Legislature(2007 - 2008)CAPITOL 120

04/27/2007 01:00 PM JUDICIARY

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved Out of Committee
<Bill Hearing Canceled>
Heard & Held
<Bill Hearing Canceled>
Heard & Held
<Bill Hearing Rescheduled from 04/23/07>
+ Bills Previously Heard/Scheduled TELECONFERENCED
HB 163 - PROPERTY FORECLOSURES AND EXECUTIONS                                                                                 
1:54:29 PM                                                                                                                    
CHAIR RAMRAS announced  that the next order of  business would be                                                               
HOUSE  BILL   NO.  163,  "An   Act  relating  to   real  property                                                               
foreclosures,  executions,  and deeds  of  trust."   [Before  the                                                               
committee was CSHB  163(L&C); included in members'  packets was a                                                               
proposed  committee  substitute  (CS)  for HB  163,  Version  25-                                                               
LS0630\K, Bannister, 4/24/07.]                                                                                                  
CHAIR RAMRAS, speaking  as the sponsor, relayed  that the genesis                                                               
of HB  163 was the result  of the failure of  subprime borrowers.                                                               
The bill is  meant to clarify things for  borrowers, lenders, and                                                               
title  companies.   He  mentioned  that  in the  prior  committee                                                               
hearing it  was evident that  the lenders and title  companies do                                                               
an able job  of looking out for themselves but  no one is looking                                                               
out for the interest of the  borrowers once it becomes clear that                                                               
they are  in trouble.   No one  seems to be  the trustee  of that                                                               
[home] equity  when a borrower  is going to lose  their property.                                                               
Once a  borrower is in trouble  and it is clear  the property was                                                               
going to  be lost,  there is  often equity  in the  property with                                                               
which  neither the  lender nor  the title  company is  concerned,                                                               
beyond that which the bank was reimbursed.                                                                                      
1:57:09 PM                                                                                                                    
REPRESENTATIVE DAHLSTROM  moved to adopt  the proposed CS  for HB
163,  Version 25-LS0630\K,  Bannister,  4/24/07,  as the  working                                                               
REPRESENTATIVE GRUENBERG objected for the purpose of discussion.                                                                
REPRESENTATIVE LYNN declared  he may have a  possible conflict of                                                               
interest as he is a licensed real estate broker.                                                                                
REPRESENTATIVE  HOLMES  also  declared  a  possible  conflict  of                                                               
interest, as she is a real estate attorney.                                                                                     
REPRESENTATIVE     GRUENBERG     objected,     thus     requiring                                                               
Representatives Lynn  and Holmes to participate  in any necessary                                                               
1:58:11 PM                                                                                                                    
JANE  W.  PIERSON, Staff  to  Representative  Jay Ramras,  Alaska                                                               
State Legislature, sponsor, remarked  on behalf of Representative                                                               
Ramras  that   current  Alaska   statutes  on   foreclosures  are                                                               
antiquated, ambiguous,  unclear, and prone to  litigation.  House                                                               
Bill  163 would  clarify,  simplify, and  modernize,  as well  as                                                               
reduce litigation.  Currently, the  process of foreclosure is one                                                               
that  allows auction  on the  courthouse steps.   At  this point,                                                               
there is  a group, which  she characterized as  "bottom feeders,"                                                               
who  regularly attend  these  auctions,  purchase the  properties                                                               
with the intention of making a  quick sale, and don't really care                                                               
about  the neighborhoods  surrounding the  foreclosed properties.                                                               
House  Bill 163  would  make property  foreclosure auctions  more                                                               
open and accessible.  It  would benefit borrowers, lenders, title                                                               
insurers, individuals,  and neighborhoods.  The  bill was drafted                                                               
using  examples  from the  best  practices  of 11  other  states.                                                               
Currently banks are averaging a  loss of $20,000 per foreclosure.                                                               
This bill would  clarify how dispersal of excess  income from the                                                               
sale would go back to  the borrower, and would require properties                                                               
to  be  listed on  the  internet  and  in  the newspaper.    This                                                               
increased exposure  would attract  more bidders  to bring  up the                                                               
price, purchase homes, and repay more money to the borrowers.                                                                   
MS. PIERSON,  referring to Version  K, relayed that  the versions                                                               
of  the  bill  on  both  sides  of  the  legislature  are  moving                                                               
simultaneously and  similarly.  The  title was changed  to remove                                                               
"post  office" as  a  place of  notification,  because some  post                                                               
offices no longer want to post public notices.                                                                                  
CHAIR RAMRAS  added that  another change was  such that  the bill                                                               
used to say "three months" and now says 90 days.                                                                                
2:03:50 PM                                                                                                                    
REPRESENTATIVE GRUENBERG removed his objection.                                                                                 
CHAIR  RAMRAS  indicated  that  Version  K  was  now  before  the                                                               
CHAIR  RAMRAS went  on to  explain  that the  Internet offered  a                                                               
wider base to bring in more  potential buyers, and that Version K                                                               
addresses  the  issue of  more  competition  for distressed  real                                                               
estate;  the issue  was "who  is  looking out  for the  borrower,                                                               
who's already  in trouble."  It  is fair to anticipate,  as these                                                               
issues sweep across the country,  that these problems will emerge                                                               
in Alaska.                                                                                                                      
CHAIR RAMRAS stated that when  a loan rate goes up significantly,                                                               
the  borrower cannot  afford  the  higher rate,  and  so is  then                                                               
forced to  try to find a  new loan.  However,  because the market                                                               
could  then be  much tighter,  the borrower  may have  difficulty                                                               
finding a  new loan, and  yet the borrower cannot  afford his/her                                                               
current loan  at the higher rates,  but may have equity  in their                                                               
home.     By  creating  more  clarification   for  timelines  and                                                               
broadcasting  the notice  of de-fault,  this will  better protect                                                               
the consumer.                                                                                                                   
REPRESENTATIVE GRUENBERG  asked for  a sectional analysis  of the                                                               
2:08:51 PM                                                                                                                    
STEPHEN ROUTH, Attorney at Law,  Routh & Crabtree, APC, mentioned                                                               
that  his field  of  expertise  is real  estate  finance and  the                                                               
foreclosure  process,   and  that  he  has   written  and  spoken                                                               
nationwide  on  matters  relating to  non-judicial  foreclosures.                                                               
His office has  identified several areas of  foreclosure law that                                                               
could  be  made  more  efficient,   fairer,  and  less  prone  to                                                               
litigation.  This bill addresses many  of these areas.  Section 1                                                               
deletes the  requirement of public  posting at post offices.   It                                                               
has become  impossible to post  at some  post offices due  to the                                                               
interpretation  of federal  regulations by  postmasters that  one                                                               
cannot  post these  kinds of  notices inside  post offices.   His                                                               
office  suggested,  instead  of  requiring  three  public  places                                                               
including  a post  office, just  requiring  three public  places,                                                               
none mandated to be a post office.                                                                                              
REPRESENTATIVE GRUENBERG  referred to  a bill  regarding election                                                               
notices from a  few years ago, and acknowledged  that the concept                                                               
of posting in public places,  especially in larger places, may be                                                               
anachronistic.  He  asked whether such posting is  helpful in the                                                               
foreclosure field,  or whether something  besides posting  on the                                                               
Internet, in addition, should be done.                                                                                          
MR. ROUTH offered  that his experience showed  the most effective                                                               
method was through the Internet.                                                                                                
REPRESENTATIVE  LYNN  asked  what   would  constitute  a  "public                                                               
MR.  ROUTH responded  that this  is not  specifically defined  in                                                               
statute.  However, in practice,  in most judicial districts, this                                                               
would include any  public building, a state court  house, and the                                                               
post  office.   However, as  it  is not  defined specifically  in                                                               
statute,  it "could  be a  tree on  the corner,  as long  as it's                                                               
MR. ROUTH continued  discussing Sections 2 and 3.   He summarized                                                               
that  both  are  designed  to attract  more  interest  in  public                                                               
foreclosure  auctions.   The wider  publicity would  attract more                                                               
bidders.  Section 3 provides a  mechanism for "proving up the web                                                               
REPRESENTATIVE GRUENBERG  asked how  people would find  out where                                                               
the web sites are, both to look at and to advertise on.                                                                         
MR. ROUTH  replied that it should  be the same way  as with legal                                                               
newspapers.  The final arbiters  would be the title companies who                                                               
would provide  a list of  web sites  that qualify.   People would                                                               
most  likely  learn about  these  web  sites  by using  a  search                                                               
engine,  and   typing  in  the   request,  for   example,  Alaska                                                               
foreclosure notices, or something similar.   This would result in                                                               
a list of sites.                                                                                                                
MR. ROUTH continued, explaining that  Section 3 simply allows for                                                               
a mechanism to approve a web  site, similar to the current system                                                               
to  approve newspapers.   Section  4  refers to  time limits  for                                                               
reinstatement.  It changes some  language from three months to 90                                                               
days, and  also puts  a limit  of 5  days before  the foreclosure                                                               
auction to  reinstate or pay off.   The reason for  this limit is                                                               
that one of  the most litigation-prone areas of  this practice is                                                               
at the sale.                                                                                                                    
2:16:41 PM                                                                                                                    
REPRESENTATIVE HOLMES  offered that [Section 4]  appears to limit                                                               
the rights  of property owners  to hold  on to their  property if                                                               
they could come up with the  money, for example, in the last five                                                               
days before the sale.                                                                                                           
REPRESENTATIVE GRUENBERG expressed similar  concerns.  He pointed                                                               
out there  are some  people who might  have a  temporary problem.                                                               
He  asked whether  deleting  the  phrase "up  to  five days"  and                                                           
allowing the  bill to state "up  to the date of  the sale", would                                                               
be alright.                                                                                                                     
MR.  ROUTH  said he  has  no  objection to  such  a  change.   He                                                               
commented  that his  experience is  that no  bank would  refuse a                                                               
payment if it had time to  process the payment.  This [provision]                                                               
gives the bank this  right, if there is a mix up  at the sale, to                                                               
say it is  too late.  A  last minute flurry can  be expensive for                                                               
the borrower, because  the deed of trust says any  money spent to                                                               
protect the security of the deed  of trust goes to the borrower's                                                               
account.   He characterized this  section as system  friendly and                                                               
efficient adding that  he did not feel this  section is "borrower                                                               
REPRESENTATIVE GRUENBERG  commented that the law  tries to ensure                                                               
borrowers are given a fair shake.                                                                                               
MR.   ROUTH   reported   that   Section   5   clarifies   mailing                                                               
requirements; it proposes to change  the language of "grantor" to                                                               
"trustor" to  make it consistent with  the rest of the  bill.  It                                                               
also clarifies actual possession, an area of some litigation.                                                                   
REPRESENTATIVE   GRUENBERG  asked   whether  the   term,  "actual                                                           
physical   possession,"   may    cause   additional   litigation,                                                           
particularly  since   raw  land   or  similar  property   is  not                                                               
necessarily subject to actual possession.                                                                                       
MR.  ROUTH  answered  that  the law  has  always  said  "physical                                                               
possession" or  "possession".  This proposed  change would simply                                                               
clarify  this.    There  was   prior  litigation  regarding  what                                                               
possession really  meant, whether  that was  inferred possession.                                                               
Section 5  states, in combination  with the change in  Section 6,                                                               
how to  deal with determining possession.   He went on  to detail                                                               
Section 6,  which as  a follow  on of  Section 5,  clarified what                                                               
kind  of  notice  is  inferred  from  possession.    The  mailing                                                               
requirement is just one of five  types of notices mandated by the                                                               
statute.  Internet notification would  be an added type of notice                                                               
with  this bill.    Section 6  also  speaks about  non-possession                                                               
liens, and cleans up some of the language.                                                                                      
REPRESENTATIVE GRUENBERG  commented that  the [Version] is  not a                                                               
statute  of limitations  but a  conclusive presumption,  which is                                                               
fairly  unusual in  the law.   He  surmised that  the reason  for                                                               
using conclusive  presumption rather than statute  of limitations                                                               
is that the sponsors did not  want two parties to waive a statute                                                               
of limitation that might impact others  who might not be privy to                                                               
that information  and are, instead,  relying just on  the records                                                               
as to the ownership of the property.                                                                                            
MR.  ROUTH concurred  with  that  summation.   In  response to  a                                                               
question, he  explained that this  is an area of  litigation that                                                               
can unsettle  title to real estate.   This provision sets  a time                                                               
limit regarding  complaints pertaining to affidavits  of posting.                                                               
He recognized the  conclusive presumptive is not  often used, but                                                               
if one  had complied with  the requirements of the  statute, then                                                               
one could  not go  back and  complain about  the affidavit.   The                                                               
affidavit  is considered  to be  correct  after one  year.   This                                                               
allows real  property settlements; record title  to real property                                                               
could be relied upon.                                                                                                           
2:25:22 PM                                                                                                                    
REPRESENTATIVE  GRUENBERG voiced  that a  statute of  limitations                                                               
can  be waived  in civil  cases by  the parties  involved, but  a                                                               
conclusive  presumption cannot  be waived.   He  said he  assumes                                                               
this is a good policy.                                                                                                          
MR.  ROUTH  agreed  with Representative  Gruenberg,  stating  the                                                               
issue is to get  to the same place of settling  the title of real                                                               
MR. ROUTH continued the overview of  Section 6:  the procedure on                                                               
delivering notice  if the property  is raw land  or inaccessible;                                                               
the procedure  if the borrower  is deceased and the  necessity of                                                               
extra notices; and clarification of  who could bring an action to                                                               
restrain a trustee sale.                                                                                                        
MR. ROUTH  went on to discuss  Section 7:  what  happens with the                                                               
proceeds from  a sale and that  it is mandated that  the proceeds                                                               
go  into escrow  until dispersal.   He  explained that  Section 7                                                               
allows  the  trustee  to  accept  bids in  places  which  are  in                                                               
addition  to  the  court  house  steps,  such  as  by  telephone,                                                               
internet, and e-mail,  as long as the trustee has  taken steps to                                                               
ensure that those  methods are workable and would  result in fair                                                               
access for people.   It is designed to allow  money for dispersal                                                               
to be available immediately after the sale.                                                                                     
MR. ROUTH continued with Section  8:  confirmation of the present                                                               
practice that agents for the  trustee may conduct the foreclosure                                                               
auction.   Section  9  clarifies the  procedure  on postponing  a                                                               
REPRESENTATIVE  GRUENBERG  referred  to   Section  8,  and  asked                                                               
whether the rules  and conditions for the conduct of  a sale must                                                               
be made available in advance.                                                                                                   
MR. ROUTH  responded that yes,  in practice the  published notice                                                               
of  sale  that   is  mandated  by  statute   would  contain  some                                                               
information.  Currently,  the practice is to have  the rules read                                                               
prior to  the opening of  the auction.   This bill  would clarify                                                               
that the current system, which works well, would continue.                                                                      
REPRESENTATIVE GRUENBERG questioned who  will qualify an Internet                                                               
MR.  ROUTH responded  that this  qualification  process would  be                                                               
left  to  the  discretion  of  the  trustee.    He  continued  by                                                               
explaining an already tested solution:   the bidder would go to a                                                               
bank and  put money  on deposit  and that  deposit would  be made                                                               
instantly available and transferable to the trustee.                                                                            
MR.  ROUTH  continued on  to  Section  9,  which dealt  with  the                                                               
procedure of postponement of a sale.                                                                                            
REPRESENTATIVE DAHLSTROM  asked who would be  responsible for the                                                               
maintenance and  security of the property  during a postponement,                                                               
and who would be responsible for that expense.                                                                                  
MR.  ROUTH explained  the reason  for the  postponement would  be                                                               
that the borrower  is still in the house and  is simply trying to                                                               
work out  a payment  plan.   This situation  would not  involve a                                                               
vacant  property.   He said  he could  think of  no reason  for a                                                               
vacant property  sale to  be postponed.   In general,  the lender                                                               
doesn't have a right to access the property.                                                                                    
REPRESENTATIVE DAHLSTROM asked who  would make that determination                                                               
for the postponement of a sale, referred to in Section 9.                                                                       
MR. ROUTH relayed that this  decision would come from the lender.                                                               
Current  law determines  that  the lender  can  postpone for  any                                                               
period of  time, for any  reason.  The  change in law  would also                                                               
protect the borrower with the requirement to give new notice.                                                                   
2:35:52 PM                                                                                                                    
MR.  ROUTH went  on to  explain Section  10, which  clarifies the                                                               
division of the  proceeds of a sale, and  addresses the unwinding                                                               
of a foreclosure  auction should a mistake occur  in the process.                                                               
Sections  11  and  12  clarify   the  substitution  of  trustees.                                                               
Section  13  requires  a  bond  on  foreclosure  trustees,  since                                                               
currently  foreclosure  trustees  have no  fiscal  responsibility                                                               
MR.  ROUTH,  in  response  to   a  question  from  Representative                                                               
Coghill, said that  one bond exemption is  for title underwriters                                                               
and one exemption is for  the agents of the underwriters, because                                                               
both are already licensed through the state.                                                                                    
REPRESENTATIVE COGHILL asked if these  are the only exceptions to                                                               
the bonding.                                                                                                                    
REPRESENTATIVE  GRUENBERG  asked  whether   the  bond  amount  of                                                               
$250,000 would be adequate in  all cases.  He suggested, instead,                                                               
a bond amount tied to the value of the property.                                                                                
MR.  ROUTH explained  the bond  was not  per transaction  but for                                                               
each trustee.   He agreed that  the bond might not  be enough but                                                               
since currently  there is no  bond requirement, it might  be good                                                               
to have  an incremental approach.   He continued to  explain that                                                               
bonding  companies  feel this  is  a  reasonable bond  which  the                                                               
companies are comfortable bonding.                                                                                              
2:40:19 PM                                                                                                                    
REPRESENTATIVE  GRUENBERG remarked  that this  bond amount  might                                                               
not be enough to satisfy the cumulative claims.                                                                                 
MR. ROUTH  acknowledged that  this could be  the case,  since the                                                               
bond is per  trustee, not per property.  The  bond requirement is                                                               
similar to current contractor bond  requirements.  To have a bond                                                               
requirement per sale,  the sale cost to the borrower  would go up                                                               
so much  that it wouldn't  be workable.   As there is  no current                                                               
requirement, this would be a modest first step.                                                                                 
REPRESENTATIVE GRUENBERG added  that this bond would  be in force                                                               
and cover all  claims made through the statute  of limitations on                                                               
any action  against the trustee.   He  asked what the  statute of                                                               
limitations would be for the bond coverage.                                                                                     
MR. ROUTH replied  he is not sure there is  an endpoint for these                                                               
bonds.  His  basic understanding, though, is that  the bond would                                                               
be period to period.                                                                                                            
REPRESENTATIVE  GRUENBERG questioned  whether there  should be  a                                                               
requirement that a bond be in  force until the end of the statute                                                               
of limitations.                                                                                                                 
MR.  ROUTH  agreed   that  a  "tail  period"  would   be  a  good                                                               
requirement, but  not at this time.   He said he  would prefer to                                                               
see  how  the current  proposal  works,  particularly given  that                                                               
nothing currently exists.                                                                                                       
[HB 163 was held over.]                                                                                                         

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