Legislature(2011 - 2012)BELTZ 105 (TSBldg)

01/24/2012 03:30 PM Senate COMMUNITY & REGIONAL AFFAIRS


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 154 NATURAL GAS CONVERSION PROGRAM/FUND TELECONFERENCED
Heard & Held
*+ SB 122 REAL ESTATE TRANSFER FEES/TITLE PLANTS TELECONFERENCED
Heard & Held
         SB 122-REAL ESTATE TRANSFER FEES/TITLE PLANTS                                                                      
                                                                                                                              
4:11:15 PM                                                                                                                  
CHAIR OLSON announced the consideration of SB 122.                                                                              
                                                                                                                                
4:11:25 PM                                                                                                                    
DANA  OWEN, staff  to  SB  122 sponsor,  said  the bill's  second                                                               
section  bans  the  use  of   transfer  fee  covenants  that  are                                                               
contractual obligations  imposed upon any subsequent  sale of the                                                               
land. He  noted that more than  half of the states  currently ban                                                               
transfer fee  covenants; the earliest  was New York in  1852 when                                                               
the courts  noted the  practice as a  "vestige of  feudalism." He                                                               
said the  second section  of SB  122 has  no opposition  from the                                                               
title insurance industry.                                                                                                       
                                                                                                                                
MR. OWEN said  the first section of SB 122  extends the length of                                                               
time spanned by a "title plant,"  which comprises of a record for                                                               
all  transactions  or  conditions  that  affect  titles  to  land                                                               
located in a  specific area. He said the length  of time would be                                                               
extended from 25  years to 50 years. He said  the proposed change                                                               
is  controversial within  the title  insurance industry  and work                                                               
was being done to find new  language to satisfy all parties via a                                                               
committee substitute.                                                                                                           
                                                                                                                                
4:14:02 PM                                                                                                                    
CHAIR  OLSON  asked  when  the   committee  substitute  would  be                                                               
presented.                                                                                                                      
                                                                                                                                
MR. OWEN replied by the next meeting.                                                                                           
                                                                                                                                
CHAIR  OLSON  asked  how substantially  different  the  committee                                                               
substitute would be.                                                                                                            
                                                                                                                                
MR. OWEN answered  that minor changes would be made.  He said the                                                               
focus was on protecting customers  from title insurance companies                                                               
located outside of Alaska without limiting competition.                                                                         
                                                                                                                                
4:15:37 PM                                                                                                                    
CHAIR OLSON asked  why there was opposition to  allow more people                                                               
into  the  title insurance  market.  He  noted that  buying  real                                                               
estate was  one of the  biggest expenditures an  individual would                                                               
have and allowing competition should bring down prices.                                                                         
                                                                                                                                
MR. OWEN  answered that  the idea  was not  to limit  people from                                                               
getting into the  title insurance market; the intent  was to keep                                                               
out companies that are not able  to give the kind of service that                                                               
Alaskan-based title insurance companies could provide.                                                                          
                                                                                                                                
CHAIR  OLSON  commented that  upcoming  testimony  would be  from                                                               
companies  with  a  financial   interest  rather  than  a  public                                                               
interest. He  said it is  important to keep  what is in  the best                                                               
interest of Alaskan residents first.                                                                                            
                                                                                                                                
4:17:29 PM                                                                                                                    
MR. OWEN said  that the committee was very  concerned that public                                                               
interest be  protected. He said the  first step was to  make sure                                                               
there was  agreement within the title  insurance industry without                                                               
taking sides.                                                                                                                   
                                                                                                                                
CHAIR OLSON asked if Mr.  Owen was suspicious from the infighting                                                               
within the title insurance industry.                                                                                            
                                                                                                                                
MR. OWEN answered yes.                                                                                                          
                                                                                                                                
4:19:42 PM                                                                                                                    
CRYSTAL  PELTOLA,  Vice  President/General  Manager,  Alaska  USA                                                               
Title Agency,  said the current  title plant law has  worked well                                                               
for decades and  there was no value to the  industry or consumers                                                               
by changing  something that  was not broken.  She said  the title                                                               
search process  was dictated by  underwriters, not by  the number                                                               
of years  title plant documents  were statutorily required  to be                                                               
on record. She  said SB 122 would be  anticompetitive by limiting                                                               
the number of  title agencies, doubling startup  costs and adding                                                               
time to acquire additional years of records.                                                                                    
                                                                                                                                
She  said  increasing  the title  plant  requirement  would  only                                                               
benefit a  few agencies, most  of which were the  main proponents                                                               
of  SB 122.  She said  the length  of records  retained in  title                                                               
plants had no bearing on  claims or loses. She said technological                                                               
change  has provided  broader access  to  electronic records  and                                                               
allowed more  competition to keep  down costs for  consumers, and                                                               
that  SB 122  would  mandate a  step back  in  time by  requiring                                                               
older, outdated title plants to be expanded.                                                                                    
                                                                                                                                
4:23:14 PM                                                                                                                    
CHAIR OLSON asked about mortgages that go longer than 25 years.                                                                 
                                                                                                                                
MS.  PELTOLA  answered that  the  length  of  any claim  of  lien                                                               
mechanics, mortgage or  judgment, had no bearing on  how far back                                                               
a  search was  done. She  said there  was no  correlation between                                                               
length  of  mortgage  and  title record  search  and  that  title                                                               
insurance underwriters  are the  ones who  dictate the  length of                                                               
time.                                                                                                                           
                                                                                                                                
CHAIR  OLSON  asked  how  the  consumer  would  be  protected  if                                                               
hazardous materials  were found  from WWII when  a 25  year title                                                               
plant was used.                                                                                                                 
                                                                                                                                
4:24:22 PM                                                                                                                    
MS.  PELTOLA   answered  that  underwriting   contracts  dictated                                                               
searches,  there was  no bearing  on  the search  process by  the                                                               
amount of records statutorily required to have in a title plant.                                                                
                                                                                                                                
4:25:19 PM                                                                                                                    
RAYMOND  DAVIS,  Vice  President, Old  Republic  Title  Insurance                                                               
Company, said  he was Alaska  USA Title Agency's  underwriter and                                                               
provided  the financial  backing behind  the title  policies that                                                               
were issued in Alaska.                                                                                                          
                                                                                                                                
He said  SB 122 would give  unfair advantage to two  companies in                                                               
Anchorage that  have 50-year title  plants; it  would affectively                                                               
give them a monopoly on all future business in Anchorage.                                                                       
                                                                                                                                
He  said in  anticipation of  SB 122  passing, the  two Anchorage                                                               
title  companies have  considered charging  subscription fees  to                                                               
the other title companies at $7500 per month, $90,000 per year.                                                                 
                                                                                                                                
MR. DAVIS  said technology allowed  title insurance  companies to                                                               
go directly to  government records and search  titles without old                                                               
title plant  mandates. He said  the goal  should not be  to limit                                                               
competition;  the goal  should be  to expand  competition without                                                               
allowing "fly  by night" operators.  He said the real  threat was                                                               
to companies that had big investments in old title plants.                                                                      
                                                                                                                                
4:29:36 PM                                                                                                                    
CHAIR  OLSON asked  about  Old Republic  Title  being located  in                                                               
Seattle and  the impact  on the consumer  having to  legally deal                                                               
with an out-of-state company.                                                                                                   
                                                                                                                                
MR. DAVIS answered  that Old Republic Title  only issues policies                                                               
through  Alaska-based companies.  He said  the majority  of title                                                               
policies  in Alaska  are underwritten  by out-of-state  insurance                                                               
companies.                                                                                                                      
                                                                                                                                
4:31:01 PM                                                                                                                    
MICHAEL PRICE,  President, Alaska  Land Title  Association (ALTA)                                                               
said he owned several title  insurance companies in the Anchorage                                                               
area and was a real estate  lawyer. He said ALTA supports banning                                                               
transferring covenant fees but he  disagreed with prior testimony                                                               
regarding title plants.                                                                                                         
                                                                                                                                
He said the  title plant change in SB  122 addressed out-of-state                                                               
examiners  who are  not  licensed  in Alaska.  He  noted that  13                                                               
states within the past four years had adopted similar changes.                                                                  
                                                                                                                                
He  said the  title  plant section  of SB  122  would require  an                                                               
Alaskan resident and licensed title  examiner to examine and sign                                                               
preliminary commitments for policies being issued.                                                                              
                                                                                                                                
He  said  the  SB  122  controversy comes  down  to  two  things,                                                               
changing plant law from 25 years  and allowing two types of title                                                               
insurance companies to operate in Alaska.                                                                                       
                                                                                                                                
He  said  changing plant  law  from  25 to  40  or  50 years  was                                                               
recommended due  to Alaska not having  curative title provisions.                                                               
He said adding years to the  title plant does not put unnecessary                                                               
burden on title insurance companies  and was not anticompetitive;                                                               
records can be downloaded directly  from the Recorder's Office at                                                               
a relatively small fee.                                                                                                         
                                                                                                                                
4:36:49 PM                                                                                                                    
MR. PRICE said the second  issue addressed a legislative decision                                                               
from 2002 that designated two  types of title companies; a single                                                               
company required to  have a title plant and a  joint-plant of two                                                               
or more  companies that was not  required to have a  title plant,                                                               
e.g., Old Republic Title and Alaska USA Title's arrangement.                                                                    
                                                                                                                                
He said  ALTA, not for  anticompetitive reasons,  believes Alaska                                                               
should return  to a  "title plant  state." He said  as far  as he                                                               
knew,  Alaska was  the  only state  which  allowed two  different                                                               
types of title  companies where one was required to  have a title                                                               
plant. He  noted that Old  Republic Title  was based in  a "title                                                               
plant  state"  and  the  company's president  told  him  that  he                                                               
believed in title plants.                                                                                                       
                                                                                                                                
He  said  he  disagreed  with  prior  testimony  which  indicated                                                               
consumer costs would  increase. He noted that prices  were set by                                                               
the Division of Insurance.                                                                                                      
                                                                                                                                
He  said Alaska  should  protect  the public  and  not allow  the                                                               
limited  underwriters in  the  US to  dictate  search policy.  He                                                               
referenced  Countrywide  Home Loans  as  an  example of  a  large                                                               
mortgage lender  which no longer  existed and it was  the largest                                                               
in the  country five years  ago. He noted  that it only  takes $1                                                               
million to  become an underwriter  in Alaska and one  claim could                                                               
wipe that out.                                                                                                                  
                                                                                                                                
4:41:49 PM                                                                                                                    
CHAIR  OLSON asked  if  it was  true what  Mr.  Davis brought  up                                                               
regarding a possible monopoly with  only two land plant companies                                                               
in the state of Alaska.                                                                                                         
                                                                                                                                
MR. PRICE  said there were over  20 title plant companies  in the                                                               
state and  Mr. Davis may  have referred  to the two  companies in                                                               
the  Anchorage Recording  District. He  said there  were actually                                                               
more than two companies in the Anchorage area.                                                                                  
                                                                                                                                
CHAIR OLSON  asked what  the normal  subscription rates  were for                                                               
title plant information.                                                                                                        
                                                                                                                                
MR. PRICE  answered that  the monthly  subscription was  $7000 to                                                               
$8000  for a  joint-plant company  and $10,000  to $12,000  for a                                                               
single owned company.                                                                                                           
                                                                                                                                
4:43:02 PM                                                                                                                    
CHAIR  OLSON asked  if Mr.  Davis's claim  was accurate  that his                                                               
subscription fees were in the $7,500 per month range.                                                                           
                                                                                                                                
MR. PRICE answered yes for a joint-plant organization.                                                                          
                                                                                                                                
4:43:26 PM                                                                                                                    
CHAIR OLSON expressed interest in  protecting the public. He said                                                               
real  estate market  suspicion was  justified after  the economic                                                               
problems caused by the 2008 housing crisis.                                                                                     
                                                                                                                                
4:43:55 PM                                                                                                                    
MR. PRICE  responded that the  title industry only  insures loans                                                               
and  has  nothing   to  do  with  making  loans.   He  said  anti                                                               
competition  is   not  the  issue   when  title   companies  have                                                               
relatively low  entrance and  startup costs.  He said  the public                                                               
would be better served by  title agencies that have more invested                                                               
into their industry and access to every document.                                                                               
                                                                                                                                
4:45:31 PM                                                                                                                    
TERRY BRYAN,  Vice President, First American  Title Company, said                                                               
he operated as a title  and underwriting company in approximately                                                               
10 Alaskan  communities. He said  Alaska is a "file  and approve"                                                               
state; title  insurance prices are  not set by the  state, prices                                                               
are submitted to the Department of Insurance for approval.                                                                      
                                                                                                                                
4:47:15 PM                                                                                                                    
MR.  BRYAN  referenced  Oregon  and  Washington  as  states  with                                                               
mandatory title  plant laws between 40  and 50 years. He  said he                                                               
was not  aware of title insurance  underwriting contract language                                                               
that  required  a specific  age  of  title  plant. He  said  most                                                               
underwriting  contracts  identified   certain  reasonable  search                                                               
criteria and  standards, but no chronological  identification due                                                               
to unique differences  in each state. He said  ALTA recommends 40                                                               
years as a required title plant based upon Alaska's history.                                                                    
                                                                                                                                
He noted that the title  insurance industry was probably the only                                                               
part of the  real estate industry that came  through the mortgage                                                               
crisis unscathed and was portrayed as the good guy in the media.                                                                
                                                                                                                                
4:49:10 PM                                                                                                                    
CHAIR OLSON asked  if the reason for the  positive media coverage                                                               
was due to having better legal representation.                                                                                  
                                                                                                                                
MR. BRYAN  replied that the title  insurance industry facilitates                                                               
the   transaction  and   does  not   negotiate   or  barter   the                                                               
transaction.  He confirmed  that  $7500 was  the correct  monthly                                                               
subscription rate for a joint-plant organization.                                                                               
                                                                                                                                
4:50:23 PM                                                                                                                    
CHAIR OLSON asked how many claims against title companies occur.                                                                
                                                                                                                                
MR. BRYAN  answered that he did  not know. He said  when compared                                                               
to other  types of insurance,  title insurance claims occur  at a                                                               
very low percentage.                                                                                                            
                                                                                                                                
4:51:34 PM                                                                                                                    
CHAIR OLSON  asked him  to explain  prior testimony  regarding $1                                                               
million required for underwriters.                                                                                              
                                                                                                                                
MR. BRYAN answered that the state  required a $1 million bond for                                                               
licensing. He  added that dramatic obligations  through civil and                                                               
legal  courts provided  added coverage  for  consumers who  dealt                                                               
with Alaska based companies.                                                                                                    
                                                                                                                                
4:52:32 PM                                                                                                                    
ROGER  FLOERCHINGER, President/Owner,  Yukon Title  Company, said                                                               
his  company   insured  conveyances  in  the   most  northern  11                                                               
recording  districts  and  dealt  directly with  buyers  of  real                                                               
estate in  villages and  small communities.  He said  contrary to                                                               
Mr. Davis' testimony,  his company was not  solely a distribution                                                               
system  for  title  underwriting  companies.  He  disagreed  with                                                               
testimony that  consumer prices would  increase from a  change in                                                               
title plant law by requiring  all companies to have title plants.                                                               
He said  he believed it  was in  his customer's best  interest to                                                               
operate his company with a title  plant. He noted that a proposed                                                               
committee substitute  included a  grandfather clause  for current                                                               
companies that operate without a title plant.                                                                                   
                                                                                                                                
4:55:41 PM                                                                                                                    
CHAIR  OLSON asked  what was  wrong with  companies consolidating                                                               
subscription on identical services to save money.                                                                               
                                                                                                                                
MR. FLOERCHINGER  answered that  consolidating was fine.  He said                                                               
the  issue was  allowing  companies to  operate  without a  title                                                               
plant.                                                                                                                          
                                                                                                                                
4:56:39 PM                                                                                                                    
CHAIR  OLSON asked  if  SB 122  was  a good  bill  for his  rural                                                               
constituents in Shishmaref or Shaktoolik, for instance.                                                                         
                                                                                                                                
MR.  FLOERCHINGER   answered  that  he  does   insure  titles  in                                                               
Shishmaref and Nome.                                                                                                            
                                                                                                                                
CHAIR OLSON  commented that  there was  a big  difference between                                                               
Nome  and Shishmaref;  Nome has  been incorporated  for over  100                                                               
years  while Shishmaref  was eroding  away.  He asked  if he  was                                                               
indeed insuring  titles in Shishmaref  and if  he did not  know a                                                               
customer's  name, what  the difference  was between  him and  Mr.                                                               
Davis in Seattle.                                                                                                               
                                                                                                                                
4:57:37 PM                                                                                                                    
MR.  FLOERCHINGER  answered that  he  does  have insurance  title                                                               
plants in  Shishmaref and  would have to  review his  title order                                                               
book.                                                                                                                           
                                                                                                                                
4:58:15 PM                                                                                                                    
CHAIR OLSON  announced he would hold  SB 122 for the  next Senate                                                               
Community and Regional Affairs Standing Committee meeting.                                                                      
                                                                                                                                

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