Legislature(1999 - 2000)
03/24/1999 03:30 PM House L&C
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HB 143 - REAL ESTATE:SURETY FUND & DISCLOSURES
Number 1650
CHAIRMAN ROKEBERG announced the committee's next order of business
is HB 143, "An Act relating to the executive officer employed for
the Real Estate Commission, to educational materials published by
the Real Estate Commission, to the Real Estate Surety Fund, to
contracts by the Real Estate Commission, and to disclosures in real
property transactions." The chairman commented the committee would
take the public testimony, noting two witnesses in Kenai had been
unable to continue waiting: Ron Johnson and Dave Feeken. As the
bill sponsor, Chairman Rokeberg presented HB 143 to the committee.
The legislation is in two sections. 1) It affects the real estate
surety fund of the Alaska Real Estate Commission. 2) It has
provisions for nondisclosure of psychological (indisc.) to
property. The first part of the bill changes the use of the surety
fund. The chairman indicated the surety fund, by statute, cannot
exceed $500,000 in contributions from part of the real estate
licensees' fees, not to exceed $125 per biennial. After procedural
hearings and claims are made, up to $10,000 per incident can be
awarded out of the fund. The chairman indicated the surety fund is
a form of consumer protection in lieu of bond, established a number
of years ago. The current real estate statute allows portions of
the surety fund above $250,000 to be used for educational purposes.
The commission has funded portions of personal services from the
surety fund. A portion of the executive secretary's salary comes
from the fund; Chairman Rokeberg noted he thinks another full-time
position is almost or completely paid out of the fund. He
indicated additional items paid for out of the fund are the
sponsoring of certain classes, seminars, et cetera, approved by the
commission.
Number 1815
CHAIRMAN ROKEBERG further indicated Alaska Statute requires that
each occupational license program be self-supporting. However, the
real estate licensees are somewhat unusual because of the surety
fund fee in addition to the biennial license fee. The chairman
expressed his view that the use of the surety fund co-mingled what
should be entirely the license fee in with the surety fund fee.
Money is being removed from the surety fund for what the chairman
considers operational expenses. The intent of the first part of HB
143 is to make the biennial licensing fee cover all the
commission's expenses, as is the practice with every other license.
The only money removed from the surety fund would be what is needed
for the administration and servicing of the fund: hearing
officers, attorneys, and all the other expenses and claims that
come out of the surety fund. The chairman stated, "Therefore, when
the biennial cycle comes around, if there is very little use of the
surety fund, which in the last couple years there actually has been
very little use, and now the law allows for lapsing into the GF,
the general fund, when you get over a half million dollars in the
(indisc.), but we put sweep language in the budget so it doesn't
happen, so it's kind of a ruse, that's what I'm trying to do, is
straighten this thing out so what we're doing is only having the
fees paid ... into the fund for the fund, and run the fund
operations out of the fund, and have all the other licensing costs
in their fee. That's the intention."
Number 1946
REPRESENTATIVE BRICE questioned if the sweeping of all the various
funds wasn't a constitutional requirement.
CHAIRMAN ROKEBERG answered no, it is actually in the statute. The
chairman indicated the bill contains a section providing for an
ongoing report regarding the surety fund balance to avoid exceeding
that cap. He commented there have been some accusations Ms.
Reardon is also aware of that the Real Estate Commission has been
using the security fund as a "slush fund" for trips to Hawaii, et
cetera. The chairman noted commission executive staff members had
attended "NARELO (ph), National Real Estate Officers Convention,"
held in Hawaii a few years previously. Although that expense was
completely legitimate in the chairman's opinion, "it has the
specter." The chairman continued, "Plus we always have to be
aware, particularly of the Administration's and the Department of
Commerce and Economic Development Occ-Licensing -- well, it's
actually the commissioner's office that's (indisc.) tapping into
the licensing fees but Miss Reardon has to defend the (indisc.),
she's the great defender of (indisc.), but there's always that
problem too." Chairman Rokeberg noted, as well, the commission has
been publishing the landlord-tenant law book for several years, to
his confusion. He noted this is like a phantom tax on real estate
licensees, although he thinks the state has a clear responsiblity
to publish a landlord-tenant book. In response to Representative
Murkowski's question about the publishing costs, the chairman
answered about $6,000 every other year.
Number 2105
CHAIRMAN ROKEBERG continued that the second part of the bill
concerns psychological impairment, and many states have these
provisions in statute. This takes away any obligation on part of
a real estate licensee to disclose certain background information
about a property including a natural death, suicide, murder or
other crime classified as a felony under state or federal law on
the property. He stated, "In other words, if you have a house
listing ... you should not have to disclose ... you should all know
we have a disclosure form. Any time a residential property is
sold, there is a mandate in the statute that requires that the
disclosure form be filled out and there are certain requirements
for the disclosure. What's happened is there's national case law
about the expectations of what should or should not be disclosed.
There's even a case in Massachusetts where the failure to disclose
... the existence of a ghost in a residential home was grounds for
recision of a contract."
There was some discussion among the committee regard this issue and
ghosts in sold property.
Number 2279
CHAIRMAN ROKEBERG continued, "The real property -- there's certain
background information which shouldn't be disclosed, (indisc.) for
example, the AIDS or HIV-positive disease because it's unlikely to
be transmitted. This particular provision in the law reflects the
federal law which is on the books now. As just a further reminder,
remembering the licensees have to learn their law to remind them
that's part of the federal law and ... they shouldn't do that. And
the other thing is subsection (D) [(C)] on page 3, an amendment I
rather intemperately, without committee hearings, put in a real
estate bill last year that relieves the obligation of a real estate
licensee to disclose a registered sex offender (indisc.) property.
... [We] have some veterans here ... who recall that situation ...
this is a famous provision. And what I want to do is flip the
feedback on the real estate industry and see how they want to
proceed on these particular issues. The first section I think is
an important thing that should be taken care of, the second one's
... something I want to try to get cleaned up."
Number 2388
REPRESENTATIVE BRICE said he felt it is appropriate to put the
landlord-tenant printing someplace besides the Real Estate
Commission. He does think there is going to be an issue with
removing the notification requirements on sex offenders.
CHAIRMAN ROKEBERG asked why Representative Brice would say that.
He indicated the chairman needs to educate the committee.
REPRESENTATIVE BRICE noted he was present and when the law to
register sex offenders was passed and supported it.
CHAIRMAN ROKEBERG stated this has nothing to do with the sex
offender registry.
REPRESENTATIVE BRICE replied yes, it does.
CHAIRMAN ROKEBERG commented, "Well, we have taken care of in a good
part the disclosure, but we haven't take care of the potential
liability on a licensee."
REPRESENTATIVE BRICE said he purchased a home in December. He was
given a piece of paper notifying him the search would not be done,
but providing the appropriate Internet address if he wished to do
it himself. Representative Brice commented he appreciated that
very much.
CHAIRMAN ROKEBERG noted the previous year's legislation had done
that. He commented, "This is the closure, this is the last step in
that."
Number 2510
REPRESENTATIVE HALCRO questioned, "Let me ask you about..."
[TESTIMONY INTERRUPTED BY TAPE CHANGE]
[From tape log notes: 'Landlord-tenant (indisc.) original (indisc.)
having fund pay for that initially']
TAPE 99-30, SIDE A
Number 0001
REPRESENTATIVE HALCRO finished, "...just did."
CHAIRMAN ROKEBERG responded, "I think that probably when the
de-funding of consumer protection (indisc.) about, they transferred
it over there, as I recall. I don't know, may be it'll come out in
testimony."
REPRESENTATIVE HALCRO asked in follow-up, "What about the fact that
real estate agents sell multi-family dwellings thereby they're
selling to somebody who's going to become a landlord." He
questioned whether that didn't fall under the purview.
Number 0046
REPRESENTATIVE MURKOWSKI clarified that the landlord-tenant
handbook is mainly a handbook to aid tenants, primarily, with their
rights regarding any potential evictions.
CHAIRMAN ROKEBERG said there is no question it is a very valid
publication. He agreed with Representative Murkowski's suggestion
the court system should publish it, indicating he doesn't think the
real estate licensees should be required to pay for this. The
chairman further indicated the committee would take the public
testimony.
Number 0139
ERIC DYRUD, Co-Chair, Legislative Committee, Anchorage Board of
REALTORS, testified via teleconference from Anchorage. Mr. Dyrud
referred to AS 08.88.450 which is amended on page 2, Sections 3 and
4 of HB 143, regarding the surety fund. This portion [current
statute] directs that the surety fund be established in the general
fund. The licensees, or at least the Anchorage Board of REALTORS
legislative committee, would like to see the surety fund in an
interest-bearing fund where the interest accrues to the benefit of
the licensees who pay into it.
CHAIRMAN ROKEBERG noted the committee would examine that but he
thinks there will be restrictions based on the appearance of a
dedicated fund situation. The committee can look into whether it
might be possible to have a separate fund that is not in the
general fund.
MR. DYRUD indicated probably about $15,000 to $20,000 in interest
per year could be gained that could be used to reduce the
licensees' fees. Referring to the landlord-tenant publication, Mr.
Dyrud said he is not sure it should be paid out of the surety fund,
but it certainly is a useful book, and is used in the industry as
well as with tenants. He wouldn't necessarily call it pro-tenant.
It is used in the courses taught and in dealing with rental
property management. Mr. Dyrud indicated he used to use the
booklet at least once a month and now uses it perhaps once a
quarter. A lot of the tenants request it, and he provides them
copies.
Number 0321
CHAIRMAN ROKEBERG asked if Mr. Dyrud thought the real estate
licensees should pay for the landlord-tenant booklet.
MR. DYRUD answered that if they had their choice, no.
CHAIRMAN ROKEBERG indicated this was a brief hearing on HB 143; he
wanted to introduce the legislation and circulate it in the
industry. The committee would await further input. He confirmed
there was no one else in Anchorage who wished to testify on the
bill.
Number 0380
SUZANNE MANNIKKO, We [?] Against Sexual Predators (WASP), testified
next via teleconference from the Matanuska-Susitna Borough
Legislative Information Office (Mat-Su LIO). Ms. Mannikko stated
she is opposed to this bill because it removes the responsibility
of Realtors to notify potential buyers/sellers of a sex offender in
the area. Ms. Mannikko described that she recently put her home on
the market and she has no problem with the disclosure of this. She
continued, "Part of protecting our children is being aware of our
environment and our surroundings, and I feel like our state does so
little to protect our children from these sex offenders and repeat
sex offenders. By removing this ... from the bill, here we are
again taking away from our children and I just think it's the wrong
thing to do. And if you're concerned about the sex offender
registration not being accurate, then you need to find some more
financing to put more people out there to make these sex offenders
comply with the laws that we do have. I think this is a poor thing
to do to our children."
Number 0490
CHAIRMAN ROKEBERG informed Ms. Mannikko it is not the duty of a
real estate agent to disclose a sex offender and that is the nature
of this bill.
MS. MANNIKKO agreed, but noted on the form she received from her
Realtor it provided a website address for people, and she would
hate to see even that disappear.
CHAIRMAN ROKEBERG noted that was just enacted the previous year.
MS. MANNIKKO questioned if the bill wasn't to remove the
responsibility of the Realtor in giving notice of sex offenders.
CHAIRMAN ROKEBERG said the real estate agent does not have a
responsibility or duty to notify now; this is just to clarify that.
The chairman commented that is the point.
MS. MANNIKKO replied, "Oh, but that is the point. ... I guess I
did misunderstand this, correct?"
Number 0569
CHAIRMAN ROKEBERG agreed, stating he just wanted to clarify it with
her. The issue is should or should not the real estate agent have
the responsibility.
MS. MANNIKKO interjected she believes they definitely should.
CHAIRMAN ROKEBERG said the agents can't because they sometimes get
into what is called dual agency. The chairman continued, "Where
you have a duty to two people, one the buyer and one the seller,
potentially, after it's fully disclosed, and therefore you're in an
impossible situation." He noted that is why it is a matter of
technicality within the law. A Realtor can disclose that
information if he desires but he shouldn't have a duty to do so,
particularly if he finds himself in a position where whatever he
would do would be basically illegal. Chairman Rokeberg noted that
is the dilemma they are in.
Number 0606
MS. MANNIKKO noted her understanding is that the Realtor has the
duty to disclose potential health hazards and she questioned that
this was not considered a health hazard to children.
CHAIRMAN ROKEBERG replied there is a duty to disclose if the real
estate agent is aware of a defect in a home. There is also a
further duty to be aware of certain things, if the agent has a
level of professional expertise. However, in the chairman's
opinion, to impose a further duty to identify sex offenders goes
beyond the responsibility. He noted, "We have a technical problem
in the law because of the duties of a[n] agent to (indisc.) various
people in the transaction that he finds himself into a -- actually
in a legal box that he can't get out of without some legislative
relief. This in no way is intended to diminish the importance of
the sexual register ... it is also intended to tell the public that
the real estate agents are not the sex offender police either.
That's the duty of law enforcement and of government, and everybody
involved with knowledge of the sexual register. So, to suggest
that the real estate agent has a special duty is not -- I don't
think is fair, and that's really the point of the bill. I authored
the provision on the disclosure last year to help the public, make
sure they knew that the registry existed and ... become
knowledgeable about that. It's kind of hard to explain the
technical details [of] why we need this kind of legislation, but I
think it's -- a good case can be made and it certainly isn't meant
to diminish the amount of notice and awareness of a potential sex
offender to the children of our state, that's certainly not the
intention."
Number 0750
MS. MANNIKKO said, "What you're saying is it's just not the way to
do it."
CHAIRMAN ROKEBERG responded, "No, it's really a legal technical
problem we find ourselves in to try to impose a duty and that's the
reason for the bill. It's not that a[n] agent can't disclose it,
he can if he so desires but once he does that then he's got a duty
and responsibility to one of the individuals as part of the
transaction -- it gets kind of technical to explain but -- and
sometimes that relationship changes so he find himself in a dilemma
where you have a duty to two masters and that's what the problem
(indisc.)."
Number 0793
REPRESENTATIVE BRICE thanked Ms. Mannikko for her testimony. He
explained the real estate agents don't disclose, but they do ask
the person buying the property to sign a piece of paper signifying
that this information has been presented, that the purchasers have
been made aware. The purchasers currently sign the paper saying
that the real estate agent has disclaimed any knowledge of any
sexual offenders in the area, and the paper shows, if the
purchasers are interested, where to find out if there are any
registered sex offenders in the community. Representative Brice
indicated the real estate agents don't necessarily have to disclose
the information, and he thinks that is appropriate. However, he
thinks the provision in the legislation would remove the real
estate agents' requirement to make that information available to
the purchaser; Representative Brice thinks Ms. Mannikko has a valid
point. He thinks that is an important service provided to the
consumer by the Realtor.
CHAIRMAN ROKEBERG thanked Ms. Mannikko for her testimony. He
questioned whether anyone else wished to testify on HB 143.
Number 0921
CATHERINE REARDON, Director, Division of Occupational Licensing,
Department of Commerce and Economic Development, came forward. Ms.
Reardon offered to hold her testimony until a later time if the
chairman desired.
CHAIRMAN ROKEBERG offered a couple of questions, agreeing the hour
was getting late. He asked about the interest-bearing fund
concept.
MS. REARDON replied she would examine it again to give the
committee a definitive answer. She has asked this question before
herself. She believes the surety fund can be in the general fund
and still be an interest-bearing account if the statute specifies
it will earn interest. There may be some other types of funds she
could obtain statutory language from. Ms. Reardon indicated
removing the surety fund from the general fund might create some
problems. Noting it is possible the surety fund could be
interest-bearing, she commented she did not know if there would be
extra work for the treasury or the fund managers but the question
could certainly be posed.
CHAIRMAN ROKEBERG asked Ms. Reardon to discover when and why the
Real Estate Commission received responsibility for the
landlord-tenant booklet.
Number 1014
MS. REARDON assented, noting it is something they have chosen to
do; it is not assigned by regulation or statute. It is a very
popular government publication, many requests are received. Many
agencies request the booklets so they can further distribute them.
Ms. Reardon noted the bill, as she understands it, would not
prevent or stop the commission or division from publishing the
document. She indicated the legislation simply mandates a
publication that is primarily tenant and not equally
landlord-oriented can't be published from the surety fund. Ms.
Reardon maintains they currently try to publish a very impartial,
unbiased item which might very well satisfy the legislation.
Noting she does not want to fight the committee on the issue, it
appears to her publishing the booklet out of the general fund real
estate funding source would still be an option. She stated, "So if
you really don't want that published, we probably need to be real
clear about that or else you might just get frustrated to find
we're still doing it."
CHAIRMAN ROKEBERG noted it is not a large amount but it is kind of
a personal thing: Should the real estate licensees be paying for
it? He thinks it came from the disbanded consumer protection
division (indisc.) Department of Law, and so they tried to find a
place to put it. The chairman questioned again why the real estate
licensees are paying for it.
Number 1121
MS. REARDON suspects there a couple of reasons. The real estate
office receives a lot of telephone calls about landlord-tenant
issues, which is not within the office's area of responsibility.
However, rather than just turning away these members of the public,
it is helpful to offer to send the booklet so people can inform
themselves. Additionally, as Ms. Reardon understands it, there are
licensees involved in dealing with tenants and "we" want them to
know how to deal with tenants legally. She mentioned that property
managers are in the business of collecting rent, keeping it in
escrow accounts, deposits, et cetera. Ms. Reardon informed the
committee the Real Estate Commission is meeting tomorrow and the
next day; she or Grayce [Ms. Oakley, Executive Secretary, Real
Estate Commission] will bring these questions and concerns to the
commission.
CHAIRMAN ROKEBERG mentioned that another thing is the out-sourcing
of the surety fund hearings and counsel. He noted it is not
entirely clear but it is his intention to hire other counsel
besides the Department of Law for the surety fund hearings.
Number 1203
MS. REARDON explained that regarding surety fund hearings, the
commission is simply the judge. In disciplinary actions against
real estate licensees, the division prepares the case acting as the
prosecution. Therefore the division is hiring the prosecution
lawyer - basically the Department of Law. That is not the case
with the surety fund. The division pays for the hearing officer,
not a lawyer, not the Department of Law. In surety fund
proceedings, the member of the public who feels that he/she was
injured presents his/her own case. The division does not
investigate for or argue the person's case. The accused person
also argues his/her own case. The state role is, through the
hearing officer, to make a proposed decision which the commission
then accepts or does not accept. The division is not paying the
Department of Law in this particular setting. Ms. Reardon
indicated the Department of Law might become involved if, for
example, the commission was sued as a result of a surety fund
hearing. Because the division does not investigate in these
situations, the division does not really have any costs in that
area. Ms. Reardon appreciated the removal of the threat that when
the surety fund balance exceeds $500,000, the licensees who paid it
would lose it. She indicated there shouldn't be this inherent
pressure to spend to make sure the $500,000 limit is not exceeded.
That is somewhat this year's situation because it has been a very
low expenditure year. She would ask, from a technical point of
view, that since the law states they cannot go over $500,000, what
happens if they do?
Number 1319
REPRESENTATIVE HALCRO commented that wasn't it the desire in the
bill to create an average over two years, since the fees are higher
one year and shrink the next year while in some cases the
educational and other expenses stay consistent. He indicated the
provision allowing the average daily balance of the fund to be
based on a two-year period would be useful for these yearly
variations.
MS. REARDON responded it would be wonderful if the fund could not
exceed $500,000 at the end of the two-year license period. Ms.
Reardon referred to page 2, line 12, of the legislation, indicating
she had not actually seen the two-year period. Something like that
would be very helpful because that is exactly the problem: the
fund is filled up in one year and it is difficult not to exceed the
cap four months later, but it has to be high enough to make it
through the entire second year. Ms. Reardon feels the chairman has
been very supportive and constructive in working with the division
and the Real Estate Commission. She informed the committee the use
of the surety fund for educational purposes and a staff position is
specifically authorized in the budget each year. It is
appropriated; they are not using it as a "slush fund." The
division is following its budgetary guidelines.
Number 1425
CHAIRMAN ROKEBERG expressed his confusion regarding the fiscal
note, commenting this should have a zero fiscal impact.
MS. REARDON stated her intention was to show that $104,000 less
would be spent out of the surety fund and $104,000 more out of
general fund program receipts, for a net wash. Noting that the
second paragraph of the analysis on the fiscal note says it is a
funding source change, Ms. Reardon indicated there may be an error
in the note and she will review it. No additional monies are being
requested.
CHAIRMAN ROKEBERG mentioned it should be pretty seamless, but has
to be done; he questioned that the next cycle begins in January
2000.
MS. REARDON agreed it does.
CHAIRMAN ROKEBERG indicated this the reason they need to
accommodate this and why the bill needs to pass this session if it
is going to pass. The chairman mentioned the possible removal of
items to ensure the legislation's passage.
CHAIRMAN ROKEBERG asked Ms. Reardon how the hiring was going,
questioning if a freeze was still in effect.
MS. REARDON replied the commissioner's office had signed the
request to hire memorandums that day, and they could speak of that
if the chairman wished. Ms. Reardon commented the other item for
future discussion regards the title change of the executive
secretary on page 1 of the legislation. Her understanding is that
this title change is not intended to trigger a change in pay or
duties. Ms. Reardon said she may be suggesting at the next hearing
that the title be left as "executive secretary", with an additional
sentence, "who will use the working title 'executive director'".
She indicated the current title change as written in the
legislation might unintentionally trigger job classification and
pay range changes.
CHAIRMAN ROKEBERG requested Ms. Reardon pass the legislation on to
the Real Estate Commission, noting he would appreciate the
commission's input. [HB 143 WAS HELD OVER]
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