02/23/2001 01:09 PM House JUD
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
February 23, 2001
1:09 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chair
Representative Scott Ogan, Vice Chair
Representative John Coghill
Representative Kevin Meyer
MEMBERS ABSENT
Representative Jeannette James
Representative Ethan Berkowitz
Representative Albert Kookesh
COMMITTEE CALENDAR
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 34
"An Act relating to the statutory rule against perpetuities, to
nonvested property interests and trusts, and to the suspension
of the power of alienation of property; and providing for an
effective date."
- MOVED SSHB 34 OUT OF COMMITTEE
HOUSE BILL NO. 27
"An Act relating to the licensure and registration of
individuals who perform home inspections; relating to home
inspection requirements for residential loans purchased or
approved by the Alaska Housing Finance Corporation; relating to
civil actions by and against home inspectors; and providing for
an effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 34
SHORT TITLE:RULE AGAINST PERPETUITIES
SPONSOR(S): REPRESENTATIVE(S)MCGUIRE
Jrn-Date Jrn-Page Action
01/08/01 0033 (H) PREFILE RELEASED 1/5/01
01/08/01 0033 (H) READ THE FIRST TIME -
REFERRALS
01/08/01 0033 (H) JUD
01/22/01 0143 (H) SPONSOR SUBSTITUTE INTRODUCED
01/22/01 0143 (H) READ THE FIRST TIME -
REFERRALS
01/22/01 0143 (H) JUD
02/23/01 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 27
SHORT TITLE:LICENSE HOME INSPECTORS
SPONSOR(S): REPRESENTATIVE(S)ROKEBERG
Jrn-Date Jrn-Page Action
01/08/01 0031 (H) PREFILE RELEASED 1/5/01
01/08/01 0031 (H) READ THE FIRST TIME -
REFERRALS
01/08/01 0031 (H) L&C, JUD, FIN
01/31/01 (H) L&C AT 3:15 PM CAPITOL 17
01/31/01 (H) Heard & Held
MINUTE(L&C)
02/02/01 (H) L&C AT 3:15 PM CAPITOL 17
02/02/01 (H) Heard & Held
02/02/01 (H) MINUTE(L&C)
02/12/01 (H) L&C AT 3:15 PM CAPITOL 17
02/12/01 (H) Moved CSHB 27(L&C) Out of
Committee
MINUTE(L&C)
02/14/01 0311 (H) L&C RPT CS(L&C) 4DP 3NR
02/14/01 0311 (H) DP: CRAWFORD, HAYES, MEYER,
ROKEBERG;
02/14/01 0311 (H) NR: HALCRO, KOTT, MURKOWSKI
02/14/01 0311 (H) FN1: ZERO(REV)
02/14/01 0311 (H) FN2: (CED)
02/14/01 0311 (H) REFERRED TO JUDICIARY
02/23/01 (H) JUD AT 1:00 PM CAPITOL 120
WITNESS REGISTER
REPRESENTATIVE LESIL McGUIRE
Alaska State Legislature
Capitol Building, Room 418
Juneau, Alaska 99801
POSITION STATEMENT: Sponsor of SSHB 34.
STEPHEN E. GREER, Attorney at Law
PO Box 24-2903
Anchorage, Alaska 99524-2903
POSITION STATEMENT: Assisted with presentation of SSHB 34.
JANET SEITZ, Staff
to Representative Norman Rokeberg
Alaska State Legislature
Capitol Building, Room 118
Juneau, Alaska 99801
POSITION STATEMENT: Assisted with presentation of the proposed
CS for HB 27 and answered questions.
BILL BRADY, Alaska Realtors Association
PO Box 110101
Anchorage, Alaska 99511
POSITION STATEMENT: Testified in support of the concept of the
proposed CS for HB 27 and asked questions of the committee.
FRANCO VENUTI
PO Box 3652
Homer, Alaska 99603
POSITION STATEMENT: Testified in support of the intent of the
proposed CS for HB 27 but expressed offense at a letter
previously submitted during the House Labor and Commerce
Standing Committee meeting.
BILL BLOOM
PO Box 4194
Homer, Alaska 99603
POSITION STATEMENT: Asked questions of the committee regarding
the proposed CS for HB 27.
DAVID R. OWENS, Owner
Owens Inspection Services
PO Box 3589
Palmer, Alaska 99645
POSITION STATEMENT: Testified in opposition to the proposed CS
for HB 27.
RICK JARVIS, ReMax Properties
2600 Cordova, Suite 100
Anchorage, Alaska 99503
POSITION STATEMENT: Testified in support of the proposed CS for
HB 27.
JOHN BITNEY, Legislative Liaison
Alaska Housing Finance Corporation
Department of Revenue
PO Box 101020
Anchorage, Alaska 99510
POSITION STATEMENT: Testified in support of the proposed CS for
HB 27 and recommended an amendment.
ACTION NARRATIVE
TAPE 01-23, SIDE A
Number 0001
CHAIR NORMAN ROKEBERG called the House Judiciary Standing
Committee meeting to order at 1:09 p.m. Representatives
Rokeberg, Ogan, Coghill, and Meyer were present at the call to
order.
HB 34 - RULE AGAINST PERPETUITIES
Number 0040
CHAIR ROKEBERG announced that the first order of business would
be SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 34, "An Act relating to
the statutory rule against perpetuities, to nonvested property
interests and trusts, and to the suspension of the power of
alienation of property; and providing for an effective date."
Number 0063
REPRESENTATIVE LESIL McGUIRE, Alaska State Legislature, sponsor,
said that as complicated as the rule of perpetuities is, SSHB 34
is very simple. In 1997 Alaska passed the Trust Act, which was
an attempt to bring Alaska up to the standards of other states
such as Delaware - a state considered to be forward-thinking
with regard to trust laws. She noted that Alaska has a unique
tax structure, in that it is virtually nonexistent. To take
advantage of this fact and create a new industry in Alaska, the
Trust Act was passed. Through passage and revisions of the
Trust Act, a group of attorneys discovered problems with the
original legislation. Alaska's attempt to abolish the rule
against perpetuities was not entirely successful. Current law
still rendered trusts subject to estate and gift tax on the
federal level. Last year, SB 162 was an attempt to clarify that
the rule against perpetuities was abolished for all practical
reasons in Alaska, in other words, to allow for the creation of
dynasty trusts, or perpetual trusts, as they are sometimes
called. These trusts enable transfer of property to successive
generations without federal or state income tax.
REPRESENTATIVE McGUIRE explained that SSHB 34 was a minor
modification to Alaska's trust law, which would allow a
legislatively approved policy to be carried out. She added that
the committee may face similar technical bills in the near
future and asked the committee to remember that the legislature
had made a decision for Alaska to become a forward-thinking
state with regard to trust laws. In an attempt to diversify the
state economically, the area of trusts was chosen, and she
warned that this required that Alaska stay ahead of other states
in order to attract the same dollars. She added that this was
why SSHB 34 was retroactive. On another note, she said that
while this was a complex issue, it was not controversial,
primarily due to the tax structure in Alaska.
Number 0595
CHAIR ROKEBERG added that revisions to Alaska's trust law had
created an entire new industry. One of the changes was the
ability to elect community property status within a marriage,
which would avoid a "step up in basis" should a spouse pass
away. He also noted that the establishment of trusts would
generate jobs and bring money to the state. This would also
allow for a capital base increase for investment purposes. He
pointed out that Alaska Trust Company, National Bank of Alaska,
Alaska USA [Federal Credit Union], and Key Bank have all availed
themselves of this law to generate business. The State of
Delaware has attempted to replicate Alaska's trust laws. He
added that Alaska has minimized, to a very small percentage, the
premium tax on life insurance policies that are involved in the
establishment of trusts. This was called the jumbo policy
premium tax, and with its abolishment, the amount of revenue
generated to the state has increased. Other states now come to
Alaska and use the state's trust law and combine it with
insurance products; thus they can buy several multimillion-
dollar policies and pay very little tax. He said he hoped that
SSHB 34 would be one of the few cleanup bills [the legislature]
would see this year.
REPRESENTATIVE McGUIRE also noted that one of the requirements
of the original legislation adopted was that trusts had to be
administered by an Alaskan trust company. It is this
requirement that generates jobs in Alaska.
Number 0977
STEPHEN E. GREER, Attorney at Law, testified via teleconference
and assisted with the presentation of SSHB 34. He explained
that SSHB 34 was needed to clarify legislation that was passed
last year [SB 162]. The dynasty trust, which is just one small
aspect of the entire umbrella of trust legislation, allows an
individual to create a trust that can go on from generation to
generation, whereby individuals within a family can make use of
the trust assets. It can also be structured in such a way so
that, as assets pass from generation, federal and state tax can
be avoided. However, when the rule [against] perpetuities was
abolished, Alaska inadvertently fell into what is called the
Delaware tax trap. He said that although last year's
legislation fixed that problem, current law still lacks a
distinction between a presently exercisable general power of
appointment and a testamentary general power of appointment. He
opined that SSHB 34 was a technical amendment that provided for
this distinction in Alaska's rule against perpetuities.
Number 1275
MR. GREER explained that the rule against perpetuities says that
at some point in time, all trusts must end and the trust assets
must be distributed to the beneficiaries. That length of time
is measured by "life and being," at the time of the creation of
the trust, plus 21 years. Essentially, a trust can go on for
the benefit of an individual's children, but it has to end at
some point when it gets distributed to the grandchildren,
thereby subjecting the assets to gift taxation, and to estate
taxation when the grandchildren die. He offered that it would
be wonderful to create a trust whereby the assets are made
available for use to succeeding generations, a trust in which
the assets are not subject to estate tax as they pass to
succeeding generations. In order to accomplish the creation of
this type of trust, the rule against perpetuities was amended in
1997 so that the period of time a trust may continue extended
for as long as beneficiaries existed. This allowed people of
wealth to establish trusts that ensured dramatic growth of
assets by not subjecting them to estate taxation.
MR. GREER gave an example of a $1 million trust with a return of
5 percent after taxes. If that trust was permitted to grow for
120 years, but subjected to an estate taxation of 50 percent at
each generation, it would grow to $21 million. However, if that
same trust were exempt from estate taxation, it would grow to
$348 million. He went on to say that Alaska had abolished the
rule against perpetuities so that individuals could create these
types of trusts. All that is needed is an Alaskan resident
willing to take on the duties of trustee. Out-of-state
residents wishing to create such a trust must move their money
to Alaska because the trusts must be administered in Alaska. He
said he understood that South Dakota, another state that had
abolished the rule against perpetuities, managed over $80
billion in trusts. He believed one of the primary reasons South
Dakota had been able to garner so much money was because
Citicorp moved in and had huge marketing potential. Currently
Alaska has not had any similar large institution enter the state
in order to market Alaska's [trust] law.
Number 1693
MR. GREER also explained that a dynasty trust could be
structured in such a way that the assets would be made available
for the use of an individual's children without being included
in the children's estate tax base, and the assets would not be
subject to the claims of the children's creditors. In order to
accomplish these goals and stay within state tax law, certain
powers can be given to the children: a child can be made the
beneficiary of his or her own dynasty trust and use both income
and principal as he or she sees fit; also, the child can be
given a nongeneral power of appointment so that he or she could
decide who receives the assets and how they are distributed at
his or her death.
MR. GREER brought up the fact that the Internal Revenue Code
contained a provision whereby if a beneficiary of a trust who
possesses a nongeneral testamentary power of appointment
exercises that power in such a way that the trust assets are
passed on to another trust, which also has a beneficiary with a
nongeneral power of appointment, then the assets will be subject
to estate tax at the death of the original beneficiary. This is
sometimes known as the Delaware tax trap. Currently, any state
that has abolished the rule against perpetuities will fall into
this tax trap if a beneficiary exercises his or her nongeneral
power of appointment to create a further nongeneral power of
appointment. He believed that SSHB 34 would allow Alaska to fix
its trust law retroactive to April 22, 1997, in order to avoid
this tax trap.
MR. GREER outlined that a beneficiary of a trust who has a
nongeneral testamentary power of appointment can exercise that
power without estate taxation resulting. A beneficiary could
also choose to vest the trust to himself or herself. The rule
against perpetuities demands that the time a trust might last
must be computed. With the passage of SB 162, trusts could no
longer go on forever, and would thus avoid the tax trap. There
had to be a period of time within which trusts must end.
Current law dictates that a trust must vest within a thousand
years of the creation of the trust if a beneficiary exercises a
nongeneral testamentary power of appointment. If, on the other
hand, a beneficiary is given a presently exercisable general
power of appointment, it is as if the beneficiary were just
given the trust property, and thus the thousand-year computation
begins from the time the beneficiary received the power. He
listed an example of a beneficiary of a trust in excess of $1
million who has a testamentary nongeneral power of appointment
and gives another beneficiary a presently exercisable general
power of appointment in order to avoid a 55 percent generation-
skipping tax. This action actually trips the tax trap, but by
doing this, it subjects the property to the lesser estate tax
rate versus the higher generation-skipping tax rate.
MR. GREER concluded by expressing his belief that SSHB 34 would
perfect Alaska's trust law and conform it to common law
understanding of the rule against perpetuities.
TAPE 01-23, SIDE B
Number 2390
MR. GREER, in response to questions from Representative Coghill,
said that it was unlikely SSHB 34 would see any court
challenges. He also said that if Alaska were to change its
estate tax structure, it might necessitate altering the trust
laws to accommodate dynasty trusts. However, because often
states choose to have their estate and income taxes resemble the
federal taxing scheme, dynasty trusts would probably be allowed
to continue. He said he saw that the biggest threat to Alaskan
trusts would be the imposition of an income tax on the trust's
assets.
MR. GREER elaborated on points brought up by Chair Rokeberg by
saying that if a state income tax were to be established, a
provision could be made to exempt nonresident trusts maintained
in Alaska, but he did not see any way to avoid taxation of
trusts formed by Alaska residents. Mr. Greer went on to say
that he believed, should Congress repeal the estate tax, Alaska
would have an ability to take the billions of dollars outside of
dynasty trusts and move them to Alaska because current Alaska
law exempts trust assets from state income taxation and protects
them from creditor claims.
MR. GREER explained that the reason for the changes in Section 1
was to make a distinction in the law between presently
exercisable general power of appointment and testamentary
general power of appointment. The latter power relates back to
the date of the original trust instrument. The former power
relates to the date that power was granted to a beneficiary. He
also clarified that the addition of the words "of alienation" in
Section 3 was to conform with the first part of each sentence in
which those words were added. Mr. Greer confirmed that the term
"settlor", inserted in Section 3, was someone who had formed a
revocable trust and subsequently died, causing the trust to
become irrevocable. He also agreed that he was in favor of
raising estate taxes higher than they are currently but capping
them to protect small businesses.
Number 1457
REPRESENTATIVE OGAN moved to report SSHB 34 out of committee
with individual recommendations and the accompanying zero fiscal
notes and asked for unanimous consent. There being no
objection, SSHB 34 was reported out of the House Judiciary
Standing Committee
The committee was at-ease from 2:20 p.m. to 2:35 p.m.
HB 27 - LICENSE HOME INSPECTORS
Number 1438
CHAIR ROKEBERG announced that the next order of business would
be HOUSE BILL NO. 27, "An Act relating to the licensure and
registration of individuals who perform home inspections;
relating to home inspection requirements for residential loans
purchased or approved by the Alaska Housing Finance Corporation;
relating to civil actions by and against home inspectors; and
providing for an effective date." [Before the committee was
CSHB 27(L&C).]
CHAIR ROKEBERG, speaking as the sponsor of HB 27, noted that the
proposed committee substitute (CS) had a technical correction on
page 8, line 26, changing the word "and" to "or".
Number 1352
REPRESENTATIVE COGHILL made a motion to adopt the proposed
committee substitute (CS) for HB 27, version 22-LS0136\S,
Lauterbach, 2/20/01, as a work draft. There being no objection,
the proposed CS, Version S, was before the committee.
CHAIR ROKEBERG explained that interested parties within the real
estate community had raised the concept of the proposed CS
several years ago. Home inspectors throughout the country are
becoming a major element in commerce and the real estate
industry because of interest germinated in the real estate
community regarding the relationship between home inspectors and
disclosure statements, the development by the legislature of
disclosure statements, the growth of the home inspection
business, and the demand of home inspection services by federal
housing elements and lenders. Many states are have been taking
up potential regulation of [home inspection] types of
activities. He added that currently, anybody could call himself
or herself a home inspector and establish a business, though
that person would, of course, have to demonstrate competence in
order to establish a clientele. Because of the problems he has
seen arise in the area of home inspection, as well as his own
experience with this type of legislation, Representative
Rokeberg said he favored more governmental regulation [of the
home inspection industry].
CHAIR ROKEBERG added that last year, HB 418 removed receipts of
license fees and fees for services of the Department of
Community and Economic Development (DCED) from the general fund
calculation. He said that at the request of people in the
industry, a full board had been created; although it did have
fiscal ramifications, the board, not the state, would fund
those.
CHAIR ROKEBERG brought attention to liability issues referred to
on page 8, lines 13-28, affecting [AS 08.57.800 and AS]
08.57.810 and page 14, line 1, which repealed an existing
statute.
Number 1158
JANET SEITZ, Staff to Representative Norman Rokeberg, Alaska
State Legislature, assisted with the presentation of the
proposed CS. She explained that the proposed CS would establish
a board of home inspectors consisting of five voting members and
one nonvoting, ex officio member. The nonvoting member would be
the executive director of the Alaska Housing Finance Corporation
(AHFC). The AHFC had requested its inclusion on the board due
to the volume of interaction it has with home inspectors. She
further explained that the board would have the general powers
that most boards have to develop exams, issue licenses, and
develop licensing procedures. The Division of Occupational
Licensing would oversee the board.
MS. SEITZ went on to say that the proposed CS would require
licensure of home inspectors and registration of associate (or
apprentice) home inspectors. A home inspector would be
responsible for work performed by an associate home inspector
under his or her employ.
Number 1079
MS. SEITZ referred to page 4 and mentioned that the language now
reflects that licensure would not be granted to anyone with an
unresolved criminal complaint. The language also now reflects
that disciplinary action refers only to real estate or home
inspection matters.
MS. SEITZ said the proposed CS contained provisions for the
following: advertising and business cards as they relate to
identification, a required pre-inspection document, conflict of
interest definitions and disclosure deadlines, and written
inspection report requirements. With regard to the last, Ms.
Seitz added that this requirement does not preclude the home
inspector from taking the client with him or her on tour and
presenting an oral report. She referred to page 7, line 10, and
said that the validity of the home inspection report was limited
to 180 days. She added that the proposed CS set forth the
grounds for disciplinary sanctions, brought the board under the
Administrative Procedure Act, and gave the board the authority
to go to court and enjoin individuals from performing home
inspections that are in violation of licensure. Ms. Seitz also
referred to page 8, line 16, and said this language created a
two-year limitation during which a party to the transaction
could bring an action against a home inspector.
CHAIR ROKEBERG mentioned that this limitation was a
controversial issue and was discussed in the House Labor and
Commerce Standing Committee (HL&C). A prior version of HB 27
reflected that liability was limited to the same 180-day period
of the [home inspection] report's validity. He said he felt the
need to have a distinction between the validity period of the
report and the length of time in which an inspector could be
held liable for omissions or incorrect inspections. The result
was to impose a two-year limitation, which reflects Wisconsin's
limitation. He noted that though the state had a three-year
statute of limitation, he felt that a two-year seasonal cycle
was sufficient to expose any problems created as a result of any
omissions or failures to identify problems by the home
inspector.
MS. SEITZ continued by saying that language on page 8 also
limits who could bring suit against the home inspector. If a
person is not party to the transaction, or is in unlawful
receipt of the home inspection report, then that person cannot
bring action against the home inspector. She explained that the
proposed CS also includes prohibitions against the home
inspector performing repairs on problems discovered during an
inspection that was performed for a fee. A home inspector is
also prohibited from inspecting his or her own property, or
property that he or she has a financial interest in, for a fee.
The proposed CS also establishes the following exemptions from
licensure and registration: federal, state, or local employees;
home inspections performed on the home inspector's own personal
residence without a fee; a registered engineer/architect (or
engineer/architect-in-training) who affixes his or her seal and
signs the report; a pesticide applicator inspecting for
pesticide applications; a general contractor with a residential
contractor's license/endorsement; a real estate appraiser while
performing those specific duties; and an energy rater, again,
while performing those specific duties.
Number 0763
MS. SEITZ noted that the proposed CS also has a definitions
section. She then referred to page 12 where language in the
AHFC provision was amended as it pertained to International
Conference of Building Officials (ICBO) inspectors. She added
that there are two sections in the proposed CS that will reflect
this language because of transitional considerations. After the
transitional period, the ICBO inspectors will have to abide by
home inspector licensure requirements. The delayed effective
date for Section 5 of the proposed CS would allow existing ICBO
inspectors time to comply with the new requirements. Ms. Seitz
concluded by noting that the proposed CS also contains
provisions which will bring violations of certain sections [of
AS 08.57] under the Fair Trade Practices Act, allows the board
to start developing regulations before licensing measures go
into effect, and contains transitional licensure provisions.
Number 0610
BILL BRADY, Alaska Realtors Association, testified via
teleconference. He said that he was speaking just a real estate
agent and not for the Alaska Realtors Association because the
Alaska Realtors Association had not had time to meet and discuss
the proposed CS. He did, however, note that the Alaska Realtors
Association agreed that there needed to be some form of home
inspector licensure. On another point, he questioned the lack
of public liability or property damage insurance in the proposed
CS.
CHAIR ROKEBERG explained that the final residual element
regarding public liability insurance was deleted from the
proposed CS because the state does not statutorily require any
state licensees to acquire insurance, and he did not intend to
set a precedent with home inspectors. In addition, the topic of
mandatory errors and omissions (E&O) insurance had already been
debated over the years and had failed to pass muster. All that
was left in prior versions of HB 27 was minimal general
liability insurance, and Representative Rokeberg said he felt
that those provisions were redundant because any prudent
business operator would have liability insurance anyway. He
added that insurance requirements are not in the real estate
statutes either.
MR. BRADY said he disagreed. He felt that there should be some
type of public liability and property damage insurance in the
proposed CS. He reminded the committee that home inspectors go
into people's homes and move around in crawl spaces and attics.
He asked if an inspector who fell through the ceiling and was
injured would be able to sue the homeowner. He wondered if in
that situation the consumer would be protected.
Number 0353
CHAIR ROKEBERG rebutted that no other profession had statutorily
required insurance, and he inquired if Mr. Brady thought
realtors should have statutorily required insurance.
MR. BRADY said he still felt that insurance should be required
for home inspectors because a home inspector was more likely to
be injured or cause damage during the course of the inspection
than a realtor would be during the course of showing a home to a
prospective buyer. He also said, however, that he did not want
to hold up passage of the proposed CS on this point.
CHAIR ROKEBERG countered that in the example given by Mr. Brady,
the home inspector was more likely to bring a cause of action.
MR. BRADY agreed with Chair Rokeberg on that point. On another
point, he sought clarification on whether a home inspector who
lost his license could work under another home inspector's
license as an associate. He noted that in real estate, a broker
who lost his or her license, could still work as an agent for an
employing broker.
CHAIR ROKEBERG said his staff would research that issue.
Number 0069
FRANCO VENUTI testified via teleconference and said he was an
ICBO certified combination dwelling inspector. He added that he
serves as a member of the Federal Housing Administration (FHA)
New Construction Inspection Panel, as construction inspector for
the Veterans' Administration. He has been working in the public
construction industry for the last 30 years and has been
inspecting new and existing homes since 1992. He stated that he
was extremely insulted by the letter written by Carla Stanley,
which was submitted as part of the public record in the House
Labor and Commerce Standing Committee on February 2, 2001. He
said that the letter contained a number of untrue allegations
and slandered Mr. Venuti's business reputation. The letter
referred to a case between the Stanleys and their builder, which
went to binding arbitration in 1999. Mr. Venuti added that the
arbitrator held the Stanleys liable. The Stanleys then appealed
the arbitration and were again held liable by the superior
court. This case, which was judged in two instances to be
without merit, was now apparently being used .... [Tape ended
mid-sentence.]
TAPE 01-24, SIDE A
Number 0001
MR. VENUTI continued by saying he respectfully requested the
aforementioned letter be removed from the public record.
MR. VENUTI spoke on another issue: model codes are only minimum
standards and not design ideals. He pointed out that on new
construction, he often never meets the homeowners and never has
any contact or contract with them. He normally contracts only
with the builder. In the field, he cannot hold the builder to
anything other than minimum code standards. He added that he
has inspected for a number of builders on a regular basis, and
he recognized that the quality of workmanship varied with the
builder's experience as well as the price range of the project.
The reality of the market is that the quality of a home is
directly related to the budget. Unfortunately, many new-home
buyers have unrealistic expectations and naively assume that a
$130,000 home will have the same quality as a $300,000 home. If
a budget only allows for minimum standards, then that is what
the buyers get even though they may not like it.
Number 0105
MR. VENUTI explained that with existing home transactions, the
final call on whether a home gets purchased falls to the real
estate appraiser, who evaluates the property based on the
relationship to the financing scenario. He added that specific
financing scenarios often have their own unique requirements,
not all of which are minimum code standards. In the typical
home sale, there are more people involved than just the buyer,
and the home inspector has to walk a fine line in order to
satisfy the buyer, the seller, and the realtor. Savvy
inspectors write reports that do not impede the transaction. He
said he had observed that when a buyer is determined to purchase
a particular home, the buyer does so regardless of the home
inspection report. He finalized his comments on this issue by
saying that existing home inspections and new construction
inspections were two completely different issues; the proposed
CS needed to more thoroughly separate the two different types of
inspections.
MR. VENUTI then referred to page 4, line 1. He asked what
constituted an unresolved complaint and what happened if the
complaint was without merit. He added that that language would
"make it open season on home inspectors." He said, however,
that he supported the intent of [HB 27], but cautioned that it
would not eliminate homeowner (indisc.) and would simply
complicate issues. He said he felt that a more effective way in
which to ensure homeowner and homebuyer satisfaction would be to
require homeowners to purchase new construction warranty
insurance. He added that this solution would not require the
layers of bureaucracy and additional consumer costs entailed in
[HB 27]. In conclusion, he again respectfully requested that
the Stanley letter be removed from the public record.
CHAIR ROKEBERG noted that he was familiar with the
aforementioned letter, and asked Mr. Venuti to fax his testimony
to the committee to ensure that it [too] became part of the
public record. He said he appreciated Mr. Venuti's support. He
added that many of Mr. Venuti's comments were about current
industry practices and not part of the proposed CS.
CHAIR ROKEBERG also explained that the language on page 4 of the
proposed CS regarding unresolved criminal complaint and
disciplinary action referred only to licensure qualification and
did not relate to any subsequent disciplinary actions. He said
this meant that a person needed to have a clean record in order
to get his or her initial license. He did agree that [the
committee] should take another look at the language regarding an
unresolved disciplinary action going before a regulatory
authority of the state. He offered that the language meant that
a person would have to be another licensee, for example, a
contractor, or [the disciplinary action] would have to be at the
criminal level. He said [the committee] would make sure it did
not apply to a home inspector with a causative action against
him or her.
Number 0433
BILL BLOOM testified via teleconference and asked questions of
the committee. His first questioned whether the entire proposed
CS pertained only to the AHFC-financed homes.
CHAIR ROKEBERG responded that the proposed CS had very little to
do with the AHFC; it only related to the specificity in [the
AHFC] statute about the use of home inspectors for [the AHFC]
lending product. The proposed CS would ensure that all home
inspectors in the state, including the ICBO inspectors, were
licensed under the board [of home inspectors]. He added that
the proposed CS would pertain to all houses in the state, both
new and existing, that were not in a jurisdiction which had its
own building codes, examinations, and inspections.
MR. BLOOM said he assumed that licensing and inspection fees
would pay for the administrative cost of the board. He then
asked if the examination provisions reflected examinations for
different types of licenses, such as for new-construction
inspection and existing-home inspection. He noted that the
recognized national exam for existing homes would be the
American Society of Home Inspectors Exam (ASHIE), and this exam
had a prerequisite of 250 home inspections.
CHAIR ROKEBERG confirmed that the examinations would reflect the
different licenses. He noted that there were several ICBO
exams. He also explained that the board could, in establishing
examinations, adopt the ASHIE test or a similar type of test and
then administer it. He noted that an earlier version of HB 27
contained standards for transitional licensing that included
home inspection experience. This language was removed to
prevent an unfair burden on home inspectors from rural areas,
where it was difficult for a home inspector to perform the
number of inspections required to fulfill prerequisites.
MR. BLOOM referred to the license renewal provision of the
proposed CS. He said he understood that ICBO inspectors "re-
test" every three years for code changes, but he could not see
what continued competency testing would entail for existing home
inspectors.
CHAIR ROKEBERG answered that it could entail refresher courses
and continuing education curriculum.
MR. BLOOM said he was surprised that the required inspection
report could be an oral report. He wondered about third-party
recipients of those reports, and who else might be receiving the
reports.
Number 0899
CHAIR ROKEBERG clarified that the required inspection report had
to be written; an oral report could be given in addition to the
written one, however. He suggested that Mr. Bloom was looking
at an older version of HB 27 and not the one currently before
the committee. He explained further that whoever purchased the
report had to give consent for the report to be passed on to
third-party recipients. That way, the home inspector would be
protected by ensuring the report was not distributed to
unauthorized parties. Chair Rokeberg noted that the current CS
encouraged oral reports during inspections so that the homebuyer
could be made aware of details that would not necessarily be in
the written report.
MR. BLOOM said he did not understand what "contrary to public
policy" meant [as used on page 9, lines 27-28].
CHAIR ROKEBERG explained that it meant a contract could not
contain a provision that limited the home inspector's liability
to the fee of the home inspection. He also noted that this
language was a change in public policy. Chair Rokeberg also
informed Mr. Bloom that the insurance requirement provisions had
been deleted completely from the proposed CS. He recommended
that Mr. Bloom acquire the latest version. Chair Rokeberg
further suggested to Mr. Bloom that his concerns regarding
Section 4 would be better addressed to the AHFC representative
because Section 4 contained existing statutory language specific
to the AHFC.
MR. BLOOM noted that while most of the proposed CS appeared to
him to relate to existing home inspectors, the portion which was
included that related to ICBO inspectors made the proposed CS
confusing.
CHAIR ROKEBERG commented that while he agreed with some of Mr.
Bloom's comments regarding Section 4, the proposed CS did not
speak to those issues at all.
Number 1348
DAVID R. OWENS, Owner, Owens Inspection Services, testified via
teleconference in opposition to the proposed CS as it is
currently written. He said that his primary reason for
opposition was because not all inspectors were going to be
regulated under the proposed CS; it would leave the residential
inspectors to carry the burden, which would, in turn, drive
costs up and force some inspectors out of business. He also
said he felt it was inappropriate to have a real estate agent on
a regulating/inspection board.
CHAIR ROKEBERG asked Mr. Owens to specify which inspectors he
meant when Mr. Owens said the proposed CS would not be
regulating all inspectors. Chair Rokeberg said the only exempt
inspectors he knew of would be those that worked for
municipalities or other jurisdictions that have enforcement of
building code.
MR. OWENS said that there were inspectors doing private
inspection work who were going to go unregulated. As an example
he listed the specialty inspectors that do inspections of
concrete, rebar, structural steel, structural welding,
fireproofing, post-tensioned slabs and beams, and soil
compaction. He said he also believed that the Federal Housing
Administration and Veterans' Administration inspectors would go
unregulated as well under the proposed CS. On another point, he
said he was not clear if, on the new construction, only the AHFC
inspectors would be regulated, leaving the other inspectors of
new construction unregulated. He added that if he felt that all
inspectors were being included in the proposed CS, he would
support it.
CHAIR ROKEBERG explained that all inspectors were included in
the proposed CS with the exception of municipal inspectors and
specialty inspectors of rebar and welding. The board would
regulate all ICBO, existing-home, and new-home inspectors who
were performing inspections defined in the proposed CS. He did
note, however, that because an energy rater does not inspect all
components of a home, the proposed CS would not regulate an
energy rater. Chair Rokeberg also explained that because the
proposed CS was designed for consumer protection, commercial
inspectors were not included because commercial interests have
the ability to protect themselves.
Number 1650
RICK JARVIS, ReMax Properties, testified via teleconference and
said simply that he was in support of the proposed CS.
Number 1654
JOHN BITNEY, Legislative Liaison, Alaska Housing Finance
Corporation, Department of Revenue, testified via
teleconference. He said the AHFC was in favor of the proposed
CS. He noted, however, that the AHFC did not provide a fiscal
note even though page 2, lines 4-7, required the AHFC to pay the
cost of being an ex officio member. He explained that
originally, the AHFC had wanted to participate on the board in
order to ensure that a construction standard was adopted equal
to, or better than, the standard the AHFC currently has in
place. Mr. Bitney said that it was not necessary for the AHFC
to be a member of the board in perpetuity; a limited timeframe
would serve as well, and would ensure that the fiscal note
remained zero. If, however, the legislature wanted the AHFC to
remain on the board in perpetuity, then the AHFC would consider
submitting a revised fiscal note.
CHAIR ROKEBERG acknowledged that the committee would consider an
amendment to limit the time that the AHFC served on the board.
He said he would hold open the public hearing on the proposed CS
[Version S], which he intended to bring back before the
committee on Monday. [HB 27 was held over.]
ADJOURNMENT
Number 1769
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 3:28 p.m.
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