amendment 2d: On page 2, following line 20 Insert " Recording information for current assignment of trust deed: Serial number:……………… or Book number:……………… Page number:………………." Amendment 2e: On page 3, following line 3 Insert "(Phone number)" Amendment 2f: On page 4, following line 27, insert a two new definition as follows: " 'beneficiary' means both the record owner of the beneficiary's interest under a trust deed, including successors in interest." " 'satisfactory evidence' of the full payment of an obligation secured by a trust deed means a payoff letter, the original cancelled check or a copy, including a voucher copy, of a check, payable to the beneficiary or a servicer, and reasonable documentary evidence that the check was intended to effect full payment under the trust deed or an encumbrance upon the property covered by the trust deed." Renumber the new and existing definitions accordingly. Amendment 2g: On page 5, following line 1, insert a new section as follows: (j) If a title insurance company reconveys a trust deed without having satisfactory evidence of payment required under (b) or without providing the prior notice to the beneficiary and servicer as required under this section, the title insurance company is liable to the beneficiary, the heirs, successor interest, representatives and assigns of the beneficiary, for all damages occasioned by such neglect or willful act. A title insurance company shall pay a penalty of $300 to the department." CHAIR McGUIRE, as no objection was heard, indicated that dividing Amendment 2 into Amendments 2a-2g was acceptable; [Amendments 2a-2e were subsequently treated as moved for adoption]. REPRESENTATIVE GRUENBERG directed attention to Amendment 2a [text provided previously], and said he has an objection to such a change because he thinks that only the trust deed at issue should be reconveyed, rather than just any trust deed. MR. MERRELL offered his belief that the language on page 1, [lines 4-6], precludes it from being just any trust deed. Number 2203 REPRESENTATIVE ANDERSON withdrew Amendment 2a. Number 2196 REPRESENTATIVE GRUENBERG directed attention to Amendment 2b [text provided previously], and made a motion to amend Amendment 2b such that "to the address" is changed to "to any address". There being no objection, Amendment 2b was amended. Number 2178 CHAIR McGUIRE asked whether there were any objections to Amendment 2b, as amended. There being none, Amendment 2b, as amended, was adopted. Number 2163 REPRESENTATIVE GRUENBERG directed attention to Amendment 2c [text provided previously], and made a motion to amend Amendment 2c such that "for a trust deed" be changed to "for the trust deed". There being no objection, Amendment 2c was amended. Number 2157 CHAIR McGUIRE asked whether there were any objections to Amendment 2c, as amended. There being none, Amendment 2c, as amended, was adopted. Number 2141 CHAIR McGUIRE asked whether there were any objections to Amendment 2d [text provided previously]. There being none, Amendment 2d was adopted. Number 2133 CHAIR McGUIRE asked whether there were any objections to Amendment 2e [text provided previously]. There being none, Amendment 2e was adopted. Number 2121 REPRESENTATIVE ANDERSON made a motion to adopt Amendment 2f [text provided previously]. REPRESENTATIVE GRUENBERG opined that Amendment 2f doesn't make sense as currently written. He suggested that in the first portion of Amendment 2f, the word "both" should be deleted, since only one aspect is listed. Additionally, both portions should be numbered: (1) and (2) respectively. MR. MERRELL remarked that Representative Gruenberg might be correct with regard to the word "both", but suggested that perhaps what was meant was "and successors in interest", rather than "including successors in interest". Number 2089 REPRESENTATIVE GRUENBERG made a motion to amend Amendment 2f such that "including" be changed to "and". There being no objection, Amendment 2f was amended. Number 2079 CHAIR McGUIRE asked whether there were any objections to Amendment 2f, as amended. There being none, Amendment 2f, as amended, was adopted. Number 2071 REPRESENTATIVE ANDERSON made a motion to adopt Amendment 2g [text provided previously]. REPRESENTATIVE GRUENBERG made a motion to amend Amendment 2g such that "In addition" would be inserted at the beginning of the second sentence; such a change would clarify that the penalty is in addition to being liable for damages. There being no objection, Amendment 2g was amended. Number 2033 CHAIR McGUIRE asked whether there were any objections to Amendment 2g, as amended. There being none, Amendment 2g, as amended, was adopted. REPRESENTATIVE GARA remarked that he has asked Legislative Legal and Research Services to research the issue of whether HB 421 would accidentally extinguish anyone's property rights, and that he expects to hear back from Legislative Legal and Research Services by [4/23/04]. He asked what happens if an inaccurate document is relied upon by a title company and the payment really hasn't been satisfied. MR. MERRELL pointed out that such a document would come from the person who is owed the money and if it is in error, once notice is given, the person can bring the mistake to light; he suggested that the situation Representative Gara is concerned with is unlikely to happen very often if at all. He added: "The title companies are ... only going to want to use this in a situation where [they've] ... exhausted all other ability to have the thing released by the lenders themselves." CHAIR McGUIRE surmised that should any concerns arise after Legislative Legal and Research Services responds to Representative Gara's request, he would inform the committee. Number 1909 REPRESENTATIVE ANDERSON moved to report CSHB 421(L&C), as amended, out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, CSHB 421(JUD) was reported from the House Judiciary Standing Committee.
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