Legislature(2007 - 2008)CAPITOL 17

04/20/2007 03:00 PM LABOR & COMMERCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 163 PROPERTY FORECLOSURES AND EXECUTIONS TELECONFERENCED
Moved CSHB 163(L&C) Out of Committee
+= HB 195 LIMITED LIABILITY COMPANIES TELECONFERENCED
Scheduled But Not Heard
+ HB 197 TRUSTS TELECONFERENCED
Scheduled But Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 65 PERSONAL INFORMATION & CONSUMER CREDIT TELECONFERENCED
Heard & Held
HB 163-PROPERTY FORECLOSURES AND EXECUTIONS                                                                                   
                                                                                                                                
5:52:52 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  announced that the  last order of business  would be                                                               
HOUSE  BILL   NO.  163,  "An   Act  relating  to   real  property                                                               
foreclosures, executions, and deeds of trust."                                                                                  
                                                                                                                                
4:53:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  NEUMAN moved  to adopt  the committee  substitute                                                               
(CS) for HB 163, Version  25-LS0630\M, Bannister, 3/27/07, as the                                                               
working  document.   There  being  no  objection, Version  M  was                                                               
before the committee.                                                                                                           
                                                                                                                                
4:54:16 PM                                                                                                                    
                                                                                                                                
STEPHEN  D. ROUTH,  Attorney  at Law,  Routh  Crabtree, told  the                                                               
committee  that he  is  present  at the  meeting  out of  concern                                                               
regarding "the wall  of foreclosures that is  hitting the Western                                                               
States now  and will  be coming  to Alaska."   He  indicated that                                                               
Routh  Crabtree  was  involved in  finding  improvements  to  the                                                               
current  nonjudicial foreclosure  procedure in  Alaska, and  that                                                               
involvement resulted  in the proposed  legislation.  He  said the                                                               
focus for improvement  includes making the process  less prone to                                                               
litigation and fairer to borrowers, lenders, and title insurers.                                                                
                                                                                                                                
4:55:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAMRAS  said of the three  aforementioned classes,                                                               
borrowers   are   the   most   vulnerable,   and   he   requested                                                               
clarification   regarding  how   the  bill   would  benefit   the                                                               
borrowers.                                                                                                                      
                                                                                                                                
CHAIR OLSON said  he would like to first hear  an overview of the                                                               
entire bill.                                                                                                                    
                                                                                                                                
4:56:58 PM                                                                                                                    
                                                                                                                                
MR. ROUTH explained  that the nonjudicial process  is one whereby                                                               
real estate can be taken  back without litigation if payments are                                                               
not being  made on  it.  He  relayed that it  is important  to be                                                               
careful with notices  and the impact on others,  because there is                                                               
no  judge involved  in the  process.   One current  law regarding                                                               
[the sale of  personal property] is that a notice  must be posted                                                               
in three public places and one  posting must be in a post office.                                                               
He said  HB 163 proposes  to delete the post  office requirement,                                                               
because to date,  two post office stations in  Alaska have banned                                                               
the posting  of public  notices.  The  requirement for  the three                                                               
postings would  still exist, but one  of them would no  longer be                                                               
the post office.                                                                                                                
                                                                                                                                
MR.  ROUTH directed  attention  to Section  2 of  the  bill.   He                                                               
stated  that the  last  thing on  earth  a financial  institution                                                               
wants is  a foreclosure, but if  one must happen, the  best thing                                                               
that can happen for a borrower  is that the property sells at the                                                               
foreclosure auction  to a third party  with the money to  pay for                                                               
the property.   He explained that  the third party will  pay more                                                               
than the  bank is owed, and  the borrower typically will  get the                                                               
extra  money.   He said  it is  a moral  and legal  obligation to                                                               
maximize the  amount of a  bid, and putting that  information out                                                               
on the Internet  is the best way  to do that.   He explained that                                                               
the most sophisticated  marketers of real estate  are real estate                                                               
brokers,  and  people  get  information   about  them  and  about                                                               
properties on  the Internet.   He added, "We're the  most enabled                                                               
state on the web in the nation,  so it's a natural for us to have                                                               
a requirement that if you have  a foreclosure, you have to put it                                                               
on the web,  as well as [list it in]  traditional publication and                                                               
newspapers."   He said  newspaper listings  are not  highly read,                                                               
not  attractive,  and are  full  of  legal  jargon.   He  offered                                                               
further details.                                                                                                                
                                                                                                                                
5:01:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE NEUMAN asked  if a person who  carried his/her own                                                               
papers on a  property and sold it to someone  who didn't make the                                                               
payments  would  be required  to  post  that information  on  the                                                               
Internet.                                                                                                                       
                                                                                                                                
MR. ROUTH replied yes.  He continued:                                                                                           
                                                                                                                                
     Just like  you are [required]  to post in  a newspaper:                                                                    
     same requirements;  same kind of safeguards.   And just                                                                    
     like with  the newspaper,  the way  that would  work in                                                                    
     practice is:  the  title insurance companies who insure                                                                    
     the  foreclosure  process  by issuing  a  trustee  sale                                                                    
     guaranty ...  will give you  a list of web  sites, just                                                                    
     like they do newspapers, and  say, "You have to publish                                                                    
     on one of these web sites and one of these papers."                                                                        
                                                                                                                                
MR. ROUTH, in response to  a question from Representative LeDoux,                                                               
confirmed  that  in a  nonjudicial  foreclosure,  the debt  "goes                                                               
away."   In  response  to  a follow-up  question  related to  his                                                               
previous comment that  a third party will pay more  than the bank                                                               
is owed,  noted the only  exception would  be if there  are other                                                               
liens.  Typically,  he said, there is one bank  and one borrower,                                                               
thus the borrower "gets the check at the end."                                                                                  
                                                                                                                                
MR.  ROUTH   turned  to  Section   4,  regarding   timelines  for                                                               
reinstatements, which he  said would change the  notation of time                                                               
[on page  3, lines 15-16 of  Version M] from "[THREE  MONTHS]" to                                                               
90 days".   He explained that since not all  months have the same                                                           
number of  days, saying  three months is  ambiguous.   Section 5,                                                               
regarding  mailing  requirements, he said cleans  up the language                                                               
to clarify  who gets the  written notice.   Section 6,  he noted,                                                               
carries on  that clarification and  addresses how  lien claimants                                                               
can participate, thus reducing the  need for litigation.  [Due to                                                               
technical difficulties, there is  no sound recording from 5:04:47                                                               
PM to  5:05:18 PM; that  segment was reconstructed from  Gavel to                                                               
Gavel's recording.]  ... Section  7 says the trustee who conducts                                                               
the sale  in the process can  accept bids other than  by standing                                                               
on the courthouse steps.                                                                                                        
                                                                                                                                
MR.  ROUTH  returned  to  Section   6,  which  addresses  posting                                                               
requirements, what happens  if the borrower is  deceased, and how                                                               
to restrain a sale.  He continued:                                                                                              
                                                                                                                                
     If the  borrower's deceased right now,  what happens is                                                                    
     you end up going to a  probate master and trying to get                                                                    
     a ...  special master  appointed.  The  probate masters                                                                    
     are objecting to doing this  now.  So, we're suggesting                                                                    
     that we  give notice there's  a deceased borrower  in a                                                                    
     special way  that results in  more notice to  the heirs                                                                    
     than they would  get if you went to  the probate court.                                                                    
     It actually is better for the borrowers.                                                                                   
                                                                                                                                
5:06:42 PM                                                                                                                    
                                                                                                                                
     Keep in mind  that if there's expense  in this process,                                                                    
     the more cumbersome  the process becomes.   If there is                                                                    
     a reinstatement  of the loan  by the borrower,  it just                                                                    
     drives the cost up.   So, if you're foreclosing and you                                                                    
     have  to go  to probate  court and  get an  order, that                                                                    
     process costs  $5,000; the borrower wants  to reinstate                                                                    
     the loan - his reinstatement  cost just went up $5,000.                                                                    
     So,  the less  we  spend, the  less  litigation in  the                                                                    
     process, the more  we allow the borrower to  get out of                                                                    
     the box if they're able to do so.                                                                                          
                                                                                                                                
MR. ROUTH, returning to Section 7,  said it would allow a trustee                                                               
to accept  bids via  the Internet, telephone,  e-mail.   He said,                                                               
"We can  probably do it  now; this just  clarifies we can  do it"                                                               
and would  create a  better, wider market.   Section  8 discusses                                                               
who  may  conduct  a  sale,  while Section  9  discusses  how  to                                                               
postpone a  sale.  Section  10 addresses  how cash proceeds  of a                                                               
sale are divided.   Sections 11 and 12 deal  with substitution of                                                               
a trustee  and are  both housekeeping measures.   Section  13, he                                                               
outlined, would  require that those  who handle the vast  sums of                                                               
money  related  to  a  foreclosure process  are  bonded  for  the                                                               
protection of borrowers and institutions.                                                                                       
                                                                                                                                
5:08:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAMRAS  asked Mr.  Routh why  he is  "pushing this                                                               
legislation."                                                                                                                   
                                                                                                                                
MR. ROUTH explained that he has  been doing this kind of work for                                                               
25 years,  and has  seen the  bad results  of litigation  and the                                                               
money  and time  spent  in  court.   He  said foreclosures  "hit"                                                               
Alaska back  in the 80s, and  he offered his belief  that at that                                                               
time,  Alaska rated  the  highest in  delinquency  ratios in  the                                                               
nation for  awhile.  He warned  that a "wall of  foreclosures" is                                                               
on its  way once more.   Already, Texas is  experiencing 8-10,000                                                               
foreclosures a  month, while  California is  seeing approximately                                                               
6,000  foreclosures each  month.   Mr. Routh  opined that  Alaska                                                               
should ready itself and make the  market "a little bit better for                                                               
borrowers," so that "we don't have  a bunch of property that goes                                                               
back to  banks, but  gets back  in the  community for  people who                                                               
want to  buy it at  auction, and  the process is  less litigation                                                               
prone."                                                                                                                         
                                                                                                                                
5:09:32 PM                                                                                                                    
                                                                                                                                
MR. ROUTH,  in response to  a question from  Representative Buch,                                                               
explained a  cause of  the foreclosures  is "teaser  rate" loans,                                                               
with subsequent  rate increases to  the point where  "the payment                                                               
gets behind the means."                                                                                                         
                                                                                                                                
REPRESENTATIVE  BUCH said  he heard  from a  constituent on  this                                                               
matter, and he  expressed interest in finding a  solution to this                                                               
problem through legislation.                                                                                                    
                                                                                                                                
REPRESENTATIVE  RAMRAS  asked if  the  passage  of HB  163  would                                                               
benefit Mr. Routh or his firm in any fashion.                                                                                   
                                                                                                                                
MR. ROUTH replied  that this would reduce litigation  done by his                                                               
firm.  He continued:                                                                                                            
                                                                                                                                
     The  foreclosure  piece  doesn't make  any  difference;                                                                    
     we'll do  that either  way.  That's  [an] easy  to fix,                                                                    
     fee-type event.   The web  site piece:  we,  like every                                                                    
     trustee and  attorney that does  this, have  web sites.                                                                    
     Whether   we  qualify   or  not   for  this   web  site                                                                    
     requirement, I don't know; we have not analyzed them.                                                                      
                                                                                                                                
5:11:39 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON asked if anyone has expressed opposition to HB 163.                                                                 
                                                                                                                                
REPRESENTATIVE RAMRAS answered no.   He said Mr. Routh appears to                                                               
be working on  the proposed legislation for "the  greater good of                                                               
the process of disposing of distressed  real estate."  He said he                                                               
likes to  "identify vulnerable subsets  in our  communities," and                                                               
in  this case,  homeowner borrowers  are that  vulnerable subset.                                                               
He  noted that  concurrent legislation  is being  carried in  the                                                               
Senate.                                                                                                                         
                                                                                                                                
REPRESENTATIVE  NEUMAN asked  Mr. Routh  if he  anticipates there                                                               
would  be  any increase  in  costs  of real  estate  transactions                                                               
should HB 163 be enacted.                                                                                                       
                                                                                                                                
MR. ROUTH replied  no, not in the normal  buy/sell transaction of                                                               
house buying.  The only area in  which he said he could foresee a                                                               
minor  cost  increase might  be  in  the  cost of  "flopping  the                                                               
property on  the Internet."   However,  with all  the competition                                                               
and sites  available on  the Internet, he  said he  suspects that                                                               
would  not amount  to much.    He pointed  out that  the drop  in                                                               
litigation fees would mean less money spent.                                                                                    
                                                                                                                                
5:15:48 PM                                                                                                                    
                                                                                                                                
[Due to technical difficulties, there  is no sound recording from                                                               
5:16:14 PM  to 5:17:17  PM; that  segment was  reconstructed from                                                               
Gavel to Gavel's recording.]                                                                                                    
                                                                                                                                
MR.  ROUTH,  in response  to  a  comment made  by  Representative                                                               
Ramras,  reviewed once  more how  the use  of the  Internet would                                                               
expand awareness  of available properties  up for bid  and, thus,                                                               
result  in a  win/win situation  for  both the  borrower and  the                                                               
bidder.                                                                                                                         
                                                                                                                                
CHAIR  OLSON  asked  if  there  was anyone  else  who  wished  to                                                               
testify.  [No one responded.]                                                                                                   
                                                                                                                                
5:16:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LeDOUX  moved to  report  CSHB  163, Version  25-                                                               
LS0630\M, Bannister,  3/27/07, out  of committee  with individual                                                               
recommendations and  the accompanying fiscal notes.   There being                                                               
no objection, CSHB 163(L&C).                                                                                                    

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