Legislature(2007 - 2008)BELTZ 211

03/05/2008 01:30 PM JUDICIARY

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Heard & Held
Heard & Held
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       CSHB 163(JUD)-PROPERTY FORECLOSURES AND EXECUTIONS                                                                   
CHAIR FRENCH announced the consideration of HB 163                                                                              
2:12:28 PM                                                                                                                    
JANE PIERSON, staff  to Representative Ramras, sponsor  of HB 163,                                                              
reminded  committee members  that they heard  the companion  bill,                                                              
SB 18. She  explained that HB  163 will clarify and  modernize the                                                              
antiquated  and  ambiguous  statutes   on  non  judicial  property                                                              
foreclosures.  The   hope  is  that   more  open   and  accessible                                                              
foreclosure  auctions  will  benefit   borrowers,  lenders,  title                                                              
insurers,  individuals,  and neighborhoods,  and  help soften  the                                                              
impact that  foreclosures can have  on an economy.  Best practices                                                              
from 11 other states  were used to draft the bill.  She noted that                                                              
banks  in Alaska  currently  lose  about $20,000  per  foreclosure                                                              
CHAIR FRENCH  asked if someone could  elaborate on where  the loss                                                              
comes from. Ms. Pierson deferred the question to Stephen Roath.                                                                 
MS.   PIERSON  highlighted   that   HB  163   would  improve   the                                                              
foreclosure process by making the following changes:                                                                            
   · Clarify how the proceeds from a foreclosure auction can be                                                                 
   · Assure that foreclosure trustees are fiscally responsible                                                                  
     by imposing reasonable bond requirements.                                                                                  
   · Create deadlines to deter unnecessary delays.                                                                              
   · Allow trustees to nullify sales when mistakes have been                                                                    
     made that would negatively affect the integrity of a sale.                                                                 
   · Establish procedures involving deceased borrowers.                                                                         
   · Create rules to govern times and methods for posting                                                                       
     foreclosure sales.                                                                                                         
   · Create Internet publication procedures.                                                                                    
   · Define when rights are terminated in the foreclosure                                                                       
   · Allow acceptance of foreclosure auction bids via email,                                                                    
     Internet, and telephone.                                                                                                   
2:16:03 PM                                                                                                                    
SENATOR WIELECHOWSKI  asked if  there are significant  differences                                                              
between HB  163 and the companion  Senate bill that  the committee                                                              
heard last year.                                                                                                                
MS. PIERSON  replied one of the  few differences is in  Section 4,                                                              
which  sets a  time limit  to cure  a default  of up  to two  days                                                              
before  the sale rather  than five  days. Other  than that,  there                                                              
were no substantive changes.                                                                                                    
DENNIS FENERTY,  Attorney at  Law, Groh Eggers,  LLC, said  he has                                                              
represented lenders  for 23  years and has  been involved  in many                                                              
foreclosure  sales. HB  163 is  a good  bill, but  he has  concern                                                              
with  Section 2  related to  Internet  advertizing of  foreclosure                                                              
sales. As presently  written, the qualifications  for the Internet                                                              
websites  would exclude  the Anchorage  Daily News  (ADN) and  the                                                              
Alaska  Journal  of  Commerce  (AJC)   because  neither  of  those                                                              
classified  ad  websites  is  used  primarily  to  advertize  real                                                              
property  under  foreclosure.  Both sites  are  instead  generally                                                              
used  for all  classified advertizing.  Disqualifying those  would                                                              
not be  a good  outcome. It's  in the  best interest  of both  the                                                              
lender and  the borrower to  have competing websites  because that                                                              
tends to  reduce advertizing costs.  "That certainly was  the case                                                              
when  the  Alaska  Journal  of   Commerce  was  recognized  as  an                                                              
acceptable publication for newspaper ads," he said.                                                                             
2:19:59 PM                                                                                                                    
MR.  FENERTY  said he  has  no  idea whether  the  required  5,000                                                              
visits per  month is  realistic for  either of the  aforementioned                                                              
papers. But  as an  attorney who  represents lenders and  conducts                                                              
foreclosures,  he is  interested  in having  a site  where he  can                                                              
place  the  required   Internet  advertizing.  He   suggested  the                                                              
committee  amend  Section 2  by  striking subsection  (c)(3),  and                                                              
reducing  the  required  visits   in  subsection  (c)(5)  so  that                                                              
present advertisers would qualify.                                                                                              
CHAIR FRENCH  asked Ms.  Pierson if she  wanted to address  either                                                              
issue. She deferred to Mr. Roath for a response.                                                                                
2:21:47 PM                                                                                                                    
SABRINA  FERNANDEZ,  Attorney  at  Law,  Default  Services  Alaska                                                              
(DSA), said  she has done many  foreclosure sales over  the years.                                                              
The title company  she currently works for recently  formed DSA to                                                              
act as  a trustee to conduct  non judicial foreclosure  sales. She                                                              
is testifying  today to object to  Section 2 because it  will make                                                              
it difficult  for new  companies,  like DSA,  to act as  trustees.                                                              
The Internet  publication conditions  under subsection  (c)(4) and                                                              
(5)  become onerous  for newspapers  and servicers  such as  AHFC,                                                              
banks,  title companies  and  attorneys.  None of  those  business                                                              
websites could  be used  to get  foreclosure sale information  out                                                              
to  the public  so  that  more people  would  attend  a sale.  She                                                              
surmised  that  no  website  other   than  Alaska  Trustees  would                                                              
qualify   for   the   Internet   publication   conditions.   Other                                                              
qualifications  could  be  established   to  readily  allow  other                                                              
websites to pop up using simple Google-type searches, she said.                                                                 
CHAIR  FRENCH  asked Mr.  Routh  to  address the  concerns  voiced                                                              
about Section 2 in addition to his overall view of the bill.                                                                    
2:24:44 PM                                                                                                                    
STEPHEN  ROUTH, Attorney  at Law,  Routh &  Crabtree, APC,  stated                                                              
support for  HB 163.  He's conducted  many foreclosure  sales over                                                              
the years and has  the perspective of the Alaska  market and seven                                                              
other  states.  This  bill  is an  attempt  to  do  best  practice                                                              
legislation   and   take   innovative   steps   with   regard   to                                                              
MR. ROUTH  explained that the  qualifications in Section  2 mirror                                                              
the  minimum  circulation  requirements that  currently  apply  to                                                              
newspapers.   Those  are   in  current  statute,   he  said.   The                                                              
requirement  to have  5,000 visitors  each month  isn't a  lot. He                                                              
suspects that  four or five websites  would qualify now,  and more                                                              
will  follow.  He  pointed  out   that  the  newspapers  won't  be                                                              
impacted  because  this doesn't  remove  the requirement  for  the                                                              
printed  publication  as  part of  the  foreclosure  process.  The                                                              
Anchorage  Daily News  and  the Alaska  Journal  of Commerce,  for                                                              
example, will  derive fees from  print media and  they'll continue                                                              
to  place ads  on the  Internet  without mandate.  The only  thing                                                              
that changed  in that  area is that  companies that  specialize in                                                              
getting   the  message  out   to  prospective   bidders   will  be                                                              
encouraged to step into the market.                                                                                             
2:28:03 PM                                                                                                                    
CHAIR FRENCH  asked if this  bill is the  same as the  one Senator                                                              
Bunde introduced and the committee heard last year.                                                                             
MR. ROUTH said it's  the same with the exception  of the two areas                                                              
of change  that Ms. Pierson  identified. The reinstatement  period                                                              
was shortened  from five  days to  two days  and the other  change                                                              
occurs in Section  5. The term "grantor" was  changed to "trustor"                                                              
for consistency.                                                                                                                
2:29:22 PM                                                                                                                    
DAN  NICHOLSON,  representing himself  as  a private  real  estate                                                              
investor  from Anchorage,  said  he has  invested in  foreclosures                                                              
for about 10  years. In addition to buying and  selling foreclosed                                                              
real estate at tax  sales and trustee sales, he's  also acted as a                                                              
trustee in a  trustee foreclosure sale. Referring to  Section 2 of                                                              
the bill,  he noted that  the notice of a  sale must be  posted in                                                              
three public  places, but  it doesn't define  what a  public place                                                              
is.  That  should  be  spelled   out,  he  said.  Posting  at  the                                                              
courthouse  ought to  be  one of  the  requirements  and the  post                                                              
office might still  be a possible option. Turning  to the Internet                                                              
website  requirements,  he  said  he doesn't  know  if  Mr.  Routh                                                              
mentioned  that  he  owns  a  website  that,  as  it  happens,  is                                                              
probably the only  one that would meet the qualifications  in this                                                              
bill.  For that  reason he  questions  whether the  qualifications                                                              
would do anything other than enhancing that business.                                                                           
2:33:13 PM                                                                                                                    
MR.  NICHOLSON  suggested  expanding   the  Alaska  online  public                                                              
notice  website  to  include  the   mandatory  public  foreclosure                                                              
notices.  He reviewed  the new  provisions to  AS 34.20.080(a)  in                                                              
Section 7,  and said  he doesn't  see how it  will be  possible to                                                              
have a  courthouse auction  and also take  bids by telephone,  the                                                              
Internet,  and electronic  mail. Keeping  all the bidders  abreast                                                              
of   what's  happening   seems   unworkable   in   this  kind   of                                                              
environment.  He suggested that  the requirement  to take  bids by                                                              
phone, Internet,  and electronic mail should either  be deleted or                                                              
amplified so the procedure is a matter of law.                                                                                  
2:36:52 PM                                                                                                                    
MR. NICHOLSON  referred to Section  10 and said he's  pleased that                                                              
the  procedures  for distributing  the  cash  proceeds  of a  sale                                                              
according  to  priority  will  become a  matter  of  statute.  His                                                              
concern  relates to  the trustee  having  to find  and inform  the                                                              
various parties that  there are excess proceeds.  The notice could                                                              
include a  clause that  the parties  need to  check on  whether or                                                              
not there  are excess proceeds.  The parties of interest  have all                                                              
been notified so  perhaps the various note holders,  lien holders,                                                              
mortgage  holders,  and beneficiaries  of  the trustee  should  be                                                              
given a certain  statutory time in  which to submit a  claim. That                                                              
could be an additional clause in the notice.                                                                                    
2:40:45 PM                                                                                                                    
MR.  NICHOLSON turned  to  AS  34.20.080(f)(3), Section  10,  that                                                              
says "the trustor's  successor in interest whose  interest appears                                                              
of  record at  the time  of the  foreclosure  sale," and  observed                                                              
that, as a  matter of law, a  deed doesn't need to be  recorded in                                                              
order  to be  effective. Recording  does establish  a priority  of                                                              
claim. A  trustor could sell his  or her interest in  the property                                                              
for consideration,  but that interest  may not be  recorded before                                                              
the  foreclosure sale  so  he'd  like "appears  of  record" to  be                                                              
2:44:20 PM                                                                                                                    
MR. NICHOLSON  said Section 13,  which amends AS 34.20,  by adding                                                              
section .125,  deals with the required  trustee bond. When  he was                                                              
a  trustee he  had  no difficulty  doing  the  foreclosure and  he                                                              
doesn't believe there is a need to require a surety bond.                                                                       
MR.  NICHOLSON  observed  that  distribution  of  excess  proceeds                                                              
isn't addressed in the bill.                                                                                                    
CHAIR  FRENCH asked  him  to email  his  suggestions for  possible                                                              
inclusion in the bill as an amendment.                                                                                          
MR. NICHOLSON agreed to do so.                                                                                                  
CHAIR FRENCH  asked Mr. Routh if  he'd like to address  the points                                                              
that Mr. Nicholson raised.                                                                                                      
2:48:16 PM                                                                                                                    
MR.  ROUTH  mentioned the  request  for  a definition  for  public                                                              
place and  said that the statute  currently mandates posting  in a                                                              
post  office and  two other  places.  This bill  removes the  post                                                              
office requirement  because postings  are often no  longer allowed                                                              
there. Since post  office regulations and state  law don't comply,                                                              
this cleans  up that  area of  existing statute.  With respect  to                                                              
Section 2  and providing  notice on an  Internet website,  he said                                                              
he  doesn't   own  or  know   about  the  website   Mr.  Nicholson                                                              
mentioned. He explained  that the Internet advertizing  process is                                                              
intended  to widen  the potential  pool of  individuals who  would                                                              
show up  at an auction. That  works to everyone's  benefit because                                                              
any  funds that  are left  over go  to the  borrower. He  believes                                                              
that  the more  notice  the better,  the  wider  the audience  the                                                              
better, and  the higher  the bids  the better.  If the  price goes                                                              
beyond the  cost of  the foreclosure  and the  amount that  is due                                                              
the excess money goes to the borrower.                                                                                          
With respect  to the  concern that was  voiced about  escrow funds                                                              
in Section 7, he  said the goal of trustees should  be to maximize                                                              
bidding  at  the  sale  for the  protection  and  benefit  of  the                                                              
borrower. As  a trustee you should  take every opportunity  to get                                                              
bids  in and  qualified.  This will  make  it  a more  reasonable,                                                              
open, efficient, and transparent process.                                                                                       
2:51:48 PM                                                                                                                    
CHAIR  FRENCH clarified  that he  is saying a  trustee would  have                                                              
the obligation  to lay out  the ground  rules before the  sale and                                                              
if telephone  bids are  going to be  accepted, they'd  be accepted                                                              
by anyone  provided  he or she  could make  the money  immediately                                                              
available for disbursement.                                                                                                     
MR.  ROUTH agreed.  He  sees no  reason why  someone  in New  York                                                              
can't bid  on property  in Homer. "Anybody  can bid  from anywhere                                                              
as long as  it's cleared funds  that are available [and  there is]                                                              
a process  for the  funds to be  brought in in  a fair,  open, and                                                              
competitive process."                                                                                                           
SENATOR WIELECHOWSKI  asked how many other states  allow telephone                                                              
or Internet bidding.                                                                                                            
MR.  ROUTH  replied   he  believes  some  states   allow  bids  by                                                              
telephone  with   similar  protection  language  with   regard  to                                                              
cleared  funds being  available. This  would probably  be a  first                                                              
for allowing Internet bidding, he said.                                                                                         
MR. ROUTH  said Section  10 relates  to title  insurers in  Alaska                                                              
and the  bill proposes  a common-sense way  for handing  out funds                                                              
after a  sale. This  would take away  the opportunity  to litigate                                                              
on  who gets  the  money.  With respect  to  the comment  that  it                                                              
wouldn't be  fair that  an unrecorded  interest wouldn't  be aware                                                              
of  a foreclosure  process,  he said  that's  how equity  skimmers                                                              
operate and  it's not a good thing.  Anyone who takes  a deed from                                                              
a homeowner in  distress should make a legitimate  deal and record                                                              
that  deed. "Don't  hide the  deed and  then claim  foul that  you                                                              
somehow  didn't  get notice  of  the  sale  because you  hid  your                                                              
interest," he said.                                                                                                             
2:55:07 PM                                                                                                                    
MR.  ROUTH said  the  thinking is  similar  for  trustee bonds  in                                                              
Section 13.  Trustee defalcation  hasn't  happened in Alaska  yet,                                                              
but  it  will, he  said.  There's  no requirement  that  funds  be                                                              
placed in a trust  account or escrowed and there's  no requirement                                                              
of  a bond  so it's  open season  for hurting  someone. This  bill                                                              
seeks to  get ahead of that  happening. The suggested  language is                                                              
the  result   of  conversations   with  bonding  companies   about                                                              
reasonable cost and what would work in this environment.                                                                        
CHAIR FRENCH asked if there's a model act on this topic.                                                                        
MR. ROUTH said not that he's found.                                                                                             
SENATOR WIELECHOWSKI  asked who  typically acts  as a  trustee and                                                              
if this  potentially hurts  small businesses  that couldn't  get a                                                              
$250,000 bond.                                                                                                                  
MR.  ROUTH replied  he  doesn't believe  this  would hurt  anyone.                                                              
Title  companies,  attorneys, and  law  firms typically  serve  as                                                              
trustees.  Being  a  trustee  is nothing  to  step  into  lightly.                                                              
Valuable rights that  are conveyed away in this  process and there                                                              
ought to be some minimum level of competence.                                                                                   
2:57:49 PM                                                                                                                    
CHAIR FRENCH asked what the cost might be to obtain a bond.                                                                     
MR. ROUTH recalled that it wasn't at all onerous.                                                                               
CHAIR FRENCH  assumed that the  requirement would apply  to anyone                                                              
who wants to be a trustee.                                                                                                      
MR.  ROUTH  said  title  insurers   are  exempt.  They're  already                                                              
licensed  by  the  state  to issue  title  insurance,  and  that's                                                              
probably  why they  have a statutory  waiver  on the escrow  bond.                                                              
There are no other exceptions.                                                                                                  
SENATOR  WIELECHOWSKI  observed that  currently  he  could help  a                                                              
friend by serving  as a trustee,  but if this passes he'd  need to                                                              
pay $5,000 for the surety bond.                                                                                                 
MR.  ROUTH   said  if   he's  representing   his  friend   as  the                                                              
beneficiary,  the way  it typically  works now  is that the  title                                                              
insurance company would be the trustee in the foreclosure sale.                                                                 
3:00:15 PM                                                                                                                    
MR. FENERTY  commented that the  trustee is tasked with  duties to                                                              
the lender  and the borrower and  therefore is supposed  to fairly                                                              
fulfill the  duties under  the deed of  trust in both  directions.                                                              
As an attorney  he represents the  lender, and he would  rarely if                                                              
ever agree to be  a trustee because he doesn't want  to owe duties                                                              
in both  directions. It's his practice  to use title  companies to                                                              
act as a trustee.                                                                                                               
MR.  FENERTY  highlighted  that  three  witnesses  voiced  concern                                                              
about  the requirements  for  an Internet  website  and that  it's                                                              
likely that  not a  single site  in Alaska  qualifies. He  said he                                                              
knows  that Mr. Routh  has a  regional multi-state  site that  may                                                              
qualify. He  asked the  committee to pay  attention and  make sure                                                              
that  not  just  one  site  qualifies,  effectively  shutting  out                                                              
CHAIR FRENCH held HB 163 in committee.                                                                                          

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