Legislature(1997 - 1998)
03/14/1997 03:20 PM House L&C
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 14, 1997
3:20 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative John Cowdery
Representative Bill Hudson
Representative Jerry Sanders
Representative Joe Ryan
Representative Tom Brice
MEMBERS ABSENT
Representative Gene Kubina
COMMITTEE CALENDAR
*HOUSE BILL NO. 178
"An Act relating to letters of credit under the Uniform Commercial
Code; and providing for an effective date."
- HEARD AND HELD
*HOUSE BILL NO. 33
"An Act relating to real estate licensing and the real estate
surety fund; and providing for an effective date."
- HEARD AND HELD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 178
SHORT TITLE: UNIFORM COMMERCIAL CODE:LETTERS OF CREDIT
SPONSOR(S): LABOR & COMMERCE BY REQUEST
JRN-DATE JRN-PG ACTION
03/06/97 561 (H) READ THE FIRST TIME - REFERRAL(S)
03/06/97 561 (H) LABOR & COMMERCE
03/14/97 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 33
SHORT TITLE: REAL ESTATE LICENSING
SPONSOR(S): REPRESENTATIVE(S) ROKEBERG BY REQUEST
JRN-DATE JRN-PG ACTION
01/13/97 36 (H) PREFILE RELEASED 1/3/97
01/13/97 36 (H) READ THE FIRST TIME - REFERRAL(S)
01/13/97 36 (H) LABOR & COMMERCE, FINANCE
03/14/97 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
ART PETERSON, Attorney
Uniform Law Commissioner
State of Alaska
350 N. Franklin Street
Juneau, Alaska 99801
Telephone: (907) 789-9830
POSITION STATEMENT: Testified on HB 178
L. S. KURTZ, JR., Attorney
Uniform Law Commissioner
Uniform Commercial Code
1050 Beech Lane
Anchorage, Alaska 99501
Telephone: (907) 258-6051
POSITION STATEMENT: Testified on HB 178
DOUGLAS LOTTRIDGE, Assistant Attorney General
Commercial Section
Department of Law
State of Alaska
1031 W 4th Avenue, Suite 200
Anchorage, Alaska 99801
Telephone: (907) 269-5100
POSITION STATEMENT: Testified on HB 178
ELEANOR "GRAYCE" OAKLEY, Executive Administrator
Real Estate Commission
P.O. Box 4072
Palmer, Alaska 99645
Telephone: Unavailable
POSITION STATEMENT: Testified on HB 33
KENNETH TRUITT, Assistant Attorney General
Department of Law, Commercial Section
State of Alaska
P.O. Box 110300
Juneau, Alaska 99811-0300
Telephone: (907) 465-3600
POSITION STATEMENT: Testified on HB 33
CATHERINE REARDON, Director
Department of Commerce and
Economic Development
Division of Occupational Licensing
P.O. Box 110806
Juneau, Alaska 99811-0806
Telephone: (907) 465-2534
POSITION STATEMENT: Testified on HB 33
KRISTAN TANNER, Real Estate Practitioner
1830 E Parks Street, Number 386
Wasilla, Alaska 99654
Telephone: (907) 373-3575
POSITION STATEMENT: Testified on HB 33
TERRY MCGILLIVARY, Staff Member
Real Estate Commission
3601 C Street, Number 722
Anchorage, Alaska 99503
Telephone: (907) 269-8768
POSITION STATEMENT: Testified on HB 33
CHRIS STEPHENS, Commercial Real Estate Broker
President
Bond, Stephens and Johnson
3000 A Street, Number 200
Anchorage, Alaska 99503
Telephone: (907) 786-7305
POSITION STATEMENT: Testified on HB 33
ACTION NARRATIVE
TAPE 97-21, SIDE A
Number 001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee to order at 3:20 p.m. Members present at the
call to order were Representatives Cowdery, Hudson, Ryan and Brice.
Representative Sanders arrived at 3:21 p.m.
Number 056
HB 178 - UNIFORM COMMERCIAL CODE:LETTERS OF CREDIT
CHAIRMAN ROKEBERG indicated that the committee would address HB
178, "An Act relating to letters of credit under the Uniform
Commercial Code; and providing for an effective date."
Number 103
ART PETERSON, Attorney, Uniform Law Commissioner, State of Alaska,
came forward to testify on HB 178. He noted that another Law
Commissioner was in attendance via teleconference in Anchorage. He
wished to cover some general points of this legislation. Mr.
Peterson continued that the National Conference of Commissioners in
Uniform State Laws, the body that promulgated the original Uniform
Commercial Code (UCC), including this Article 5 on Letters of
Credit, is a 105 year organization. Alaska has adopted about 70 to
75 of the Uniform Acts promulgated by this group. The bill before
the committee is the UCC's latest amendment of a substantial part
of this Commercial Code.
MR. PETERSON added that the organization takes many years to
develop any revision, such as what's before the committee
currently. One of the main points of this legislation, dealing
with letters of credit, is that it brings the law current with
practices and customs in international trade. Alaska is becoming
more involved with international trade and they don't want to be
lagging behind the rest of the country in this area. Fifteen
states have already enacted this revision before the committee.
Twelve states have introduced it in the 1997 session and it was
only promulgated by the national conference in 1995.
MR. PETERSON noted as a general matter, this legislation revises
the law that was enacted and developed about 40 years ago. There
has been no significant amendment of the law since then. In this
revision the law is simplified and it resolves questions which have
arisen, especially with regard to the developing use of computers
and modern technology. It clarifies that the parties to a
transaction can rely on the international standards of practice.
It conforms to international law and practice. The letter of
credit industry which is the main means of financing international
credit is a two hundred billion dollar industry in the United
States. This legislation helps to avoid litigation in a number of
areas.
Number 432
JERRY KURTZ, JR., Attorney, Uniform Law Commissioner, Alaska,
testified via teleconference from Anchorage. Throughout the years
he's represented financial institutions on a fairly steady basis.
A typical attorney in Alaska has never seen a letter of credit.
There are no reported Supreme Court, Alaska cases involving letters
of credit. Letters of credit are rare in the litigation world.
This is due in part to the Uniform Act. The big problem that's
come up in the last twenty years with letters of credit has been
the advent of computers. There have been some problems applying
the forty year old statute to present commerce as it is being
conducted. A lot of letters of credit are still hard paper
documents between individuals and banks, businesses, etc. More and
more of these types of transactions are being done by some type of
electronic communication.
MR. KURTZ stated that from the standpoint of Alaska he couldn't
stress enough the importance of letters of credit in foreign
commerce. They are best thought of as a bridge, a device whereby
both a person in Japan and Korea, for example, can deal with an
Alaskan company and do so without worrying whether they will be
paid for the goods delivered and visa versa. The letters of credit
are primarily used in international commerce to assure that a party
in one country that is owed money for goods provided in another
country will be paid for these goods.
MR. KURTZ added that countries have language differences and
different banking systems with lots of distance in-between,
including a time lag based on what type of transport is involved
and the risk of not being paid. A letter of credit is a device to
help solve these problems. The practice of letters of credit in
international trade has been used for many decades. He emphasized
that Alaska is heavily involved in international trade and is
becoming more and more so.
Number 805
DOUGLAS LOTTRIDGE, Assistant Attorney General, Commercial Section,
testified via teleconference from Anchorage on HB 178. He is the
attorney assigned to review this legislation. In so doing, he has
talked extensively with both the previous gentlemen who testified.
He added that his review of the bill comports with what they have
testified to. He stated that on behalf of the Department of Law,
they have no legal problems with this bill and they support it. He
reiterated the fact that because Alaska is so involved in
international trade, it only makes sense for them to have a uniform
law that other international attorneys and businesses can rely on
as being consistent with the law they are familiar with.
Number 917
REPRESENTATIVE JOHN COWDERY asked if this legislation would affect
the state's AIDEA loan programs.
MR. LOTTRIDGE stated that he had not specifically discussed this
possibility with the Alaska Industrial Development & Export
Authority (AIDEA), but certainly any international transaction
using letters of credit would be affected by legislation, whether
it's AIDEA or any other organization. Anyone using a letter of
credit would be doing so with this law in place, which this law
would certainly facilitate their dealings with other private
enterprise or other countries.
Number 1044
REPRESENTATIVE JOE RYAN referred to the fact that a letter of
credit requires seven days for the bank to honor it once all the
contract conditions are met. When the person who's paying receives
this letter of credit, the funds that are required are deposited in
the bank where the letter is issued. The corresponding bank on the
other side receives a wire transfer. At the maximum there's about
three days that they need to fulfill federal requirements to handle
this. Otherwise, they take the other four days and they put the
money in a money market at three percent and they make money off of
the other party's float. If a party wants to get this money sooner
a discount note is signed which is commonly known as a banker's
acceptance. The bank charges a fee for giving the money up front.
Representative Ryan didn't see why a person has to pay a tribute to
a bank to do the normal course of business if they chose that in
three days period of time they wanted their money and met all the
requirements. They should be able to be paid out if everything is
as stated in a letter of credit. He said he didn't see anything in
this legislation calling for a dispute resolution. Alaska has a
great set of statutes on arbitration. He thought these should be
referenced in this legislation. He noted the different types of
letters of credit and it's become a practice lately in the market
for people to try and get some unsuspecting person to send them a
revolving letter of credit for purchases that are made on a
continuing basis. Some people sell these revolving letters of
credit on the market and leave the purchaser stuck having received
nothing. A lot of due diligence is involved by the person issuing
the letter of credit and with the institutions with which they're
dealing. He stated that he's consulted with individuals regarding
this legislation and was waiting for some responses. He wanted to
make sure there were no loopholes to this legislation.
REPRESENTATIVE ROKEBERG stated that he would also like answers to
some of the questions Representative Ryan raised. He thought this
was an important piece of legislation and something that should be
considered properly. He then asked Mr. Kurtz to give an
explanation of some of the concerns which Representative Ryan
raised.
Number 1295
MR. KURTZ noted Sec. 45.05.108, on page eight of the legislation
dealing with the seven day float issue. He stated that this was a
delicate issue. This gets into the area of forgeries which is an
enormous problem in the banking world. He asked how long do they
give a bank or somebody else that has issued a letter of credit to
determine whether the documentation is adequate to require someone
to pay. He said he was well aware of the problem of bankers making
money on float. Not very many people like this practice, but on
the other hand the problem of proper documentation and times cannot
(indisc.) by looking at what's on the table in front of them. This
section is a compromise in that seven business days is an outer
limit. There was considerable discussion regarding the wording of
this section. There should be a reasonable time after presentation
of the documents to produce the money, but whether it's reasonable
or not, someone doesn't have more than seven days to either do this
or say they aren't going to pay, period. There is no answer to the
problem which Representative Ryan has presented. Verifying
documents before the letter of credit is honored, is a difficult
thing to do, yet one of the advantages of a letter of credit is
that they do in a rather expeditious manner, make money move.
Three days or five days could be used but this could create a
uniformity problem. If this language is out of phase with what the
rest of the world is doing this makes it more difficult for a
business man to operate under these parameters.
Number 1479
MR. PETERSON added that he could make available to Representative
Ryan the official Uniform Laws Conference commentary under this
section.
REPRESENTATIVE RYAN stated that one of the biggest things someone
does when engaged in international trade is to exercise due
diligence. If someone looses money on a deal because of fraud or
some other problem and they've engaged in proper due diligence,
well then, "shame on you." The nature of business being what it
is, it behooves the person who's handling these things to do so.
It's a common practice in the banking community that what they make
on their overnight deposits is enough to pay the interest they pay
out to the depositors. What they make on their loans, is in
effect, a net profit other than taxes. They do quite well and some
people would like to have this money invested.
Number 1576
CHAIRMAN ROKEBERG clarified that this depends on whether banking
institutions are buying or selling federal funds overnight in order
to make money. He asked about the issue regarding the lack of any
dispute resolution.
MR. KURTZ said he would be glad to respond, but wanted to finish
with his comments on the previous issue and pointed out that this
legislation is a default act. "This is what goes unless it's
varied by agreement." He stated that there's nothing wrong with
someone negotiating with their banker along with the other parties
involved to require that they pay interest for the period they
loaned this money while they investigate. He suspects that this
has been done at times. On the issue of arbitration. Agreements
to arbitrate in the event of dispute on letters of credit are
allowed, but generally this is not normally done. Arbitration is
a concept unheard of in many places. Alaska has the Uniform
Arbitration Act and it's worked very well, but not all states have
this Act and other countries probably have something similar. In
terms of something that will be readily understood, most other
countries have some idea how the United States court system works
and visa-versa.
MR. KURTZ continued that international commerce looks very strongly
for certainty of what laws will govern. In arbitration, it's never
known how the arbitrators got where they got. He stated that he
was a strong fan of arbitration, but inserting anything like this
into the present arbitration would do a disservice to Alaskan
business people because if someone from another state or country
who doesn't have an effective arbitration system encountered this,
they would be very reluctant to go ahead without getting attorneys
involved and then spending more money and delay. He thought this
was a good concept but didn't feel Alaska was in the position to
lead this movement.
Number 1717
CHAIRMAN ROKEBERG asked how someone would find themselves in a
dispute that would require resolution. He asked if a letter of
credit denominated in a monetary amount might be disputed regarding
currency rates or asked for an example of any other dispute that
might be raised.
MR. KURTZ responded that a typical dispute arises when the issuer
of the letter of credit refuses to pay out the money they agreed to
pay under this document because they feel they have not been given
the documentation in genuine form, say for example, if it's
fraudulent. It is required to be given before the money is
released. This relates to the forged document concept which is a
cause of a certain number of these disputes. If it turns out that
the documentation is alright and the bank held the money for twenty
days, which it's not suppose to do under this bill version unless
a party says specifically they will not pay after the seventh day,
there have been problems with banks saying, "well, this looks
awfully fishy to us. We really don't want to pay you, but we don't
want to reject it yet...so we'll just take a few more days."
Number 1816
CHAIRMAN ROKEBERG stated that, "so the forgery or somebody
presenting themselves or misrepresenting themselves as an
authorized party when in fact they weren't and then the institution
issuing the draft, if you will, of money to that person as a form
of forgery or embezzlement or something."
MR. KURTZ responded yes and pointed out a good example of what
happens is that suppose a party buys oil from Saudi Arabia, that
party relies on a letter of credit from a Saudi bank that is
getting help in dealing with the transaction from a New York bank
and a question arises as to whether some of the documentation from
Saudi Arabia has been properly notarized. This sounds like a
simple thing, but there are a lot of false acknowledgments in the
world.
Number 1880
CHAIRMAN ROKEBERG clarified that the form available for any
conflict would be the typical judicial system.
MR. KURTZ responded that this was correct.
Number 1905
REPRESENTATIVE RYAN stated that he had participated in some of
these trades and offered to give an example. He pointed out cargo
ships on the ocean with valuable cargo such as wheat, oats, etc.
In the process of delivery a party cancels on the deal. He then
proceeded to outline in detail the makeup of a transaction such as
this with contracts outlining how and when the goods will be
delivered. Along with any contracts for sale, a clause might be
added that if a dispute arises, it would spell out what laws would
govern. He made a point of stating that terms of dispute
resolution are written specifically into related contracts. He
pointed out that he didn't see anything in the bill before the
committee which specifies how disputes would be resolved.
MR. PETERSON noted that one of the points that's significant with
revisions to Article 5 is the reliance on the body of material
regarding the "customs and practices, this international body of
material that's developed by the International Chamber of Commerce
used in all countries." He added that it's now referred to in this
Article as a fall back position, but he would imagine within this
body of materials there are such provisions dealing with such
things as the forum, the procedures for dispute resolution, etc.
He thought this bill adequately takes care of this point.
MR. PETERSON stated that this legislation related to proposed
Section 45.05.108 and this is the National Conference of
Commissioners on Uniform State Laws (NCCUSL) official comment
pertaining to this section. As mentioned previously, this is a
comment in single space that runs more pages than the section
itself. He noted that this was an indication of how much thought
went into this legislation.
Number 2183
CHAIRMAN ROKEBERG stated that he wished to appoint a subcommittee
to review this legislation to be led by Representative Ryan and to
include Representatives Cowdery and Kubina. He suggested that a
subcommittee could be convened if there was a compelling reason to
do so, but if Representative Ryan wished to do some further
research and report back to the Chair, they could determine if a
subcommittee meeting is necessary.
REPRESENTATIVE COWDERY asked the subcommittee Chair to address the
problem of a bank being recognized by other banks.
HB 33 - REAL ESTATE LICENSING
CHAIRMAN ROKEBERG indicated to the committee that the next
legislation to consider would be HB 33, "An Act relating to real
estate licensing and the real estate surety fund; and providing for
an effective date." Chairman Rokeberg noted a possible conflict of
interest that might exist with this legislation since he is
currently a real estate broker in the state of Alaska. This
legislation will have a direct affect on his conduct of business.
He continued that he is the sole proprietor and broker for the
Rokeberg Company located in Anchorage, Alaska.
CHAIRMAN ROKEBERG noticed the committee substitute related to this
legislation labeled LS-0197\B, Lauterbach, 3/11/97 and entertained
a motion to adopt this version.
Number 2407
REPRESENTATIVE COWDERY made a motion to adopt the committee
substitute for HB 33 as noted. Hearing no objection it was so
adopted and before the committee for review.
CHAIRMAN ROKEBERG mentioned that this bill was introduced at the
request of the Real Estate Commission. The primary reason for this
bill was in the interest of consumer protection. He added that
there had been some conversion embezzlement of funds from a number
of businesses in the Anchorage area over a number of years. Over
the course of an investigation under a task force appointed by the
commission there was discovered a very large case that affected as
many as nineteen different condominium associations. Large amounts
of embezzled money was involved.
TAPE 97-21, SIDE B
Number 000
CHAIRMAN ROKEBERG continued that this particular bill provides for
the establishment of endorsements related to both Real Estate
Property Managers and Community Association Managers. He pointed
out that the real estate statute is probably the most perused part
of the Alaska statutes because it is required reading by all people
who wish to come before the department and take the examination to
become a real estate practitioner, broker or associate broker. As
part of this examination there is a difficult and long portion of
it that is taken out of the statute and the regulations that
pertain to operating a real estate business in Alaska.
Number 060
ELEANOR "GRAYCE" OAKLEY, Executive Administrator, Real Estate
Commission, came forward to testify on HB 33. She referred to a
letter in the committee packet which she prepared at the request of
Chairman Rokeberg as an introduction to this legislation which sets
out the recommendations from the Task Force. It took the Task
Force about a year to study the issues affected by this legislation
and the Task Force was made up of all realms of the property
management population, big and small firms alike. They studied the
issues to decide what would work and what wouldn't. They solicited
comments from their colleagues and they were operating on a
directive from the Real Estate Commission to draft recommendations
to deal with Property Management and Community Association
Management and how they should handle separate licensing for each.
MS. OAKLEY continued that there had been a number of pleas from the
property managers themselves and the association managers. They
didn't mind taking an exam and being licensed, but they did resent
the fact that virtually everything in the exam and in the pre-
licensing education, along with the continuing education, seem to
be oriented towards sales. This is not what they were practicing.
They wanted the education to be part of what they would eventually
be practicing.
Number 161
MS. OAKLEY said she had looked at the number of surety claims that
had been filed in the last ten years against sales persons and
against property managers. She then broke these numbers down into
five year increments, the first, from 1986 to 1990 there were 58
claims filed against sales persons and only sixteen against
property managers. In the second five year period, from 1991 to
1996, there were 42 claims against sales people and 25 against
property managers. The percentage for property managers has
increased significantly and the dollar amount paid out was about a
two to three ratio, about $127,800 for property managers in the
first five year period, $177,000 against sales. In the second five
year period it was $86,600 to $81,600. The amount of money paid
out against property managers surpassed during the second five year
period.
Number 250
REPRESENTATIVE RYAN stated that he would like to claim a potential
conflict since he holds an active real estate salesman license from
the state of Alaska.
Number 266
MS. OAKLEY mentioned that the bill is lengthy because the entire
Chapter 88 is being opened up. Implementation of an endorsement
program, as proposed, involves changes of terminology that are
found throughout the legislation. She directed the committee's
attention to Section .168, which starts on page 9, line 11. This
is the very essence of what this legislation proposed to do. It
spells out endorsements for three specialties, for Sales, Property
Management and for Community Association Management. A person
getting a new license after this bill becomes effective would have
to declare at least one endorsement in order to get a license.
They could get more than one, but there would have to be at least
one attached to any active license.
Number 343
MS. OAKLEY stated that a core body of knowledge would be required,
such as property law and how title is held, fiduciary duties of
agency, conflict of interest, etc., those types of things that
would be common to all three endorsements would be covered in all
three exams and then there would be topics applicable to each of
the specialized practices for sales, such as financing, contracts
used in sales transactions, for example. Property management would
have such things as the contracts used in property management,
landlord tenant law, Americans with Disabilities Act, etc. For the
Community Associations there would be the Uniform Common Interest
Ownership Act and the types of documents used in condominium
projects, such as declarations, etc. This legislation proposes to
establish these areas of expertise by regulation.
MS. OAKLEY continued that there would be an entry level examination
specific to each area. She has been in contact with the testing
service contracted with the state of Alaska as far as the
restructuring of the exam necessary to implement this. She stated
that it is doable. The three tiers as are now defined in real
estate licensing, an entry level, an associate broker and a broker
would still remain intact in each of the three specialties. The
chief person in a real estate office would be a broker with an
endorsement for the specialty area in this office. If there is
more than one specialty area in an office all the proper
endorsements would be required.
Number 465
MS. OAKLEY stated that Section 171 covers what the individual
criteria would be for the specialty areas. She said she'd like to
cover some of the areas outlined at the beginning of the bill which
deal with some additional changes incorporated. One of the things
that happened in 1994 was the issuance of two different Attorney
General opinions that basically said that whereever the statute
says the commission shall or the board shall do something, they
cannot delegate this to a staff person. Language in Section .061
on page 2, makes it possible for the commission to use some
discretion to delegate some of the authority and carry out some
things that are necessary to implement the real estate statute.
Section .071 also on page 2, not only incorporates endorsement
changes, but two other things that are very important to the
success of this, one of which is that unlicensed activity is a
major problem. The number of complaints coming into the commission
office of people conducting property management business without
having a license is significant and on the rise.
MS. OAKLEY offered that their frustration with the unlicensed
individuals is that they can write a letter stating that they're
required to be licensed, but in order to enforce them to get a
license they are required to go to court. This takes the
cooperation of the District Attorney's office. This office is so
overwhelmed with criminal matters. This legislation allows the
ability to levy civil fines and to administer this through
administrative hearings in the Department of Commerce rather than
relying on the Department of Law and the District Attorney. This
would also be an effective vehicle for violations regarding
advertizing, where someone is not following the provisions of the
statute about the way they advertize with their company name. She
then went into specific examples of these violations and the
specifics of levying fines.
Number 688
REPRESENTATIVE COWDERY asked how they would define how many units
managed as applying to this section.
MS. OAKLEY noted that this is outlined in the exceptions.
Number 707
REPRESENTATIVE COWDERY used the example of managing property for
his elderly mother, a 10 to 20 unit condominium facility. He asked
if a situation such as this is addressed in this legislation.
MS. OAKLEY responded that this is specifically addressed as to the
number of units managed, but a person can certainly manage their
own property. As for relatives in the exceptions under Section
.900, it does spell out that anyone managing a total of four units
or less are not required to have a license. The task force was
aware that an arbitrary limit was needed in order to enforce
consistently.
CHAIRMAN ROKEBERG suggested that Representative Cowdery research
this issue and propose a possible amendment concerning the same.
Number 793
REPRESENTATIVE RYAN asked about the procedure for fining an
individual that is out of compliance with advertizing. If the
board finds someone in violation and they levy a fine, is that
person is required to come before the board for a hearing?
MS. OAKLEY responded that if the individual does not think they are
guilty and shouldn't have to pay the fine, then they would have an
administrative hearing as opposed to going to court. A hearing
officer from the Department of Commerce would make a recommendation
to the board.
REPRESENTATIVE RYAN said he was not comfortable with this hearing
officer concept.
Number 909
KEN TRUITT, Assistant Attorney General, Commercial Section,
Department of Law, came forward to testify on HB 33. He was
assigned to review and track this legislation. He referred to
Section 13 of the bill, page 9, lines 5 through 9 regarding the
civil fine provision. As the language currently exists, he
interprets this to mean that this would go through the
Administrative Procedures Act which would be before a hearing
officer. The commission is given the authority to hear issues
before it; it delegates this authority to a hearing officer
for expediency sake. The hearing officer takes evidence, makes
findings of fact, conclusions of law and renders a proposed
decision.
CHAIRMAN ROKEBERG asked if Mr. Truitt thought it troublesome that
the Department of Commerce would do this rather than the Department
of Law.
Number 1025
MR. TRUITT responded that they were referring to constitutional
provisions for the rights of due process. He noted that they've
been working with this specific Administrative Procedures Act for
a number of years which is based on the California Act initiated in
1945. Alaska's Administrative Procedures Act affords more
protections for due process than the constitution requires.
REPRESENTATIVE RYAN noted as an example that most Administrative
Law Judges for the Federal Aviation Association (FAA) were formally
prosecutors. He found it very difficult to believe that these
people were being objective. He felt as though someone in these
situations is seen as guilty before they're charged and they have
to spend a lot of time and expense.
Number 1138
CHAIRMAN ROKEBERG noted that the request for the Department of
Commerce to hear these cases rather than the Department of Law was
due to timeliness. The main purpose of this legislation is to
shift the portion of responsibility to the Department of Commerce.
MR. TRUITT responded that this was not really a question of law.
He stated that he was not necessarily allowed to make comments
regarding policy. The Department of Law handles all the
Administrative Procedures Act cases for the Department of Commerce
as it stands now.
Number 1226
CATHERINE REARDON, Director, Department of Commerce and Economic
Development, Division of Occupational Licensing came forward to
testify on HB 33. She said that there seemed to be some confusion.
The Department of Law serves in the role of prosecutorial
assistants. It's not because they don't have time to be judges,
this is not a role that the Department of Law has ever served. The
hearing officers are employed by the Department of Commerce. The
Division of Occupational Licensing provides the funding, but the
Department hires and supervises the hearing officers.
MS. OAKLEY stated that it was their intent, but the thought was
that "there are a number of things that are violations of the
statute but they're not the kind of violations that are robbing
people of their life savings, yet they are still violations."
These usually aren't important enough to warrant taking Attorney
General time that is available to go ahead and prosecute. She
suggested that maybe they should allow levying a fine with a cap
for lesser offenses. The language suggested and recommended by the
task force is already in the statute. This might be looked at.
Number 1412
REPRESENTATIVE RYAN suggested that they allow an individual to take
a case against them directly to court rather than require a hearing
before an officer.
Number 1538
MS. OAKLEY continued that the she would briefly review particular
sections to this legislation. Section .081 simply makes more
specific the scope of the commission's authority to adopt
regulations. Section .091 would expand the areas where the
education appropriation from the surety fund could be used for.
It's presently very broad and general. This would also authorize
the commission to deposit any monies that might be collected at a
course that was offered to be deposited back into the surety fund.
She noted an AG opinion that says money can be taken out of the
surety fund to pay for these courses, but if any monies are
collected or publication products are sold, this money has to be
deposited back into the general fund.
MS. OAKLEY continued that Section .161 outlines those things that
would require a license and it's broken out from the existing
statute to make it specific for each of the three specialized
endorsement areas. Section .171 lists what the minimum
qualifications are to get a license in each of these endorsement
areas. Also, currently the language says that a person has to have
24 consecutive months, but it doesn't say when and the commission
had a regulation that was "shot down" which attempted to make this
more definitive. Now they are asking that in this statute this be
defined and tightened up to 24 consecutive months within the last
36.
Number 1721
MS. OAKLEY stated that Section .173 would provide for mandatory
Errors and Ommissions (E&O) insurance if it could be made available
at a reasonable premium. The rational behind this is that the
surety fund is a protection for consumers to be reimbursed for
losses. The E&O insurance is a means for licensees to give
themselves some guarantee of being able to pay what might be held
against them. This would be contingent strictly on whether a
policy could be made available at a premium that would not exceed
$200 a year which could be billable along with the license figures.
MS. OAKLEY continued that Sections .181 through .201 deal with the
examination process and being able to contract with a testing
service. Section .221 is the authorization to the Department of
Commerce to set fees which is no different than what is done right
now except they would be setting them for the individual
endorsements. These fees have not been determined at this point.
Number 1868
REPRESENTATIVE RYAN asked that if someone has to take a course and
pass a test, he asked to what purpose did the Department of
Commerce put an endorsement on a license and charge a fee.
MS. OAKLEY stated that this person would be getting a license just
like Representative Ryan received his license for real estate,
except under new circumstances this license would be for a
particular endorsement. There would undoubtedly be some graduated
fees if a person had more than one endorsement.
Number 1950
CHAIRMAN ROKEBERG asked if they intended to set these fees by
regulation.
MS. OAKLEY responded yes.
Number 2006
MS. OAKLEY noted that the section regarding inactive licenses was
housekeeping language to make it clear. A person can have a
license in a "holding pattern" for up to two years. Section .262
is an enabling section for reciprocity. There are a number of
states that have reciprocal agreements with other states that allow
for license holders of one state to practice in the other. The key
phrase in this section is that a negotiated agreement between the
two states is involved. Alaska does not have any reciprocal
agreements at this time. Section .263 allows for an endorsement
which provides for recognizing that someone has a license in
another state with whom they have no reciprocal agreement, but the
state recognizes that they have qualified for a license in another
state. By providing proof of this license and passing the Alaska
law portion of the exam, they can get an Alaska license.
MS. OAKLEY continued that Section .281 outlines that any
outstanding obligations of a licensee to the surety fund must be
cleared before a license can be reinstated. Sections .291 through
.321 deal with the location and registration of branch offices and
the timing of registration or notice of changes. Section .331
spells out that any transaction must be through the employing
broker. This will have some ramifications with going to the
endorsement system because the broker needs to have these same
endorsements as the licensee in his office and if they're working
outside of a particular endorsement some clarifying needs to be
done. A broker is the one who is responsible for making sure their
licensees "tow the mark" and therefore the transactions have to be
run through the brokers office. This is not a change of what's in
place presently.
Number 2266
CHAIRMAN ROKEBERG noted that this is the section where he parts
company from the commission's recommendations.
MS. OAKLEY noted that in Section .341 "the personal services
contract that terminology has been used in another context recently
and I may give some, some rise to concern, the Task Force thinking
on this particular instance, the section was formally headed,
'listings.' The listing is the typical personal service contract
in a sales transaction. In using, substituting the label 'personal
service contract' was simply to broaden the scope so that it would
cover the contracts for Property Management and for Community
Association Management as well. Listings would not be ruled out,
but they would be one of three different kinds of contracts that
might be under the general heading of a personal services
contract."
MS. OAKLEY continued that Section .351 delineates the types of
records that need to be maintained. Section .361 addresses when a
commission or other fee is earned and it's contingent on this,
there needs to be a written contract in order for commissions to be
collected if it's challenged. Section .381 has to do with signs
and their standardized measurements in order to regulate.
TAPE 97-22, SIDE A
Number 000
MS. OAKLEY generally commented on audits of the agency. A
recommendation was made that the commission should define what
constitutes a conflict of interest. This is the reason for the
thorough definition that's incorporated into Section .391. Section
.394 is a new section that ties in with the agency disclosure.
"One of the things that the industry has asked for and that the
commission has attempted and not been able to achieve is to have a
standardized form for the initial disclosure of agency, of who a
person is working for and this one would simply make that a
requirement. It would be, the form itself would be a regulation as
the property disclosure form is a regulation of AS 34.70 that is
not part of the real estate commission, but part of the property
law section. But, that's what is being, would be accomplished by
enactment of Section .394."
MS. OAKLEY noted that Section .396 is essentially the same
as it now is with the housekeeping of the terminology to match the
endorsements. In subsection (c) the word "joint" agency was used
originally and this has caused a lot of confusion about what is
actually used interchangeably with "dual" agency. The phrase
"dual" is used in this section to avoid this confusion. Section
.401 expands and clarifies the types of behavior that are not
condoned and also reiterates that compensation for licensed
activity must be paid by the broker to the appropriate licensee and
on the part of the licensee can be accepted only from the broker.
Number 211
MS. OAKLEY continued that Section .450 deals with the surety fund
and adds language that corresponds to the language in Section .091
regarding fees received from educational offerings. Section .460
includes a filing deadline for a surety claim which is something
that was done at one time with regulations. This was overturned by
a Supreme Court decision and this would put it into statute that if
a claim was going to be filed it had to be done so in two years
after the infraction occurred.
MS. OAKLEY added that Section .472 outlines a change that would
allow the costs of surety fund hearings to be charged to the fund
as they occur. Now when a claim is awarded the costs can be
charged to the fund. But as indicated, very rarely are the checks
from the surety fund cut in the same fiscal year as the claim is
filed. A lot of the hearing activity is not necessarily in the
same year that the check is cut and yet the appropriation and the
money funding source is on a fiscal year basis. It is not
realistic to try to calculate what the hearing costs are when it's
finally determined whether a claim is going to be awarded and have
it be paid based on the activity in the fiscal year when the check
is cut because it doesn't track with the amount of time and expense
incurred.
Number 391
MS. OAKLEY added that Sections .474 through .495 were editorial
changes.
Number 395
REPRESENTATIVE RYAN noted that the last class he took dealt with
the dissatisfaction of the people in the real estate industry and
the uses that the surety fund was set up for. They felt as though
they were being taxed over and above the purposes for which the
fund was set. His understanding was that the fund was set up to
pay claims.
CHAIRMAN ROKEBERG stated that Representative Ryan's concerns were
noted.
Number 511
MS. OAKLEY responded that as for the surety fee escalating there is
a cap in the statute and there is no proposal to change this.
MS. REARDON noted that in regards to conducting hearings and the
associated costs to determine whether someone wins or loses their
claim are very legitimate things to be paid out of the surety fund.
Without the hearings the whole surety fund structure cannot
operate.
Number 639
MS. OAKLEY continued regarding the transitional sections and the
effective date of the bill. In this committee substitute the
effective date is different than what it was in the original House
bill. If this statute were put in place, the regulation project to
set the educational curriculum, this would mean revamping the exam.
The effective date would be January 1, 1999. Anyone currently
licensed would renew in January 1998, and anyone new coming into
the business after January 1, 1999, would have to meet the new
initial criteria. The first time that the currently licensed
people would have to meet the new education criteria would be for
the renewal in January 2000. This gives a long lead time to get
ready for this bill.
Number 808
KRISTAN TANNER, Real Estate Practitioner, testified via
teleconference from Wasilla on HB 33. She stated that real estate
practitioners pay two fees when they renew their licenses. They
pay one to the surety fund and one to renew their licenses.
Whether or not the money is paid out of the surety fund for the
hearings or out of their budget the net result is the same. If
these costs are paid out of the budget this means that the cost for
renewing licenses will go up. This has to come from one of these
two places and regardless of which it comes from the organization
will have to pay the cost.
MS. TANNER continued that under the exceptions in the legislation,
when the task force compiled their recommendations, they noted that
there were many things over a period of years which were exceptions
and are currently in violation of the law. She gave an example
that took place during the downturn of the real estate industry in
the late 80's. They found that many people were in the process of
trying to keep their homes by renting after they moved out of
state. Unfortunately, they could not afford a property manager.
With the law that is in place today, this is a violation of the
law. One of the exceptions in this new proposed plan is for an
exception of a total of four units. Generally anything over a four
plex is considered commercial property.
Number 968
MS. TANNER generally listed the other exceptions such as bookkeeper
performing bookkeeping functions, tradesman or vendors performing
maintenance, etc. They wanted to make sure these exceptions were
in this legislation so there wasn't any misunderstanding of who
needed a license or who didn't. In response to a question raised
by Chairman Rokeberg regarding management of larger real estate
units and people looking for exceptions so that family members or
friends could manage them, Ms. Tanner responded that for the
protection of the public a property of this size, for example, a
building with ten units needs to be managed by a licensed
practitioner who has the education and the understanding of the
laws in order to apply them when needed.
REPRESENTATIVE RYAN asked about the surety fund and stated that
this bill was a major expansion of power for the commission. He
wasn't sure that if they took a vote of the licensed practitioners
that they would find this legislation to be very popular. He had
some concerns that with the more authority they take on and
exercise, the higher the cost might be.
Number 1138
MS. TANNER stated that the majority of the information that is in
this work draft came out of "and let me just say that the two and
a half years that I was on the commission we saw a number of
different violations by practitioners which clearly harmed the
public and, yes, the surety fund did pay for that, but what we try
to do is look at what were the causes. Forget that the money is
being paid, but let's look at what are the really the root causes
of these claims that are being filed." They set out to develop
some different education and endorsements so that clearly the
people operating in Property Management, Community Association
Management or in Sales get the education that they need for each of
these. She stated that she as a general nature did not support
more regulation or to expand the statute, but unfortunately she has
seen a lot of abuses.
REPRESENTATIVE RYAN stated that this was reasonable and understood
her concern.
Number 1326
CHAIRMAN ROKEBERG pointed out that this bill did not expand the
scope of the real estate licensure except as to Community
Associations, it merely defines what previously was under the
statute regarding property management in such a way that clarifies
this responsibility to the public.
MS. OAKLEY also noted that this legislation does allow for current
license holders to be grandfathered in.
Number 1398
TERRY MCGILLIVARY, Staff Member, Real Estate Commission, testified
via teleconference from Anchorage on HB 33. She stated that she
worked directly with the task force. She was asked to discuss the
anticipated transition process from the current system to a system
of specialty endorsements. Under the current law real estate
licensees are permitted to practice real estate sales, property
management or both. Therefore, the task force came up with a
transitional plan under where existing licensees during the first
year after the proposed effective date of this measure would either
have an endorsement for sales or property management or both simply
by applying for it. Community Association Managers on the other
hand are not currently licensed or regulated by the state. The
transitional measure for existing Community Association Managers
would permit them to obtain a real estate license with an
endorsement for Community Association Management by providing
evidence that they are currently practicing as Community
Association Managers.
MS. MCGILLIVARY stated that those endorsed during the transitional
period would be required to accomplish the continuing education for
each specialty endorsement they hold before the first license
renewal after the effective date. If the required education was
not accomplished, no licensee would be eligible to renew. The
proposed transitional schedule would require that new licensees
requesting licensure after January 1, 1999, would be required to
take pre-licensing courses for each endorsement and pass the
examination weighted for each endorsement requested. New licenses
would be issued only with endorsements beginning January 1, 1999.
Any licensee re-activating an inactive license or re-instating an
existing license after January 31, 1999, would do so under the
transitional provisions just described who apply for endorsements
according to those requirements.
MS. MCGILLIVARY continued that all licensees renewing at the bi-
annual renewal deadline date of January 31, 2000, would renew only
on completing required continuing education hours for each
endorsement. She reiterated that the purpose of this legislation
is to protect Alaska consumers by ensuring the competency of the
real estate professionals. This legislation is the product of
cooperation of consumer representatives and industry
representatives who participated extensively in the drafting of
this legislation. This legislation is supported by the Alaska
Association of Realtors, the Alaska Chapter of the Institute of
Real Estate Management and the Alaska Chapter of the Community
Associations Institute.
Number 1559
CHAIRMAN ROKEBERG asked if Ms. McGillivary's salary was paid out of
the surety fund.
MS. MCGILLIVARY stated that, yes, it was and she stated that she
worked mainly in real estate education. She publishes the Alaska
Real Estate News which is a newsletter published six times a year.
It keeps licensees up to date on legal information and keeps
consumers from inadvertently becoming victimized. This newsletter
is the only direct communication between the department and the
industry. She also works on the landlord/tenant brochure
distributed statewide, as well as, a broker manual to help people
set up their real estate businesses.
Number 1719
CHAIRMAN ROKEBERG asked Ms. Tanner to respond to what the nature of
the task force's conclusions were about allowing for an additional
endorsement for commercial real estate practices.
MS. TANNER noted that they did have this discussion and they
concluded that, whether it be residential sales or commercial
sales, the point of contention in the industry over licensing
education to renew wasn't a dispute over sales, but there was a big
dispute with the property management licensees who did not feel
that the education provided was helpful to them in their business.
Rather than make a fourth category, it seemed from all the
testimony given, that the sales category was an umbrella for both
residential and commercial brokers.
Number 1719
CHAIRMAN ROKEBERG noted that under the new endorsement regime for
property management, these individuals are exclusively allowed to
conduct the renting and leasing of space so to be a commercial
lease agent someone would have to have a property management
endorsement.
MS. TANNER responded that this would be correct.
MS. MCGILLIVARY concurred and added that the commission has also
discussed this matter. Although this was not addressed by the task
force specifically, it does seem to be the opinion of many, that
this would be very logical for someone in this situation have a
commercial endorsement.
Number 1935
CHRIS STEPHENS, Commercial Real Estate Broker; President, Bond,
Stephens and Johnson testified via teleconference from Anchorage on
HB 33. He noted that he would testify more extensively at a later
time, but did comment on the issue of commercial endorsements. He
felt as though commercial real estate practice is distinctly
different from residential. He shared his experience of selling
his home through a broker, even though he is a commercial agent
himself. In commercial transactions agents deal in business
transactions in leasing and acquiring commercial real estate.
These skills are totally different. He also noted that many times
the continuing education he is required to take has nothing to do
with commercial real estate transactions as well.
MR. STEPHENS mentioned the issue of establishing agency disclosure
provided to a client which has been controversial. He felt they
needed to be careful. How this is done between commercial and
residential is greatly different. He said he was not sure about
the ramification of this.
Number 1975
CHAIRMAN ROKEBERG said he also shared this concern and noted that
they would take a look at this issue carefully.
MS. OAKLEY pointed out that approving courses for continuing
education over the years all of the various national organizations
providing education have consistently had courses approved which
are ones that commercial brokers thrive on. She noted that these
types of courses are offered, but not necessarily allocated to
schedules that are always convenient for everyone.
Number 2038
CHAIRMAN ROKEBERG stated that the committee has taken it upon
themselves to inject a provision for the National Association of
Realtors approved courses leading to designations and making them
acceptable for elective hours in the statute. He also mentioned
some technical amendments to the bill which will be addressed at a
later time. House Bill 33 was held over for further discussion.
ADJOURNMENT
Number 2100
CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing
Committee at 5:33 p.m.
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