01/23/1998 03:19 PM House L&C

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled

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HOUSE LABOR AND COMMERCE STANDING COMMITTEE January 23, 1998 3:19 p.m. MEMBERS PRESENT Representative Norman Rokeberg, Chairman Representative John Cowdery, Vice Chairman Representative Tom Brice MEMBERS ABSENT Representative Bill Hudson Representative Jerry Sanders Representative Joe Ryan Representative Gene Kubina SENATE MEMBERS PRESENT Senator Dave Donley COMMITTEE CALENDAR 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 33 SPONSOR(S): REPRESENTATIVES(S) ROKEBERG BY REQUEST Jrn-Date Jrn-Page 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 03/14/97 (H) MINUTE(L&C) 03/17/97 (H) L&C AT 3:15 PM CAPITOL 17 03/17/97 (H) MINUTE(L&C) 03/24/97 (H) L&C AT 3:15 PM CAPITOL 17 03/24/97 (H) MINUTE(L&C) 10/13/97 (H) L&C AT 1:00 PM ANCHORAGE LIO 10/13/97 (H) MINUTE(L&C) 10/23/97 (H) L&C AT 2:00 PM ANCHORAGE LIO 10/23/97 (H) MINUTE(L&C)

01/23/98 (H) L&C AT 3:15 PM CAPITOL 17 WITNESS REGISTER S. M. JOHNSTON 619 Highlander Circle Anchorage, Alaska 99518 Telephone: (907) 244-5157 POSITION STATEMENT: Asked questions regarding HB 33. MARY TUTTEROW 7811 Highlander Anchorage, Alaska 99518 Telephone: (907) 762-3151 POSITION STATEMENT: Commented on HB 33. DIANA WOODS 2507 West 29th Avenue Anchorage, Alaska 99517 Telephone: (907) 248-6921 POSITION STATEMENT: Commented on HB 33. DEBRA BRITT Pioneer Management Services, Incorporated 3000 "A" Street, Number 401 Anchorage, Alaska 99501 Telephone: (907) 563-4849 POSITION STATEMENT: Commented on HB 33. JOHN CARMON Parker and Homestate Mortgage Company 12120 Rushwood Circle Anchorage, Alaska 99516 Telephone: (907) 345-9789 POSITION STATEMENT: Commented on HB 33 on behalf of himself. RON JOHNSON, Former President Kenai Board of REALTORS 610 Attla Way Kenai, Alaska 99611 Telephone: (907) 283-7755 POSITION STATEMENT: Testified on HB 33. CATHERINE REARDON, Director Division of Occupational Licensing Department of Commerce and Economic Development P.O. Box 110806 Juneau, Alaska 99811-0806 Telephone: (907) 465-2538 POSITION STATEMENT: Answered questions on HB 33. ART CLARK, Member Alaska Association of REALTORS ; Real Estate Unlimited; Industry Issues Group; Member, Board of Directors, Community Association Institute 7740 McHenry Circle Anchorage, Alaska 99502 Telephone: (907) 345-4110 POSITION STATEMENT: Commented on HB 33. STEPHEN VLAHOVICH, Associate Broker Associated Brokers, Incorporated; Board of Directors, Glenn Haven Condominium Association 2509 Eide Street, Number 4 Anchorage, Alaska 99503 Telephone: (907) 258-8888 POSITION STATEMENT: Commented on HB 33. SHANE OSOWSKI, Attorney 550 West Seventh Avenue, Number 1850 Anchorage, Alaska 99501 Telephone: (907) 278-9000 POSITION STATEMENT: Commented on HB 33. BILL BRADY RE/MAX Properties; President-Elect, Anchorage Board of REALTORS ; Past Chairman, Legislative Committee, Anchorage Board of REALTORS ; Chairman, Industry Issues, Alaska Association of REALTORS 2600 Cordova Street, Number 100 Anchorage, Alaska 99503 Telephone: (907) 257-0138 POSITION STATEMENT: Commented on HB 33. GRAYCE OAKLEY, Executive Administrator Real Estate Commission 3601 "C" Street, Suite 700 Anchorage, Alaska 99503 Telephone: (907) 269-8197 POSITION STATEMENT: Commented on HB 33. JERRY ROYSE, President Alaska Association of REALTORS P.O. Box 91990 Anchorage, Alaska 99509 Telephone: (907) 278-1857 POSITION STATEMENT: Commented on HB 33. ACTION NARRATIVE TAPE 98-3, SIDE A Number 0001 CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce Standing Committee meeting to order at 3:19 p.m. Members present at the call to order were Representatives Rokeberg, Cowdery, and Brice. Chairman Rokeberg indicated Representatives Sanders and Ryan were attending another committee meeting being held out of town. Representative Kubina was called to an important meeting and Representative Hudson is recuperating from heart surgery. HB 33 - REAL ESTATE LICENSING Number 0154 CHAIRMAN ROKEBERG announced the committee would address HB 33, "An Act relating to real estate licensing and the real estate surety fund; and providing for an effective date." He said for the purpose of discussion, he would prefer the committee address Version P, which hasn't formally been adopted. He noted he has also distributed a packet of information to the committee members. Number 0266 S. M. JOHNSTON testified via teleconference from Anchorage. He said he primarily wanted to ask some questions regarding the legislation he has in his possession. Mr. Johnston said he is trying to determine why the real estate business in Alaska is trying to take control and form a monopoly over the business financial investments, accounting and bookkeeping functions pertaining to condominium and homeowner association functions. He stated, "As I understand it and from the associations which we have helped in the past 14 years, its board of directors, if elected by the co-owners of these associations to manage this property, and sometimes they select real estate managers and sometimes they select bookkeepers and accountants to help them and manage (indisc.) affairs. None of these people are dealing in real estate." Mr. Johnston pointed out that these people are not buying and selling any real estate or property. They occasionally furnish resale certificates which are signed by an officer of the association. The certificates primarily give the buyer a look at the affairs of the association that they're buying into in that they can see the financial information, the bylaws, the governing association documents and related insurance information. Number 0397 MR. JOHNSTON said, "Owners in an association who provide these management and financial functions to the association under the provisions of this bill's latest version would have to perform this stuff free to the association while the real estate people, who can -- are getting a monopoly on this bill, would be allowed to charge whatever the going market rate is. Once they get a monopoly, the rates will go up." Mr. Johnston said he doesn't see that helps the board of directors when they're trying to build reserves for functions that "they need to do in the various associations." He indicated they would have to pay a high fee to the real estate professionals to manage their properties. He said they have no alternative if the licensee has given them a bad time or lost their "hide" for misjudgements or "miscontracting" for various services. MR. JOHNSTON said, "If the purpose of this bill is to protect the public, and never -- of the homeowner and 'condo' association from theft and fraud, is the state of Alaska going to guarantee the honesty and integrity of the real estate licensees under the provisions of this legislation? If not, why the requirement for real estate licensing? Does not adequate bonding of the manager accomplish the same purpose without the interference of state government regulation and licensing?" Number 0531 MR. JOHNSTON asked if the legislation assumes that only real estate salesmen, (indisc.) and licensees understand the accounting, taxation, financial management and investment expertise. He asked why only real estate licensees can prepare association budgets. Mr. Johnston said, "It looks to me like you're tying to wipe -- take control of all the other professions that have a management function, or provide management functions to these owner associations and I think that's conclusive." Number 0571 REPRESENTATIVE JOHN COWDERY stated last year, he had some of the same concerns as Mr. Johnston. He discussed a hypothetical situation where he owns a rental house in Homer and asks his next door neighbor/friend, who doesn't have a license or degree, to collect the rent for him. He asked if the passage of the legislation would stop things like that or make the situation illegal. Number 0632 MR. JOHNSTON explained the way he reads the legislation, it would be illegal. Number 0644 CHAIRMAN ROKEBERG said he doesn't believe that would be the case at all. He referred the committee members to the exemption provisions in the bill, and said that case wouldn't occur. He informed Mr. Johnston that accountancy only is an exempted performance for association management. Chairman Rokeberg asked Mr. Johnston for his telephone number. MR. JOHNSTON indicated he can be reached at either (907) 344-5157 or (907) 344-7516. His facsimile number is (907) 344-6505. Number 0720 CHAIRMAN ROKEBERG informed the committee members that Mr. Johnston is a constituent of his. He referred to the question of why doesn't an adequate bond cover the management agents and said there is currently no requirement for bonding in Alaska except for the policies of the Alaska Housing Finance Corporation (AHFC). Chairman Rokeberg said Version P does provide for bonding in the event that you have a professional manager managing it. He referred to the issue regarding an owner/occupant of an association and said the bill provides, under exemptions, self-management. Chairman Rokeberg said an issue currently exists as to whether or not the legislation should provide that a management association can retain one of their own members and provide a profit for that member. Chairman Rokeberg informed Mr. Johnston he would keep him posted as to what was going on with the legislation. CHAIRMAN ROKEBERG informed the committee there will be some adjustments to the sections that relate to the reserve account funds of community association managers and also to fidelity bonds. Number 0823 MARY TUTTEROW was next to testify via teleconference from Anchorage. She stated, "First of all, being a member of the association that these guys happen to manage, I'd like to say that they do a wonderful job, a much better job than the licensed management company that we did have at one time." Ms. Tutterow said she would like to see the Alaska real estate statute redrafted to make sure that some of the existing ambiguities are taken care of. Ms. Tutterow explained one of the ambiguities relates to the indemnity groups and the effect it would have on the economy of appraisers, bankers and real estate employees of all kinds. She said it would greatly affect AHFC. It would take business out of the state to lenders who are not qualified to do our program. Ms. Tutterow said there are many ways the legislation could affect the economy. Number 0887 CHAIRMAN ROKEBERG asked Ms. Tutterow if she is referring to Version P of HB 33. MS. TUTTEROW answered in the affirmative. CHAIRMAN ROKEBERG noted Ms. Tutterow is also a constituent of his. Number 0914 DIANA WOODS testified via teleconference from Anchorage. Ms. Woods informed the committee members that she totally supports a regulated real estate industry. She said she understands that the current law is unclear regarding unlicensed individuals profiting hugely from Alaska real estate transactions. She said this isn't in the best interest of the public. Ms. Woods informed the committee that she believes individuals are not subject to state real estate regulations. If unlicensed individuals are permitted to profit from real estate transactions, it is not unreasonable to believe this tolerance of an unregulated industry will negatively impact Alaska jobs. Outside control of Alaska real estate dollars will not only negatively impact employment for real estate practitioners, but also jobs in Alaska title companies, (indisc.) companies and banks. Ms. Woods said, "I do agree our legislation needs to be cleaned up to protect the public, to keep Alaska real estate dollars in Alaska and to protect Alaska jobs." Number 1020 DEBRA BRITT, Pioneer Management Services, Incorporated, testified via teleconference from Anchorage. She explained Pioneer Management Services, Incorporated, certifies homeowner associations. Ms. Britt said in reviewing Version P of HB 33, she didn't see any provisions for grandfathering rights or current operating association managers. Ms. Britt referred to fidelity bond requirements and said as she currently reads the bill, she has confirmed that fidelity bonds will only impact community association managers. She suggested going back and reconsidering (indisc.) that are sold by property managers as well any other licenced real estate entity. Ms. Britt said she has some concerns about fidelity bonds. She indicated she would forward some information to the committee from a declaration in regards to whether associations are currently required to carry and also a copy of bonding information on behalf of State Farm. Ms. Britt referred to page 12, line 9, "community association management ethics and standards", and suggested instead of standards insert "operations". She said she believes it would be more clear. Number 1140 MS. BRITT indicated she has a question as she is unsure how the surety fund operates. She referred to page 23, line 21, and said it references claims and the payments that are a surety fund. She referred to the wording "conversion of trust funds" and asked what that is. Number 1155 CHAIRMAN ROKEBERG explained he had just received an amendment from the drafter of the bill to clarify that point. He said it didn't quite fit the requirements that the committee was contemplating. Chairman Rokeberg said the surety fund, as it exists under the law, can be claimed against by an aggrieved party for four instances. Those instances are misrepresentation, deceit, fraud and conversions of trust funds. Chairman Rokeberg informed the committee that the forthcoming amendment will stipulate that for the purposes of this chapter, the real estate law, the community association funds of which a manager has control over will be considered funds to be covered by the surety fund, but they will not be trust funds. He said they will be operating funds that will be allowed under the "funds amendment" which will differentiate between operating accounts and reserve accounts. He said that amendment will provide for no signatory powers, on the part of the manager, under reserve or invested funds only under operating funds with the contractual consent of the association. Number 1250 CHAIRMAN ROKEBERG said the surety fund would be in first position if there was any claims against the licensee, but that is limited to $10,000 per individual and $50,000 per incident. Therefore, the fidelity bond is contemplated to have a deductible of that amount for conversion. Therefore, it would be in second position, and therefore, will hopefully lower the premium that will be necessary to be paid by either the association manger and/or the association. He referred to the current fidelity bonds provision in the bill and said it provides for certain flexibility. Chairman Rokeberg stated, "The issue is that if you have a professional manager -- in a licensed manager that you will have to have fidelity coverage -- that the surety fund will also come into play." Number 1327 MS. BRITT said she would forward other written comments to the committee. Number 1372 CHAIRMAN ROKEBERG said the existing clauses, as they relate to community associations, are not fully perfected in Version P. He stated the bill does clearly provide for the grandfathering of existing community association management people. Anybody that has been engaged in the business of community association management will be grandfathered in if they have 24 months of experience prior to January 1, 1999. He said that will be the primary qualification for an application to the Real Estate Commission for receipt of a limited community association management license which will be good indefinitely. Chairman Rokeberg stated he would contemplate very few people even being affected by the legislation with a few exceptions. He informed the committee there is also a transitional provision on the last page of the legislation. Number 1486 JOHN CARMON was next to testify via teleconference from Anchorage. He noted he works for Parker and Homestate Mortgage Company, but would be testifying on behalf of himself. He said, "There has been a resolution passed by the Alaska Mortgage Bankers in support of HB 33, particularly in support of the new section in Section C regarding the limiting of payment of real estate commission for licensed brokers." MR. CARMON referred to his perspective as a lender he believes the effect of payments of real estate fees to unlicensed people has a much broader effect than you would think it would. Once the affinity marketing group comes in to collect those fees, it will not only affect the real estate industry, but it will affect the finance industry, appraisers, home insurers, home inspectors, title companies and private recording services. It will affect any service that can be bundled under the affinity marketing umbrella, and if they can get a little piece of the pie from each of those groups, it adds up to be a substantial amount of money to them. He said the real estate fee, being a large number, is what kind of opens the door. Number 1563 MR. CARMON said, "In my researching -- is the way it appears that affinity groups work is they bundle all these services. And for instance lending, I know for one is operated out of a telemarketing operation out of Denver where the customers refer to that lender first. And then after the lender is prequalified, they are then given back as a referral to the real estate agent here in Alaska. That creates a bond and a kind of latent duty to that lender from the realtor because that's where the referral came from. And it certainly would make it very difficult for any local lender to have a shot at making that loan. Even if it turned that maybe it was in the best interest of the consumer for them to use a local interest lender so that they could have access to a local program like Alaska Housing Finance, the Anchor Program, Anchorage Neighborhood Housing, anyone of the number of other local programs. I think it would be very difficult at that point for a realtor to get involved in referring a customer to that local lender when their referral came from the outside lender." MR. CARMON said he believes the bill will have a much broader effect than the committee thinks on the whole category. In speaking with many different industry groups, they are all very concerned and they feel this is not a good thing for the real estate industry. Number 1660 CHAIRMAN ROKEBERG asked Mr. Carmon to provide the committee with a letter stating the position of the mortgage bankers. MR. CARMON indicted he would. Number 1692 RON JOHNSON, Former President, Kenai Board of REALTORS , testified via teleconference from Kenai. He noted the current president of the Kenai Board of REALTORS is also with him. Mr. Johnson referred to the term "salesperson" keeps jumping back into the bill. He said it was understanding that "salesperson" would be replaced with "licensee." Number 1734 CHAIRMAN ROKEBERG responded, "We had discussed that I believe earlier this summer that a -- I think we're endeavoring to do that, but it's not always 'doable.'" MR. JOHNSON referred to page 3, line 8, and said, "If an associate real estate broker claims to be a real estate broker or if a real estate salesperson claims to be a real estate broker, wouldn't it be that if a licensee claims to be a real estate broker, that would cover the whole thing and shorten it up by one sentence?" CHAIRMAN ROKEBERG responded, "No, because the licensee is also a broker ...." MR. JOHNSON asked if it would be a licensee other than the broker. CHAIRMAN ROKEBERG responded in the affirmative. MR. JOHNSON indicated he was confused. He said, "We pulled the salesperson out and put it back in some places. And additionally, the term 'commission,' there is several places where the commission refers to fees. And I've gone through and changed it from 'commission' to 'fee' and it all seems to work and I think that that's something that needs to be looked at." Number 1786 CHAIRMAN ROKEBERG informed Mr. Johnson that in the back of the bill, in the definitions section, there is a reference to there being two different uses of the word. MR. JOHNSON said he believes it is confusing. He said when it comes to dollars and cents if the word "commission" was eliminated, it would be simpler and easier to understand. Mr. Johnson said in the future, the real estate industry is going to change from a commission to a fee structure, it might be a little bit easier to apply in the future. Number 1816 CHAIRMAN ROKEBERG said the committee would take Mr. Johnson's suggestions under advisement. He said one of the problems is making the bill too long. MR. JOHNSON said, "When we first started this, I addressed the 08.88.026, which is relative to the terms of office, and I asked if there was any possibility that the statute could be tightened up in such a way that the entire commission, as a body or as a group or a selective, more than just one or two members of the commission would be able to be replaced by a specific governor just like with a clean sweep (indisc.). And I think that the original intent, by the session's notes, indicated that they were appointed to a step ... so a step term to there would be certain members appearing off the commission and certain openings coming up." He said he believes that over the past eight years there has been some problems created by more than the normal term expiration replacements. Mr. Johnson referred to the existing commission and said there probably isn't the continuity of budget memory relative to the problems that occurred four and five years ago that might have been better addressed if there was some long-term memory on the commission. He asked if that makes sense. CHAIRMAN ROKEBERG indicated it does make sense, but added that what has occurred is there is now a statutory provision for all boards and commissions in AS 39.05.055 and AS 39.05.053 that relates to public officers and employees qualifications, appointments and tenure. There is a universal statutory appointment requirement that we are following in the law because 026 has been repealed. MR. JOHNSON asked if there was a recent case law relative to the termination of a commissioner or an appointed individual. He noted he doesn't think it was commission board member. He said he believes it was a commissioner or an associate commissioner. Number 1950 CHAIRMAN ROKEBERG indicated that Ms. Reardon was in attendance and perhaps she would care to comment. Number 1960 CATHERINE REARDON, Director, Division of Occupational Licensing Department of Commerce, and Economic Development, came before the committee to respond to questions. She said, "It is possible that what the speaker is referring to would be a case involving perhaps a commissioner of education or one of those kind of unique positions. But it is my understanding that the - there is a statute that applies to all of our licensing boards and commissions that says that they serve at the pleasure of the governor and that is what -- regardless of what it's saying in the individual licensing statutes about the staggering of terms that serving at the pleasure of the governor is the overriding statute. And so occasionally there is turnover other than the natural expiration of terms going on and that is just one of those powers that the governor holds, beside the people who are no longer serving at his pleasure." CHAIRMAN ROKEBERG referred to the point he made about 39.05 and asked if he was correct in saying they would repeal those provisions and go to the model code. Number 2019 MS. REARDON indicated she didn't have the statute in front of her. CHAIRMAN ROKEBERG said it relates to staggered terms and terms of office. It is referred to in the real estate statute as having been repealed in 1996. MS. REARDON indicated she didn't currently have an answer. Number 2034 CHAIRMAN ROKEBERG asked Mr. Johnson to send him some written comments. MR. JOHNSON indicated he would. He stated, "My thinking is that we are putting a piece of legislation together and I'm of the opinion that the new should out-beat the old and if we can put one in there that requires the governor to follow the procedure as originally outlined, even if it may not be at his total pleasure." Number 2095 ART CLARK, Member, Alaska Board of REALTORS ; Real Estate Unlimited; Industry Issues Group; Member, Board of Directors, Community Association Institute, testified via teleconference from Anchorage. He referred to comments by Mr. Johnson and said he believes Mr. Johnson could become licensed under the legislation as he is already in the field. Mr. Clark said he doesn't believe there is a push to get licensing by the people who are currently doing this activity. He said this is a consumer protection issue rather than a push to create a monopoly of any kind. He said he doesn't have a problem with self-managed associations as they are a very small amount of the industry. Mr. Clark referred to the fidelity bonding and said he understands that Chairman Rokeberg has heard it is possible to get some bonding. He indicated his organizations did some research on this issue and couldn't find a source for bonding of sole proprietorship companies. Number 2166 MR. CLARK referred to grandfather rights and the community association managers who are now working for somebody else and asked if the intent is for them to be able to go out on their own, as an individual, if they so desire at some point. Number 2184 CHAIRMAN ROKEBERG explained it is the committee's view that grandfathering would have to be at a level equivalent to a broker or an associate broker level. Number 2200 MR. CLARK pointed out that he was thinking of the associate broker level, so that the people who are currently working for a company and have had several years of experience could go out on their own and establish a business, at some point, if they so desire. CHAIRMAN ROKEBERG pointed out that is allowable because an associate or associate broker would have the right under the statute to do so. MR. CLARK indicated he wasn't sure what level they would entered on. CHAIRMAN ROKEBERG stated he had a problem with the drafter of the legislation on that particular issue. He said people have to understand that there is an equivalency in terms of ability to start a business on the part of the associate broker who then becomes a broker and starts a business. CHAIRMAN ROKEBERG referred to fidelity bonds and said he is waiting for a report on availabilities. The way the clause is currently drafted, it would allow either the manager and/or the association to provide the bond. Whether that is ultimately how it will end up remains to be seen. He said he is sensitive to the fact that there has been testimony about the difficulty of getting the bond. Chairman Rokeberg said his research shows that they may well be available. He stated it is required by statute in the state of Hawaii for a condominium association manager to have a fidelity bond in place. Chairman Rokeberg indicated he has had extensive conversations with the AHFC and they require fidelity bonds for the financing and certification of those associations who wish to qualify for financing under AHFC. He stated, "I think the issue becomes whether a individual who has employees, it seems clearer that they can get a fidelity bond, but can a sole proprietor of the 'boss' if you will, be bonded? My indications are they can, but I'm still (indisc.) absolutely lead pipe cinch this, to make sure that there will be available or are available." Chairman Rokeberg referred to his preliminary conversations with people in the insurance industry and said they believe that these are available. If there is a statutory requirement for this, the insurance industry will provide it. The marketing conditions are currently low. He said he has received quotes of $150,000 bond with a premium of approximately $300 per annum. He said he believes that with the surety fund provision that allows for a deductible under the fidelity bond and the industry drafting that direction, the premium could go down. Number 2490 STEPHEN VLAHOVICH, Associate Broker, Associated Brokers, Incorporated; Board of Directors, Glenn Haven Condominium Association, testified via teleconference from Anchorage. [TAPE 98-3, SIDE B, WAS NOT RECORDED ON] TAPE 98-4, SIDE A Number 0001 MR. VLAHOVICH explained his concern is with the portion of the bill that covers condominium association managers. He said he believes the bill should be rewritten to read, "A resident owner of a community property, organized under AS (indisc.), to be a member of a self-managed community association." [Portions of Mr. Vlahovich's testimony was indiscernible.] CHAIRMAN ROKEBERG reiterated Mr. Vlahovich's testimony. He referred the committee members to page 29, subsection 17, line 5, and said the language after "self-managed community associations", should be deleted to satisfy Mr. Vlahovich's concerns. Number 0170 MR. VLAHOVICH indicated that it correct, but he would like to see the wording "a resident owner" inserted. He said resident management is allowed for apartment complexes. CHAIRMAN ROKEBERG said, "Just like Mr. Johnston and Campbell Glenn (ph), he's paid a reasonable but -- a fee over and above his expenses for that service, so under this particular draft then he would be required to be licensed. But under your provision, if he only dealt with one association, then he would be exempt from the licensing provision." CHAIRMAN ROKEBERG explained he is still working with representatives from community associations to finalize the language that reflects their position in the bill. Number 0302 SHANE OSOWSKI, Attorney, was next to testify via teleconference from Anchorage. He noted he respresents seveal condominimum assocations and is also on the board of directors for the Community Associations Institute (CAI). He noted CAI is the organization that represents several condominium associations, owners, managers and people affiliated with the condominium industry. Mr. Osowski explained his comments are actually his personal comments. MR. OSOWSKI stated the CAI National Chapter opposes any type of regulation of managers under real estate brokers. He said his main concern is the bonding issue which has been discussed. The fidelity bond, as proposed, would not provide any type of protection or assistance to the manager. It would be basically to the benefit of the association. Although they think it is probably prudent to have that type of a fidelity bond in place, it seems inappropriate to put it in a management licensing bill rather than than a condominium for general uniform common interest ownership act. He stated if that kind of protection is going to be required, it would seem a self-managed association would be at as much risk of losing their accounts and proceeds if a managed association is not (indisc.). Mr. Osowski said, "I guess my analogy would be like I'm an attorney, I carry malpractice insurance, but if a client wishes to file a claim against that, my insurance company would fight that tooth and nail." He believes if an association's funds are stolen, that would be part of their insurance and they would be reimbused, but it wouldn't a (indisc.). It would be a first party insurance type of a concept. He said. "We talked to several insurance companies and I don't believe that the coverage we're referring to the bill here is available after today. The reason being you cannot insure against your own dishonesty. If I asked for an insurance policy that would pay me money if I stole money from somebody else, obviously I'm in a position to make a claim there and that type of coverage does not presently exist. If I'm a management company and I have several employees working for me, I can get a fidelity bond that would cover myself or the manager or the association against my employees' dishonesty. But if it's a one person show, you cannot buy that fidelity coverage yourself. So it has to be the association that purchases that under their insurance policy protecting them, and they name the manager, generally, to protect them against that." MR. OSOWSKI said he has spoken with Representative Rokeberg about the availability of this coverage. He said, "I tried to contact the person who may have felt something similar here. I was not able to reach her. I did take to State Farm's offices and Tom (indisc.) and I was confimed that this is not available. At present, you can get that as additional coverage under their policy for about - she said $30 per $1,000. Other than that, we talked about the reserve accounts. We will be submitting some proposed revisions on reserve accounts. One other safeguard I would recommend would be requiring the account statements sent directly to the bank of the assocation rather than manager. So if something is missed, it would go directly to the association as well." Mr. Osowski said he would answer any questions. Number 0584 CHAIRMAN ROKEBERG referred to Mr. Osowski's comment about a manager insuring against his own dishonesty and said he doesn't think it is germane because what he is trying to do is protect the associations, as he indicated, and the beneficiaries would be the associations. Chairman Rokeberg, "And I think that our past conversations that you posited the situation where you felt that fidelity bonds would be available to associations. They clearly are. And that the managers should be additional insureds and, therefore, the association pay for them. I guess the issue is whether this committee and this legislature wants to mandate an association be required to get a fidelity bond where they are not now, although Alaska Housing requires it. It's certainly their choice. The issue then becomes can we put that burden on the licensee, in this case, and not - you know on the bonding company or requiring the licensee to have the bond." Chairman Rokeberg said he belives one of the key issues that needs to be resolved is if an affordable, reasonable fidelity bond would be available to limited licensed association managers or not. He stated it is not his personal intent nor the committee's intent to put any undue burden on the people conducting their business. Chairman Rokeberg said, "I think it's unique in this situation because we have the existence of the real estate surity fund in which we are to give these association managers a priority two for any claims against them prior to the fidelity bond. But the existence of the bond I think, in one form or another, is necessary." Chairman Rokeberg noted that he is aware that to mandate it for associations, there would have to be revisions made in other statutes as they relate to horizontal regime planned unit developments (PUDs) and the common ownership statute for the state of Alaska. Chairman Rokeberg said, "I take it any endorsement on the part of the local chapter [CAI] remains until the version of the bill would come to the point where you could agree to that. Would that be correct, sir?" Number 0776 MR. OSOWSKI said he believes they are still working on that. He stated they will have to take a neutral position. Most of the board members do support the changes Chairman Rokeberg recommended with (indisc.) except for the bonding situation. MR. OSOWSKI pointed out that the existing bill does not impose a bond requirement on all associations, but the board imposes a bond requirement on all managed associations. Number 0835 BILL BRADY, RE/MAX Properties; President-Elect, Anchorage Board of REALTORS ; Past Chairman, Legislative Committee, Anchorage Board of REALTORS ; Chairman, Industry Issues, Alaska Association of REALTORS , testified via teleconference from Anchorage. He said he want's to thank Chairman Rokeberg for letting his organization participate in the rewriting of the bill. He said it has come a long way and he believes HB 33 is a very good consumer protection bill. It clarifies some issues that are currently in statute. Mr. Brady said he is 99 percent sure that the Alaska Association of REALTORS and the Anchorage Board of REALTORS will give full endorsement regarding the final version of HB 33. CHAIRMAN ROKEBERG noted there are some amendments that he discussed with Mr. Brady the previous week. He stated they will be brought up the following Monday. Chairman Rokeberg noted he appreciates all the help from everybody that has helped work on the legislation. Number 1008 GRAYCE OAKLEY, Executive Administrator, Real Estate Commission, testified via teleconference from Anchorage. She said a concern she has is with the effective date of the bill. She stated she understands why there is a 1999 effective date, but she would ask that the committee consider the length of lead time that is required to get regulations in place. There are many sections of the bill that will require the commission to adopt new regulations. Number 1049 CHAIRMAN ROKEBERG questioned whether the eight-to ten-month period is adequate to implement the regulations. MS. OAKLEY stated, "If the implementation means getting regulations passed, education courses developed to meet those new criteria and delivered in time for licensees to have them for the next renewal period, eight to ten months is pushing." Ms. Oakley asked that there be adequate time to develop regulations. CHAIRMAN ROKEBERG responded, "Right, because that's my major concern is the -- particularly community association core studies as well as continuing education as to major designated ... courses for designations are required to be given continuing education credit hours under this bill. Perhaps Ms. Oakley if you could take a look at those sections of the educational section and see which ones that are of the highest priority, and also that may be the easiest to implement and maybe we could make some middle ground in that area if at all possible." Number 1147 MS. OAKLEY said some of the designation courses, being virtually an automatic approval, are not a problem. Where the commission is expected to pass regulations that would develop a whole new curriculum will take more time. CHAIRMAN ROKEBERG asked Ms. Oakley to make some recommendations. He also asked her to keep in mind that the community association people will have to be included. Number 1201 REPRESENTATIVE COWDERY asked Ms. Oakley what her definition is of "affinity groups." MS. OAKLEY said they are groups that want to put together an agreement with a licensee to get a piece of the action without the benefit of being licensed. REPRESENTATIVE COWDERY noted he isn't familiar with the real estate laws and asked who sets the fees on the sales. He asked if there is a standard fee for apartments. Number 1263 MS. OAKLEY stated there is no standard fee. It is a very well known fact in the industry that all commission fees are negotiable. She state, "We do not have any set fees. It would be something that the Federal Trade Commission would love to be able to come and say real estate people are setting fees and, therefore, price- fixing and so on." She stated all fees are negotiable on a contract by contract basis. There is nothing in the statutes that says a certain fee must be assessed. REPRESENTATIVE COWDERY said in reality, there is sort of a standard. MS. OAKLEY responded that she wouldn't call it a standard. Some fees are more common during negotiations. Number 1313 REPRESENTATIVE COWDERY suggested using the wording "traditional." He asked if any realtor can charge any fee he wants. MS. OAKLEY said that is true and she believes that the broker is the one who establishes what his office will use. The people who are licensed in that office work under the policy that the broker has established. CHAIRMAN ROKEBERG asked Mr. Johnson if he had further comments. Number 1355 MR. JOHNSON informed the committee members he just received the amendment relative to page 16, lines 19 through 26. He stated it changes AS 08.88.341 to listing and management contracts. The original version of the bill addresses listings and it specifically says, "All listings must be in writing." The amended version addresses real estate employment contracts. Part of the earlier discussion, relative to eliminating the terminology at listings, was to assure that this would put us into compliance with AS 08.88.361, which specifically addresses how payment will be made. Mr. Johnson said he thinks that amendment needs to be addressed, and from his prospective, it should be deleted because the original version addresses that without that amendment. CHAIRMAN ROKEBERG stated the amendment reflects the wisdom of a summit meeting of the Anchorage Board of REALTORS and the Alaska Board of REALTORS . The fear within the general real estate community is that there would be misinterpretation as to buyer/broker contracts and agreements based on the rewording of that. He said they both know that's not true, but that is currently the feeling. Chairman Rokeberg suggested the Mr. Johnson contact Mr. Brady, Mr. Clark or Eric Dyrud in Anchorage. MR. JOHNSON said part of his concern is if the amendment is adopted, then AS 08.88.361 should also be revised. He said, "If we leave them like it is, I think it touches -- and maybe we need to put in some additional verbiage to address their concerns, but I don't see that as being a real concern." Number 1460 CHAIRMAN ROKEBERG asked Mr. Johnson to forward suggestions to the committee. Number 1475 JERRY ROYSE, President, Alaska Association of REALTORS , testified via teleconference from Anchorage. He noted he is also a real estate broker, he is a member of National Association of REALTORS Education Committee and he is a national instructor. Mr. Royse said while traveling around the state, he has had the opportunity to speak with a lot of different real estate agents about HB 33. He said he believes there is general consensus that the bill is a good bill and there has been a lot of work done to the bill that really tries to protect consumer's interest. Mr. Royse said, "I think there is -- you know it's a work in progress. Having been involved with doing some that work, I can say that there is a strong consensus among the industry that what we've got here is something that works not only for the industry, but for the citizens of this state." He said he appreciates the opportunity to help draft legislation that protects the consumer's interest and to update laws there were written 25 years ago. He noted not all things have been addressed at this point, but a majority of the people he has spoken with support the bill and they like the work that the committee has been doing. Number 1573 CHAIRMAN ROKEBERG pointed out a provision added to the committee substitute that would allow continuing education credits for courses that occurred at a national convention which have been approved about the host state. He asked Mr. Royse to explain what the thrust is of that provision. MR. ROYSE explained within the education branch of the National Association of REALTORS , he sits on the committee that helps make the decision on which course will be submitted, approved, et cetera. He pointed out that in the course of a national convention, very often there are courses specifically related to consumer protection of legal issues. Those are the types of courses that are typically submitted for approval in the state where the convention is being held. A number of other states have adopted language in their statutes that basically says if the host state has approved, through their regulatory authority, specific courses then those other states will accept those courses for credit as well because most real estate commissions have an eye on consumer protection. The National Association of REALTORS does not just submit every single course that's being offered. On an average, it is from 10 to 15 hours of courses submitted for approval in the host state for continuing education. He noted he believes this really identifies those appropriate courses because many times at the state conventions other courses that have not been submitted really wouldn't fall within the scope of what Alaska would prefer to see approved. They limit their submission to courses that would typically be approved in Alaska as well. Number 1667 CHAIRMAN ROKEBERG referred to the package of amendments and said one was inserted at the request of an individual in the Southcentral Cook Inlet area. It says, "The Real Estate Commission shall approve each submitted contact hour of a course outline as one credit hour of continuing education. The fee for continuing education course certification, under AS 08.88.221, shall be based on the hours approved for credit no hours submitted." He asked Mr. Royse to explain what it means. Number 1699 MR. ROYSE responded that an example is when the Alaska Association of REALTORS submits a course for approval, the approval fees have gone up significantly to offset the costs of going through that process. Sometimes it's frustrating for the state association when they submit a course for a certain amount of approved hours. Historically, what has happened is the amount of course hours requested/submitted was what the fee was based on. He said he thinks this would change it so that the fees would be based on the approved hours and not the submitted hours. Mr. Royse said, "In some cases where we submitted six-hour courses, we have seen where the approval of the delivery time is six hours, we've seen where the acceptable hours or the (indisc.) approved hours might only be a half an hour or an hour. It does have some negative impact in terms of our operating of the courses. This would then -- from the way this was written, that we would be billed for the hours that were approved not just submitted. Number 1765 CHAIRMAN ROKEBERG said he appreciates Mr. Royse's comments. Number 1777 MS. OAKLEY said she would like to comment with regard to credit based on hours submitted versus hours approved. She said the fee that is charged is based on the amount of time that is spent and the cost incurred in staff time in reviewing the courses and then getting them to the commission for approval. MS. OAKLEY said, "If this were put in place, it would basically be saying if we wanted to have our time paid for - if we had to approve everything that came in because anything that was denied, we could not charge for." CHAIRMAN ROKEBERG said you could deny approval, but they wouldn't have to pay the fee for the submission. He said the state association has submitted some significant submittals in the last cycle. MS. OAKLEY said she believes that was two years ago and there was a period of confusion because the new commission members had a differing in philosophy about what should and shouldn't be approved. It was a learning period. She said she thinks it now is streamlined to where they have a much better idea or they feel they can call up and asked about what is likely to be approved before actually going through the review process. Ms. Oakley pointed out it is a time factor and it takes just as much time, if not more, to go through a course that doesn't meet the standards than it does to go through a good one that does meet the standards. Number 1871 CHAIRMAN ROKEBERG asked, "But wasn't two years ago the bulk of the courses submitted by the Alaska association recertification in courses that had been reviewed before and then were denied then?" MS. OAKLEY said she doesn't believe it was in 1996, but it was in 1994. She noted she could be wrong. She said there have been times where there has been a great deal that has been turned down. She said the whole process has been a learning experience for the commission and the groups that are submitting courses. Number 1911 CHAIRMAN ROKEBERG said HB 33 will be taken up the following Monday. At that time, proposed amendments will be reviewed. He noted there are a few rough points about the fidelity bond issue. Another amendment is needed which relates to community association funds. ADJOURNMENT Number 2021 CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing committee meeting at 4:38 p.m.

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