Legislature(2007 - 2008)BELTZ 211
03/27/2008 01:30 PM LABOR & COMMERCE
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CSHB 357(L&C)-CLAIMS AGAINST REAL ESTATE LICENSEES 2:15:51 PM ELEANOR WOLFE, staff for Representative Kurt Olson, sponsor of HB 357, said the sponsor introduced this bill on behalf of the Alaska Association of Realtors that felt it was necessary due to difficulties with the Surety Fund to provide that all real estate agents have errors and omissions (E&O) insurance. She explained that most large brokerages already provide E&O insurance, but about 40 percent of the agents in Alaska don't. This measure would have the department seeking a group policy with a minimum $100,000 coverage that all members could belong to at a reasonable rate. This would allow most of the complaints that go to the surety fund to be handled through insurance rather than have all of the complaints go through the surety fund that has a maximum of $15,000. A good number of complaints against real estate transactions exceed that. MS. WOLFE stated that the surety fund would be renamed the recovery fund and it would cover actions of deceit and breach of trust. She said one insurance company handles the existing 13 states that have this provision and it is willing to make an offer once the parameters are laid out by the department. She believes agents could be covered for less than $200 year. CHAIR ELLIS asked if she has had assurance that an insurance entity is out there that will write insurance in Alaska. MS. WOLFE replied yes. 2:17:38 PM DAVE FEEKIN, Alaska Association of Realtors, Kenai, said that HB 357 is a joint effort by the Alaska Association of Realtors, the Division of Occupational Licensing, the Division of Insurance and the Department of Law. It accomplishes two things. The surety fund expands the claim coverage by imposing mandatory E&O insurance. MR. FEEKIN explained that the surety fund was started in 1974 and covers reimbursement for fraud, misrepresentation, deceit and conversion of trust. By statute the fund balance has to be $250,000-$500,000. That money comes from the licensees at the amount of $30 per license period, every two years. A few years ago the fund balance was at or above the $500,000, but more recently it has been bouncing around below the $250,000 mark. Two reasons the funds balance is dropping is because there are a high number of frivolous claims brought against licenses that cost the fund to hold the hearings even though they are meritless. The second is a reduction in the number of licensees, and that moves with the market. He said the number of licensees doubled from 2000-2005 and the number of transactions peaked at 2006 in Alaska and 2005 in the Lower 48. The U.S. as a whole has seen a 33 percent drop in real estate transactions, but Alaska has had a drop of 11 percent from 2006 to 2007; this year it continues the same decline. MR. FEEKIN said it's important to understand how small this problem really is in light of the size of the market. In 2006, 15 claims were filed against the surety fund and none of them were successful in obtaining a claim. In 2007, 13 claims were filed with two getting paid. MLS statistics for Southcentral Alaska plus Kodiak indicated an average of 9,119 real estate transactions per year for each of those two years, a lot of successful transactions. The value of those transactions was $2 billion per year. Imposing mandatory E&O insurance is supported overwhelmingly by the industry, because it is a very affordable cost at $200 or less. Colorado, Idaho, Iowa, Kentucky, Louisiana, Mississippi, Nebraska, New Mexico, North Dakota, Rhode Island, South Dakota, Tennessee and Wyoming are the states involved. Rice and Associates considers Alaska to be very similar to Wyoming as far as the number of licensees. It is considered less of a risk because we don't have the very high second home values that Wyoming has. He knew of no opposition. The state has never purchased a group policy for licensees before so the mechanism had to be worked out. CHAIR ELLIS thanked him for his comments and said HB 357 would be held.