Legislature(2007 - 2008)CAPITOL 17
04/20/2007 03:00 PM LABOR & COMMERCE
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* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
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).