Legislature(1999 - 2000)
01/25/1999 03:15 PM House L&C
| Audio | Topic |
|---|
* 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
January 25, 1999
3:15 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative Andrew Halcro, Vice Chairman
Representative Jerry Sanders
Representative Lisa Murkowski
Representative John Harris
Representative Tom Brice
Representative Sharon Cissna
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
* HOUSE BILL NO. 13
"An Act relating to the characterization of, use of, segregation
of, deposit of, interest on, and disbursement of escrow money;
relating to the recording, filing, and delivery of escrow
documents; relating to civil penalties for violations of certain
escrow provisions by escrow settlement agents; relating to the
supervision by the Department of Commerce and Economic Development
of escrow settlement agents; authorizing the adoption of
regulations to implement certain escrow provisions; and providing
for an effective date."
- MOVED CSHB 13(L&C) OUT OF COMMITTEE
(* First public hearing)
PREVIOUS ACTION
BILL: HB 13
SHORT TITLE: REGULATION OF ESCROW ACCOUNTS
SPONSOR(S): REPRESENTATIVES(S) ROKEBERG BY REQUEST
Jrn-Date Jrn-Page Action
1/19/99 21 (H) PREFILE RELEASED 1/8/99
1/19/99 21 (H) READ THE FIRST TIME - REFERRAL(S)
1/19/99 21 (H) LABOR & COMMERCE
1/25/99 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
JANET SEITZ, Legislative Assistant
to Representative Norman Rokeberg
Alaska State Legislature
Capitol Building, Room 24
Juneau, Alaska 99801
Telephone: (907) 465-4968
POSITION STATEMENT: Presented the proposed committee substitute
for HB 13 on behalf of the sponsor.
TERRY BRYAN, Board Member
Alaska Land Title Association;
President, First American Title of Alaska
510 West Tudor Road
Anchorage, Alaska 99503
Telephone: (907) 562-0510
POSITION STATEMENT: Testified in support of HB 13.
ANN RINGSTAD
757 Illinois Street
Fairbanks, Alaska 99701
Telephone: (907) 474-5922
POSITION STATEMENT: Testified in support of HB 13.
MARY ANN ROWE, President
Alaska Land Title Association;
President, Kachemak Bay Title, Incorporated
3691 Ben Walters Lane, Number 1
Homer, Alaska 99603
Telephone: (907) 235-8196
POSITION STATEMENT: Testified in support of HB 13.
DAVID A. LAWER, Senior Vice President
and General Counsel
First National Bank of Anchorage;
Alaska Bankers Association
101 West 36th Avenue
Anchorage, Alaska 99506
Telephone: (907) 777-3011
POSITION STATEMENT: Testified on the proposed committee substitute
for HB 13 on behalf of the Alaska Bankers Association, suggested
amendments
MICHAEL PRICE
550 West 7th Avenue, Suite 1370
Anchorage, Alaska 99501
Telephone: (907) 277-6666
POSITION STATEMENT: Testified in support of HB 13 on his own
behalf as a 24-year real estate practitioner.
JEFF BLAKE, Vice President
Pacific Rim Title Insurance Agency, Incorporated
307 East Northern Lights Boulevard
Anchorage, Alaska 99503
Telephone: (907) 274-2562
POSITION STATEMENT: Testified in support of HB 13.
D.J. WEBB, Past Legislative Affairs Committee Chair
and Past President
Alaska State Escrow Association;
Senior Escrow Officer, First American Title of Alaska
510 West Tudor Road, Number 1
Anchorage, Alaska 99503
Telephone: (907) 786-9560
POSITION STATEMENT: Testified in support of HB 13.
GINNY FAY, Legislative Liaison
Office of the Commissioner
Department of Commerce and Economic Development
P.O. Box 110800
Juneau, Alaska 99811-0800
Telephone: (907) 465-2503
POSITION STATEMENT: Testified on the proposed committee substitute
for HB 13, suggested amendments.
ACTION NARRATIVE
TAPE 99-1, SIDE A
Number 0001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee meeting to order at 3:15 p.m. Members present
at the call to order were Representatives Rokeberg, Halcro,
Sanders, Murkowski, Harris, and Brice. Representative Cissna
arrived at 3:17 p.m. Before discussion of the scheduled
legislation, the chairman reviewed committee protocol and request
procedures for committee hearings on specific bills. He discussed
Representative Cissna's request that the committee not meet on
February 12. He noted the committee would be advised as soon as
possible whether this request would be granted. Chairman Rokeberg
noted this was his fifth year serving on the committee and third
year as chairman. He indicated the committee had worked hard to
gain a well-regarded reputation for working in a very open and
bipartisan manner with all segments of the economy, both the labor
and management sides, on a number of issues. The chairman
introduced two members of the audience and regular visitors to the
committee's meetings: Dwight Perkins, Special Assistant, Office of
the Commissioner, Department of Labor, and Ginny Fay, Legislative
Liaison, Office of the Commissioner, Department of Commerce and
Economic Development.
HB 13 - REGULATION OF ESCROW ACCOUNTS
Number 0620
CHAIRMAN ROKEBERG announced the committee would take up HB 13, "An
Act relating to the characterization of, use of, segregation of,
deposit of, interest on, and disbursement of escrow money; relating
to the recording, filing, and delivery of escrow documents;
relating to civil penalties for violations of certain escrow
provisions by escrow settlement agents; relating to the supervision
by the Department of Commerce and Economic Development of escrow
settlement agents; authorizing the adoption of regulations to
implement certain escrow provisions; and providing for an effective
date." The chairman noted the presence of a proposed committee
substitute (CS) and stated he would entertain a motion to adopt the
proposed CS as a working document.
Number 0651
REPRESENTATIVE HALCRO made a motion that the committee accept the
proposed CS, version 1-LS0126\D, Bannister, 1/22/99. There being
no objections, the proposed CS was adopted as a work draft.
Number 0680
JANET SEITZ, Legislative Assistant to Representative Norman
Rokeberg, Alaska State Legislature, came forward to briefly present
HB 13. She stated, "House Bill 13 is a bill that the
Representative has worked on with escrow people, real estate
people, concerned citizens. It's a bill that was before the
legislature last year." Ms. Seitz explained, as a simple statement
on the legislation, HB 13 would mean the money that was to go to
the seller of residential property would be in hand before the
title documents were recorded. She referred to information in the
bill packets regarding situations where a seller and a buyer had
made a deal, all the documents had been signed, the title company
and the escrow agent had been told the funds were there, they
recorded the documents, but the buyer either stopped the deal or
something happened, and the money was not there. At this point,
however, the title was in the buyer's name, not the seller's, and
the seller did not have his or her money. She noted HB 13 was
intended to prevent those situations from occurring. The sponsor
statement read:
At the request of the Alaska State Escrow Association,
this legislation was reintroduced in an effort to assure
consumers that their money will be safely received in a
timely order, delivered, and properly accounted for when
delivered to a settlement agent for a residential real
property transaction. Currently, there are no Alaskan
laws addressing these concerns.
Consumers need to be assured that their funds (which can
be rather large amounts) will not be jeopardized and will
be available when needed during the course of a
residential real estate transaction. From the seller's
viewpoint, the execution of a deed and the deposit of
that deed will bring forth proceeds upon recording of the
deed. Under current Alaskan business practices, a buyer
deposits a cashier's check prior to recording a property
deed; however, this is not the case if a lender provides
the purchase funds. In the case of a lender, the deed is
recorded along with the lender's lien and the funds are
deposited after the deed and other documents have been
recorded.
This procedure leaves sellers and settlement agents in
the middle. The seller's interest in the property has
been transferred but no funds have been received. This
bill requires that before a settlement agent records
documents transferring residential property (not
commercial property) or creating a security interest in
the property that the money required under the escrow
agreement must be "Good Funds" available for
distribution.
An increasing number of incidents have occurred
demonstrating the need for Alaska to join the large
number of states having "Good Funds" legislation,
including Washington, California, and Oregon. In the age
of growing electronic commerce, people are shopping the
Internet for mortgages and there is an increase in
competition from "outside" mortgage companies caused by
low interest rates. Problems have arisen from failure of
these "outside" companies to properly fund these
transactions in a timely fashion, or, in the case of a
bankruptcy, at all.
In drafting this bill, we have worked with various
interested citizens, business groups, and financial
institutions throughout Alaska.
I would urge your support of this legislation.
Number 0756
CHAIRMAN ROKEBERG asked Ms. Seitz to explain the changes in the
proposed CS.
MS. SEITZ indicated the first difference from the original bill
version was on page 4, lines 17 and 18. She stated no change had
been made in the definition of "escrow money"; it had simply been
placed in alphabetical order, rather than following the definition
of "escrow transaction" as it had in the original bill. Ms. Seitz
noted the next change was on page 5, lines 12 through 16. She
indicated the definition of "residential real property" was
intended to clarify that commercial property was excluded; HB 13
concerned residential real property only.
Number 0848
REPRESENTATIVE BRICE wondered if commercial property should be
included, asking how that worked.
CHAIRMAN ROKEBERG replied that he, as the author of the
legislation, believed, when reviewing the implementation of this
legislation and in working with commercial banks and other
institutions, that requiring "good funds" for commercial
transactions would not reflect common actual practices,
particularly in large commercial transactions. He indicated that
a multi-million dollar transaction could be funded in partial
points or have other contingencies which needed to be met prior to
the release of certain funds. The chairman said he thought the
parties in the world of commercial real estate were well-protected,
understood the rules of the game, and didn't need extra "(indisc.)
protection," unlike residential consumers. He noted that was the
legislation's intent; it was very much a consumer protection bill
intended solely to have good funds available to the residential
consumer, rather than protecting commercial interests and things of
that nature. He added that the bill would have been much more
difficult to draft, and to have applicable, if it was intended to
be used for commercial transactions.
Number 0944
REPRESENTATIVE CISSNA asked if the title company couldn't simply
make it a standard of practice to not change the title until the
funds were in hand. She questioned whether it needed to be a law.
CHAIRMAN ROKEBERG referred to a witness who would be testifying via
teleconference. He indicated the Alaska title companies would be
making this practice standard but he said there was no mandate.
The chairman further indicated much of this had to do with
electronic commerce and the Internet. He stated Alaska consumers
could now shop for mortgages over the Internet and were choosing to
take lower interest mortgages from Internet mortgage providers.
When they prepared to close the deal, the title or escrow agent,
who was the actual agent for the transactional closing, was then
subject to the transfer and disposition funds of this out-of-state
mortgage banker. Chairman Rokeberg commented it had been the
practice in certain instances that money had not been forthcoming
or that recordation had been required before funds were released.
He indicated this was the opposite of the bill's intent. He said
Alaska would be joining at least the three other western states,
among other states, with similar legislation. The chairman
indicated that without HB 13 there would be nothing restricting the
business practice of withholding funds for "the daily and hourly
interest accrued to extraordinarily large amounts of funds that
we're talking about here." He termed this "the float" and said it
was the entire issue there. Chairman Rokeberg stated the sponsor's
intent was to protect the individual residential consumer or the
average citizen, not letting them get involved in this banking and
financial institution practice.
Number 1065
REPRESENTATIVE CISSNA mentioned, then, there had apparently been an
oversight on the part of the title companies, "for a kind of a
(indisc.) ..."
CHAIRMAN ROKEBERG said, "It's really a demand that the title
companies are a service company, and they can set the procedures
but ... they need the help statutorily to make sure that the rules
of the game are played, and that's the intention here." He
indicated he hoped the additional testimony would provide
clarification.
Number 1093
REPRESENTATIVE MURKOWSKI noted the fair number of letters in
support of the legislation in the bill packet on behalf of the
escrow settlement agents and the lack of any materials from the
other side, the lenders. She asked what the lenders' response was.
CHAIRMAN ROKEBERG referred to the notes on the previous legislative
session's HB 247, the same bill. He stated they worked closely
with the banking institutions and the Alaska Bankers Association to
modify the legislation to meet the requirements of those groups.
He indicated the Alaska Bankers Association had decided not to take
a formal position on the legislation, which he took as a positive,
legislatively speaking. He commented he had spoken with one of the
association's officers within the previous hour and he also noted
their lobbyist was present at the meeting to ensure everything was
done correctly. Chairman Rokeberg said the association had
assisted in drafting the legislation, referring specifically to the
definition of "settlement agent" on page 5, line 17. The chairman
noted that definition had been drafted with the help of First
National Bank of Anchorage's David Lawer. The chairman commented
that National Bank of Anchorage had a very large escrow business in
Alaska handling third-party accounts. However, the bank acted more
as a conduit than a closer; therefore, defining the settlement
agent as a closer within a real estate transaction was the result
of the banking industry's request to the committee.
Number 1233
REPRESENTATIVE HARRIS stated he understood and appreciated the
situation as a former real estate agent himself. He asked if this
was the proper time to bring up a question from, he believed, the
Department of Commerce and Economic Development (DCED) that was in
the bill packet and was possibly about supervision.
CHAIRMAN ROKEBERG indicated he preferred to hear further testimony
first.
Number 1270
REPRESENTATIVE HALCRO recognized the number of letters in support
of the legislation in the bill packet, commenting on one situation
where the transaction had been done out of Oregon, the funds were
not received, and the company went bankrupt a couple of days later.
However, notwithstanding, he wondered if this legislation would
impede consumers from shopping online or dealing with out-of-state
lending agencies to receive better interest rates.
Number 1294
CHAIRMAN ROKEBERG stated that, in his opinion, this legislation
would enable Alaskan financial institutions to better compete with
those outside institutions, particularly "in this changing age of
cyber-business." He indicated this was because consumers would
know that the in-state financial institutions could make funds
available on the same day for settlement. The chairman noted the
reference in the bill to federal law regarding wire transfers [page
3, lines 9 and 10, "(3) a depository check, including a cashier's,
certified, or teller's check, that is governed by 12 U.S.C. 4001 -
4010 (Expedited Funds Availability Act)."]. He indicated his
recent research led him to believe that sometimes wire transfers
could not be closed until the following day. However, he said they
had found circumstances where some of these outside mortgage
companies, not necessarily related to a large banking or financial
institution, might delay as much as two to four days before making
solid, positive delivery of the funds to the escrow title insurance
agent, "trying to work the float." Chairman Rokeberg pointed again
to this as the source of the problem.
Number 1373
MS. SEITZ indicated there were two additional changes in the
proposed CS. Line 24, page 5, contained the new short title [Good
Funds Act] and line 28, page 5, contained the new effective date
[July 1, 1999]. Ms. Seitz confirmed the effective date had been
changed from the year 2000.
CHAIRMAN ROKEBERG indicated the committee would find from the
testimony that the title businesses had changed their practices
regarding this subject as a practical matter in the past couple of
months. He indicated it seemed unnecessary to wait another 11
months for this bill to take effect, noting the traditional
practice of using the beginning of the fiscal year for enactment of
legislation without an immediate effective date. Chairman Rokeberg
stated the committee would take testimony.
[There was some discussion between the chairman and the Anchorage
teleconference moderator regarding the locations and number of
witnesses.]
Number 1460
TERRY BRYAN, Board Member, Alaska Land Title Association;
President, First American Title of Alaska, testified via
teleconference from Anchorage in support of HB 13. He indicated
both the Alaska Land Title Association, and himself as a private
entrepreneur with the First American Title of Alaska, saw this
primarily as a consumer issue, and, from within the industry, did
not feel an in-state and/or out-of-state lender had a competitive
advantage resulting from electronic banking, electronic transfers
and so forth. Mr. Bryan described that the seller and buyer went
through a real estate transaction in good faith, with the
settlement agent facilitating that transaction. He indicated the
title was transferred on completion and the buyer came into
possession, but funds might or might not be available to the
seller, even though the seller might need those funds for another
transaction. Noting there were 25 to 30 settlement agents
throughout the state, Mr. Bryan commented that the recordation of
a real estate transaction as a "nonavailability" of immediate funds
occurred a few times every week; it was not necessarily a very rare
occurrence. Mr. Bryan said it could simply be that the transaction
had been completed and was recorded, the money was being wired from
one bank to another, and, for whatever reason, the money did not
get transferred that day. He noted a recent three-day weekend,
describing a situation that occurred in their office: a buyer was
in possession of a home but the money was not transferred for four
days because a clerk keyed the wrong account number. Mr. Bryan
stated there could be many reasons a transaction was completed but
the funds were not being held by either a settlement agent or the
trust account; the funds were still with a funding source "either
'Outside,' different city, different location." He indicated the
legislation's purpose was more to protect the integrity of the
transaction and the buyer and seller.
Number 1622
MR. BRYAN referred to one of the committee member's earlier
question about whether this wasn't a settlement agent issue and
couldn't the settlement agents make that a matter of policy. Mr.
Bryan indicated he did feel, on the surface, that this was a part
of all settlement agents' fiduciary responsibility to ensure the
viability and integrity of any particular transaction. However, he
stated, with 25-plus settlement agents in Alaska and the same
number or more mortgage companies and/or real estate lenders buying
for different businesses, there was the likelihood that many
companies, in order to expedite a transaction and to "facilitate
(indisc.) possession," might not always follow what might be a
sound business practice. He stated they felt "good funds"
legislation was needed to protect the sanctity of the transaction
and the individual buyer and seller."
Number 1691
CHAIRMAN ROKEBERG referred to an earlier conversation with Mr.
Bryan and Ms. Seitz about commission letters being included as
"items" under the bill's definition section.
MR. BRYAN said he did not believe that was his correspondence.
Number 1725
REPRESENTATIVE MURKOWSKI asked if Mr. Bryan felt the actions of the
settlement agents he described as occurring were inadvertent, or
were they being done by the settlement agents in an effort to make
the clients happy. She commented that Representative Rokeberg
indicated the industry's practice in the past few months had been
to delay recordation until the funds were available.
Representative Murkowski also noted she had been reviewing the
bill's civil penalty section.
Number 1778
MR. BRYAN replied, to clarify Chairman Rokeberg's comments, that
they were hoping, effective February 1, 1999, it would become the
practice of the title companies to follow sound business practices
and a good funds format "in receiving funding prior to recordation
subsequently prior to further disbursement." He indicated that
practice was presently rarely occurring among the 20-plus
settlement agents from the title industry. Mr. Bryan stated the
Alaska Land Title Association had passed a unanimous resolution at
their December board meeting, subsequently adopted by all the
members, that effective February 1, 1999, this policy would be
voluntarily followed. Mr. Bryan said, therefore, they were moving
in that direction. He noted not following a good funds practice
had occurred over the course of the years for many different
reasons, whether competitive or "in working with a (indisc.) -- a
good relationship with a specific lender, a mistake, absolutely no
one's fault, not trying to push a situation to get it closed
quicker, and anything else from equipment breaking down." He said
multiple situations had occurred since the first of the year,
where, for example, they were recording a transaction and had taken
the check offer, the person's car ran out of gas as he or she was
delivering the check and the check delivery was forgotten, but the
transaction was already recorded and the title was transferred.
Number 1883
REPRESENTATIVE MURKOWSKI initially indicated some confusion about
the imposition of the civil penalty for inadvertent mistakes,
subsequently noting it only applied to willful violations.
MR. BRYAN commented, regarding the civil penalty, that there would
be no recordation until the receipt of funds if the good funds
procedure was being followed, and so, therefore, no civil penalty
applied. He indicated again that the good funds procedure was not
currently being followed, stating the transaction was signed and
recorded and then the settlement agent asked for the funds. He
said that because the good funds procedure was not currently being
followed, there were no willful or unwillful acts, the procedure
simply wasn't being followed.
CHAIRMAN ROKEBERG confirmed Mr. Bryan had concluded his testimony.
Number 1951
ANN RINGSTAD testified off-net via teleconference from Fairbanks in
support of HB 13. She related they had sold their house in
Anchorage approximately four years ago, signing all the documents
and moving out just before Christmas. She said the buyers delayed
for a couple of weeks, finally signing off on all the documents and
moving into the house. Ms. Ringstad stated the escrow agent called
the bank "Outside," asking if the funds were coming by inter-wire
transfer. The bank confirmed the funds were coming and the deed
was recorded into the buyer's name. After moving into the house,
the buyer called the bank in Oregon to stop the funds. She noted
the funds were stopped, the house was now in the buyer's name, and
the sellers had no money for the house but were still liable for it
and the mortgage. Ms. Ringstad stated it took them about four
months to straighten the situation out, noting it was a very
emotionally "upheaving" experience and she was hoping it would not
happen to anyone else. She indicated the problem with the
inter-transfer of funds was the escrow companies' procedures to
record after receiving a verbal affirmation that funds were coming.
She said the problem was, in fact, that the deed was recorded and
the funds were never received. Ms. Ringstad stated a number of
attorneys told them they would have probably won their case [in
court] but it would have taken two years and $30,000. She noted
they eventually did get the house back. Ms. Ringstad emphasized
her concern was that the funds actually be in hand before the
documents were recorded.
Number 2067
CHAIRMAN ROKEBERG stated that was the bill's intention, indicating
he had inquired with National Bank of Alaska and double-checked the
United States Code on wire transfer in response to a concern voiced
by Ms. Ringstad. The chairman said a wire transfer might be
cleared the following business day under United States statute and,
additionally, depending on the time of day in Alaska when a wire
transfer occurred, it might clear the next day. However, he noted
that was "consistent with this legislation inasmuch as the
recordation is an act subsequent to the clearing of the funds."
Chairman Rokeberg stated that was the mandate of the bill, "You
cannot record until the funds are cleared and even if there's a
delay from a timing of an electronic wire transfer, they cannot
record until the funds are cleared. In the real instance it was
the (indisc.), not the actual transfer of the funds or receipt of
the transfer."
MS. RINGSTAD agreed, noting they never received the funds but the
escrow agent was told that the funds were wired.
CHAIRMAN ROKEBERG said, "(Indisc.) with this book because of the
steps you have to follow through ... it's certainly the intention
of the author that the language is sufficient to do that." He
thanked Ms. Ringstad for her letter and testimony, noting he knew
both brokers who had been involved in the transaction. He
commented it was actually a famous story in the annals of Alaska
real estate [history]. He confirmed with Ms. Ringstad the problem
resulted from a "condensating" skylight, but the buyer told the
bank in Oregon the house was flooding. The chairman accepted Ms.
Ringstad's thanks for the legislation.
Number 2148
MARY ANN ROWE, President, Alaska Land Title Association; President,
Kachemak Bay Title, Incorporated, testified via teleconference from
Homer in support of HB 13. She indicated she thought Mr. Bryan had
done an excellent job of explaining why the Alaska Land Title
Association supported HB 13. She said would just like to reiterate
a couple things regarding the bill, mentioning the December
resolution and commenting that they were now working with the
majority of the bankers and mortgage bankers in Alaska to enact
this resolution on February 1. Ms. Rowe noted they had received
positive responses but continued to feel HB 13 was necessary. She
indicated they were still concerned about those who solely existed
on "floats," and some lenders who felt it really wasn't the problem
of the title companies that the funds came after recording. Ms.
Rowe stated their concern, besides being a good business practice,
was to make sure the consumer was protected. She indicated these
problems occurred throughout the state, even in Homer, relating a
recent situation where a delivery person twice forgot to take the
check to the bank. She stated she thought some of the definitions
were excellent, noting definitions of "escrow transaction" and
"settlement agent" had long been needed, and the ones in HB 13 were
very acceptable to the industry. She urged the committee to enact
HB 13 that year.
Number 2261
CHAIRMAN ROKEBERG asked if the resolution and policy to be
established in February was voluntary in nature.
MS. ROWE replied it was voluntary but their active membership of
all the title companies in the state was going to completely
enforce it, with all agreeing in writing to adhere to the February
1 resolution. She confirmed to Chairman Rokeberg that there was
nothing mandating mortgage brokers from "floating" or not
cooperating with the title companies. She commented that they, as
individual companies, would simply have to demand that those funds
be delivered prior to recordation; HB 13 was what they needed
behind this. Ms. Rowe mentioned a list of "Lower 48" mortgage
companies which had declared bankruptcy or which required
underwriter approval before closing that she had received from her
underwriter. She noted they received these lists about once a
month. Ms. Rowe confirmed to Chairman Rokeberg she meant the title
company underwriters, not mortgage bankers or lenders, by her use
of the term "underwriter." She mentioned "First American,"
"Pacific Northwest" and "Old Republic" as examples.
Number "
DAVID A. LAWER, Senior Vice President and General Counsel, First
National Bank of Anchorage; Alaska Bankers Association, testified
via teleconference from Anchorage on behalf of the Alaska Bankers
Association. He noted he had testified the previous year against
the bill, generally speaking, because of his view that it might
have unintended consequences in connection with one aspect of the
business of First National Bank of Anchorage and National Bank of
Alaska. He stated the draft went a long way toward eliminating
that unintended effect. Mr. Lawer apologized for not commenting
sooner on his advance draft copy. He commented he would
recommended one simple additional change to ensure that this would
not reach the escrow business of the two banks. Mr. Lawer refuted
rumors that the banks were opposed to HB 13, confirming the
chairman's earlier comments regarding the Alaska Bankers
Association's decision not to take a position on the legislation.
He stated that was largely because HB 13 operated favorably in many
respects in so far as Alaskan banks were concerned, presenting them
with some sort of competitive advantage, whether this was an
intentional effect or not. Mr. Lawer noted, however, the
legislation in its present form did not necessarily accomplish all
that was intended. He requested the definition of "settlement
agent" be changed by deleting five words and adding one. He also
commented he felt the definition of "residential real property"
would create some problems; it did not exclude certain commercial
transactions as was intended. As an example, he indicated the sale
of 100 homes in a block by a developer to another developer or to
a retailer would not be excluded by the current definition.
[TESTIMONY INTERRUPTED BY TAPE CHANGE]
TAPE 99-1, SIDE B
Number 0001
MR. LAWER continued, "... (indisc.) handed to the title company
(indisc.) imperfect. I do see a lot of effort being made ... with
the provisions to make sure that the title company has collected
funds before their (indisc.) lawfully to record documents in
connection with the covered transaction. That goes a long way to
assure that somebody'll get paid. Nevertheless, collected funds
doesn't mean that whatever item it is, whether it be an electronic
transfer or a check that was deposited, it is not an item that can
be reversed. ... Available for withdrawal as a matter of right
does speak to the title companies' opportunity to withdraw, but
notwithstanding that, if it hadn't been withdrawn ... if a
transaction is reversed or in the event of a bankruptcy, I can
think of potential situations in which the credit given for an item
or the credit given for a wire can be reversed, so it's imperfect
in that sense. ... I will offer some assistance if it's requested
in that connection, but that's not grounds upon which (indisc.) the
Bankers Association [Alaska Bankers Association] or me speaking on
behalf of the First National Bank [First National Bank of
Anchorage] would oppose the legislation." Mr. Lawer commented the
members of his association had discussed this and agreed not to
take a position. However, he said he thought their conversation
had led to this conclusion: while this legislation did not impact
them negatively, it seemed to be a matter of competition and
industry that could be accomplished by the title companies through
self-policing. He indicated the reaction of the Alaska Bankers
Association was somewhat that "once you start having some impact on
competition in an industry you start down a very slippery slope,"
and they felt the legislation was unnecessary.
Number 0123
CHAIRMAN ROKEBERG asked Mr. Lawer which five words he would like to
see removed.
MR. LAWER replied the change was in the definition of "settlement
agent" on page 5, line 20. He recommended the deletion of "a loan
during the term of the loan" and the insertion of "indebtedness.
He indicated he was completely confident this change would prevent
any unintended consequences to the other portion of the business of
First National Bank of Anchorage and National Bank of Alaska that
they understood HB 13 was not targeting.
Number 0195
REPRESENTATIVE HALCRO asked Mr. Lawer if he felt the legislation
improved consumer protection, again noting the letters of support
in the bill packet. He mentioned Mr. Lawer's testimony about
competition and the association's neutral position because it felt
the legislation gave its members a competitive advantage.
MR. LAWER referred to Ms. Ringstad's situation, commenting she had
testified she had been told the money was on the way, which left
her open to some considerable difficulty. He asked the committee
if they would conclude a transaction and transfer their interest in
property on the promise that the money was on the way. Mr. Lawer
said yes, in that sense, the legislation would, to some extent,
protect the unwitting consumer from the prospect of the delay
involved when payment was not received or when payment was revoked
at a time when it could still be revoked and before the transaction
was concluded.
Number 0275
REPRESENTATIVE SANDERS asked if the problem was nonpayment or if
the problem was premature filing.
MR. LAWER replied he thought "premature" was not an accurate word.
He said they did have a system that called for the recordation of
documents only during a limited period of time. He noted this did
create some practical problems in connection with closing a
transaction if it involved delay or a nuisance that, to some
extent, interfered with legitimate expectations in connection with
the transaction. Mr. Lawer said he didn't know a common cure, but
suggested there could be changes in the system of recordation which
could considerably improve things for the title companies, and also
outside lenders. Mr. Lawer stated the current system and the
changes proposed by this legislation, whether enacted by
legislation or by agreements of the title companies not to record
until they had money in hand, worked in favor of local lenders to
some extent. He indicated this was because: a) local lenders
could accomplish the process quicker than outside lenders, and b)
it put the lenders in a position where they could charge at least
an additional day of interest in comparison to their present
practices. He noted it operated in their favor in both respects.
Mr. Lawer said, in response to Representative Sanders' further
question about whether this situation could be cured by voluntary
actions on the part of the association without legislation, that
was the point he had tried to make. However, he reiterated that
the Alaska Bankers Association had decided not to take a position
on the legislation.
Number 0392
REPRESENTATIVE MURKOWSKI asked Mr. Lawer if he had any suggested
language regarding the definition of "residential real property".
MR. LAWER indicated the transaction should be defined in terms of
not only the property being transferred, but also the participants.
He said they were talking about a covered transaction being one
involving the sale or transfer of residential real property between
consumers, noting he agreed with the chairman's comment regarding
retail rather than wholesale. Mr. Lawer said he could make some
suggestions regarding language, if given some time.
Number 0454
CHAIRMAN ROKEBERG thanked Mr. Lawer for his testimony. The
chairman declared for the record that he, the chairman, was a real
estate broker by profession and also indicated he held stock in
National Bank of Alaska and First National Bank of Anchorage.
Number 0494
MICHAEL PRICE testified via teleconference from Anchorage in
support of HB 13. He noted that although he was a member of the
Alaska Land Title Association, he was testifying on his own behalf
as a 24-year real estate practitioner. Mr. Price described some
real estate closing practices. He said the United States could
probably be divided into half, stating the Eastern states did what
was called "table" closings, where the buyer and the seller met to
exchange documents and payment and this type of legislation was not
really needed. Mr. Price said he believed the majority of western
states had passed "good funds" legislation. He noted he believed,
at least, that most states operated off of a "good funds" concept,
with Alaska being one of the few that probably did not. He
referred to the voluntary resolution of the Alaska Land Title
Association, but reminded the committee that not all escrow closing
agents belonged to the association. Mr. Price said he knew of one
independent escrow company, and he also commented there were no
prohibitions against future escrow companies with less sound and
consumer-oriented business practices. He indicated the
association's voluntary resolution could be voided in the future
and that he still saw need for legislation. Additionally, Mr.
Price said he felt the definition of "residential real property" on
page 5 did not necessarily include condominiums and he suggested
perhaps that could be examined in the coming week or so.
Number 0624
CHAIRMAN ROKEBERG asked Mr. Price if he was an attorney at law.
MR. PRICE confirmed he was an attorney and had been practicing in
Alaska for 24 years, stating, "Twenty-one of which I was proud to
practice with (indisc.), one of your past members of the
legislature."
CHAIRMAN ROKEBERG indicated the committee would be taking up the
definition of residential real property later that day, commenting,
"(Indisc.) bit of a scrutiny, followed by deleting the last section
of it and then introducing in the wholesale aspect, to clarify that
conceptually."
Number 0657
JEFF BLAKE, Vice President, Pacific Rim Title Insurance Agency,
Incorporated, testified via teleconference from Anchorage in
support of HB 13. He noted he had submitted a letter in support of
legislation the previous Friday to the committee by facsimile and
said he would just like to speak to a couple issues he had heard
there that day. Mr. Blake noted that in almost all escrow closings
in the title companies, the funds the buyers owed were required by
the title companies to be in good, hard funds. He also referred
parenthetically to instances back in the 1980s when, at times, the
title companies would have required the same of the sellers' funds
owed to close the transaction. Mr. Blake described that there were
two transactions in the average deal: 1) the transaction between
the seller and the buyer, and 2) the transaction between the buyer
and his or her lender. Usually, the funds the buyer had negotiated
to borrow to purchase the property were the ones they had problems
receiving in a timely manner. Mr. Blake indicated the lending
institutions have instructed the title companies that money will
not be funded until the lender's deed of trust is in a first lien
position. He further indicated this put the title companies in a
difficult position when attempting to comply with good practices by
requiring everything to be deposited on the two transactions. He
also referred to Mr. Price's comments about what was voluntary that
day, and what everyone wanted to follow without any enforcement
mandates or provisions, might not be voluntary tomorrow.
MR. BLAKE additionally referred to an issue raised as to
legislation and regulation regarding insurance. He noted the State
of Alaska, through its "insurance department," had sent out a
requirement that all claims to be paid in Alaska by insurance
companies had to be paid on an in-state bank, or carry a cover
letter indicating an in-state bank that would honor that check on
presentation. He stated, "Maybe the consumer issue is being looked
at from other aspects too, because most insurance companies are not
... based in this state. So this is a type of issue that us
Alaskans, so to speak, are concerned with -- not just necessarily
the electronic, but we want to make sure that we get paid for what
we worked hard to obtain and pass on." Mr. Blake then reiterated
support for the legislation.
Number 0787
CHAIRMAN ROKEBERG referred to his concern about the definition of
"items" [page 5, line 9, (6) "item"], specifically as it related to
commission letters, for example. He stated, "When the broker will
have a commission letter that's not -- and the funds are actually
not in hand of the settlement agent (indisc.) are accounted for on
a debit-credit basis. Do we need to expand that as part of the
list of the items, or is that because it's already just accounted
for in the closing statement ..."
MR. BLAKE indicated he didn't feel that was necessary, stating,
"That would be part and parcel as to the credit (indisc.) debit
items within the actual settlement (indisc.)."
CHAIRMAN ROKEBERG said, "Okay, because just to use the word item'
there is actually something that appears in the definition to be
equivalent to a cash or convertible to cash."
MR. BLAKE replied that was his understanding, that that was more a
banking term than an escrow term. He confirmed for the chairman
that other debits and credits like pre-paid insurance, utility
bills, et cetera, were commonly part of the closing statement and
it was his understanding this would be outside the realm of the
legislation's intent. In response to the example of a larger sum
like an earnest money payment held in escrow by a broker which
would be debited against the commission payable, Mr. Blake
indicated he did not think this would be an item under the bill's
definition. He noted, "It would be items that would go on the
settlement statement that would go to the bottom line to determine
who deposits what funds to complete the transaction."
Number 0882
CHAIRMAN ROKEBERG asked Mr. Blake's view on Mr. Lawer's
recommendation to change the definition of settlement agent.
MR. BLAKE indicated he had no objections to that change.
Remembering an additional point, he added, "I hear a lot of concern
about the monies being available and (indisc.) being available, but
in the bill itself ... I think the recording is contingent upon us
having funds necessary to be dispersed at that time." He noted
that didn't necessarily mean the entire purchase price; it was
basically just what the parties had agreed upon. Mr. Blake gave
the example he and the chairman had discussed the previous year of
a $6 million loan on a projected construction project, commenting
that they only needed the lot sale price to be disbursed at the
time they were recording.
Number 0929
CHAIRMAN ROKEBERG indicated that was the reason they were trying to
exclude commercial transactions.
MR. BLAKE noted, in turn, that the disbursement of certain funds by
the settlement agent could be excluded by agreement.
CHAIRMAN ROKEBERG noted, "That would also provide for what would be
typically an individual construction loan for a residence between
an individual and a banking institution ... where there's progress
payments and therefore ... periodic draws against the principal?"
He confirmed Mr. Blake agreed.
MR. BLAKE added, "That would allow that so that your initial draft
could pay for the lot -- the bank would not have to disburse the
whole construction loan at that point."
Number 0974
REPRESENTATIVE MURKOWSKI confirmed they were discussing page 2,
lines 22 through 26, on disbursement of escrow money, subsection
"a" [Sec. 34.80.040(a)].
Number 1008
D.J. WEBB, Past Legislative Affairs Committee Chair and Past
President, Alaska State Escrow Association; Senior Escrow Officer,
First American Title of Alaska, testified via teleconference from
Anchorage in support of HB 13. She stated the escrow association
had been striving for the legislation for several years and was
very appreciative of the chairman's sponsorship. Ms. Webb noted,
"Buyers and sellers normally come to the escrow table expecting
that all parties are complying with the rules of escrow. Escrow's
where monies and documents are deposited with a third party so that
there could be no withdrawal of those items." She commented that
the general public was not familiar with the lenders not funding
into escrow and was quite surprised when funds were not available.
Ms. Webb said she thought HB 13 was important to get the lenders on
the same rules of escrow: the funds have to be available before
the transaction is recorded.
MS. WEBB stated she did not think it was out of line to expect
Alaska to follow suit with the other western states which have
enacted the "good funds regulation." She noted real estate has
always been an extremely competitive industry and customer demands
often dictate business practices. It has not been unusual for a
lender to specify compliance with their nature of business. She
indicated she did not think that simply having the title companies
all agree to a certain practice would alleviate that pressure from
lenders. She stated they wanted a safe area for real estate
transactions to occur, commenting they felt the passage of HB 13
was very important to ensure that consumer protection, so that all
industry players were on the same set of rules.
Number 1142
CHAIRMAN ROKEBERG confirmed there were no other witnesses wishing
to testify on HB 13, noting some materials had been received from
the Kodiak Legislative Information Office (LIO) to be included in
the bill packet. The chairman announced the public testimony on HB
13 was closed. He stated he would entertain a "conceptual"
amendment to page 5, subsection 8, beginning on line 20.
REPRESENTATIVE HALCRO moved that the committee make an amendment to
the proposed CS on page 5, subsection 8, line 20, by deleting the
wording "a loan during the term of the loan" and inserting
"indebtedness", per Mr. Lawer's recommendation.
Number 1212
CHAIRMAN ROKEBERG asked if there were any objections to the
amendment. There being none, Conceptual Amendment 1 was adopted.
Number 1228
CHAIRMAN ROKEBERG himself moved a conceptual amendment on the
definition of "residential real property" on page 5, subsection 7,
beginning on line 14. He offered the deletion of the wording on
line 14 after "fewer" and before "if" to the end of the paragraph,
deleting, "if the real property has one or more other buildings,
those buildings may not contain dwelling units and may not be used
for commercial purposes;". The chairman said he thought this
confused the issue and asked "that the drafter add clarifying
language to permit wholesale activities and to make sure that such
attached housing as condominium developments are not swept into an
exclusionary portion of the definition." He asked if there were
any objections to Conceptual Amendment 2.
Number 1297
REPRESENTATIVE BRICE confirmed the language to be deleted.
CHAIRMAN ROKEBERG indicated he thought the testimony emphasized
that wholesale activities should not be proscribed, and attached
housing like condominiums should be covered.
Number 1372
CHAIRMAN ROKEBERG asked if there were any objections to the
amendment. There being no objections, Conceptual Amendment 2 was
adopted. The chairman asked the will of the committee regarding
the legislation.
REPRESENTATIVE BRICE questioned whether the chairman wished to make
any changes to the definition of "item" on page 5, regarding
letters of credit or possibly other issues.
CHAIRMAN ROKEBERG indicated he felt the testimony of Mr. Blake
showed for the record the issue had been addressed and there was
clarity on that.
Number 1438
REPRESENTATIVE CISSNA asked if the DCED had any recommendations on
HB 13.
CHAIRMAN ROKEBERG noted the department was in attendance at the
meeting and confirmed no one from the department wished to make any
comments. The chairman indicated there had been some concern from
the department about the supervision of the bill's provisions,
stating, "But we have actually even given them the right to
regulate but they don't have to take it up, and there is a private
cause of action here - that was the intention of the sponsor - we
do not want to create a bureaucracy. ... The question that
revolves around the issue of whether or not the industry itself
could be self-policing ... I think is a valid question, and I,
certainly for one philosophically, particularly, do not want to add
[an] additional clause to the bill. But it seems to me because of
interstate commerce and the competition from outside financial
institutions, that if we don't codify this in our statutes as the
other western states have, we will be putting our institutions in
a situation where they weren't being competitive on an equal basis.
In other words, there could be mortgage companies and even
independent escrow agents that were not members of the Alaska
association who conduct themselves as they so desired with no
constraints." Indicating his dislike of additional laws and
regulations, the chairman, however, stated it was clear from the
evidence and the testimony that there was a need in the commerce of
the state to be able to provide this type of protection to
individuals.
Number 1553
REPRESENTATIVE HALCRO indicated he thought, from comments attached
to the fiscal note, that the DCED was concerned about some
liability against the state for not supervising in the case of
loss. He asked if the chairman felt the department would be
protected by the ability given, but not mandated, to regulate.
CHAIRMAN ROKEBERG replied he did not care to speculate on the
potential legal liabilities of the state "for omission, given this
litigious nature of society. We can only hope and pray that they
won't." The chairman indicated he was not aware of any instance
where the failure to regulate in that regard, in the absence of
anything else, showed liability. He noted there were many areas of
private conduct and commerce in the state that were not regulated
at all.
Number 1620
GINNY FAY, Legislative Liaison, Office of the Commissioner,
Department of Commerce and Economic Development, came forward to
testify. She stated the committee could address this situation one
way by changing on page 2, line 2, the "shall" to "may" [current
language: "The department shall supervise the compliance of
settlement agents with the provisions of this chapter ...."]. Ms.
Fay noted she interpreted the current language as obligating the
department to supervise if there was a complaint. Ms. Fay also
offered an alternative solution, if the committee was concerned
about excessive regulation bureaucracy, of deleting bill sections
34.80.070 and 34.80.080 completely, so there could be no confusion
that it would be a civil process not involving the DCED. She noted
the department would not have any problems with that deletion.
Number 1672
CHAIRMAN ROKEBERG commented he would be happy to debate that,
questioning whether staff had any objections to the removal of
those two bill sections. The chairman stated he would entertain a
motion to delete those two sections if the committee wished to do
so.
Number 1721
REPRESENTATIVE BRICE indicated he thought there was a certain
amount of value to allowing a consumer in this situation to
approach the department as an intermediary step rather than filing
a lawsuit, given the problems with the court system as it was. He
confirmed the chairman's comment that it provided more work for the
department.
CHAIRMAN ROKEBERG stated, "... providing the private cause of
action ... that's why I left it in ..."
REPRESENTATIVE BRICE noted, then, on the other hand, what the
alternative was. He said the next step was the courts and referred
to the backlog of judicial cases. He said it might be that the
department could be able to act as an arbiter in a controverted
case to minimize the problems.
Number 1807
CHAIRMAN ROKEBERG commented that the department had bee kind enough
to provide a zero fiscal note, stating he would be the first to
recognize there was a potential for the DCED to take up a complaint
if it came forward. He noted this, in essence, did equate to some
cost. On the other hand, he indicated Representative Brice had
made the other argument, which was why that had been left in the
bill.
REPRESENTATIVE BRICE continued, asking how many times per year this
situation would occur. He confirmed the chairman felt it would not
happen that often.
CHAIRMAN ROKEBERG indicated the importance was that the Alaska Land
Title Association was making a change of practice he felt they
would not have been comfortable making without the accompanying
legislation. He noted the practice itself would be self-policing
and he said it would be a rare occurrence.
REPRESENTATIVE BRICE added, "And if it's a rare occurrence they
should be able to handle it fairly easily, and if they can't, it
goes to the courts."
CHAIRMAN ROKEBERG indicated he didn't feel the change from "shall"
to "may", or the deletions of sections 070 and 080, would be a
seriously damaging blow to the legislation, noting he felt it was
probably a carry-over from last session and things had changed
somewhat since that time.
Number 1923
REPRESENTATIVE HALCRO stated he would support deleting sections 070
and 080 simply because he didn't think they wanted the DCED to
become the "Better Business Bureau." However, he indicated he
thought the more serious concern was that, with the inclusion of
language stating the DCED shall supervise, when one of these cases
did occur and went to court because a resolution could not be
reached, the state would be named as liable. Representative Halcro
indicated it would only take one case. He added he thought if the
department was comfortable deleting those two sections, the
committee should do so. He indicated he felt that if it was a
private cause of action, the parties should be allowed to "battle
it out" without the state's involvement, adding he felt the
department should not be involved at all if it was not given any
authority.
Number 1993
REPRESENTATIVE MURKOWSKI said she would echo Representative
Halcro's comments. She noted the "teeth" in the legislation was a
civil penalty. She also referred to the bill's language that said
the department could not audit the records of the settlement agent
["Sec. 34.80.070. Department supervision ... However, the
department may not audit a settlement agent's records and accounts
unless a person who is party to an escrow transaction of the
settlement agent has complained in writing to the department about
the agent's noncompliance with this chapter and the audit is
limited to the records and accounts of the escrow transaction to
which the person is a party."]. Representative Murkowski indicated
she didn't see any reason to include the regulations if they were
not going to be adopted.
Number 2060
CHAIRMAN ROKEBERG confirmed there were no further questions on this
and indicated he would entertain a motion to adopt the suggested
amendment.
Number 2075
REPRESENTATIVE HALCRO moved that the committee strike Sections
34.80.070 and 34.80.080 and the associated references to the DCED
from the proposed CS.
Number 2108
CHAIRMAN ROKEBERG asked if there were any objections to Conceptual
Amendment 3. There being none, the amendment was adopted. The
chairman asked the committee if there was any further discussion on
HB 13. There being none, the chair stated he would entertain a
motion.
Number 2150
REPRESENTATIVE BRICE indicated he was concerned that the changes to
the title were made so it was reflective of the bill.
CHAIRMAN ROKEBERG stated that was their intent.
Number 2199
REPRESENTATIVE HALCRO made a motion to move CSHB 13, version
1-LS0126\D, Bannister, 1/22/99, out of committee, as amended, with
the attached zero fiscal note and individual recommendations.
There being no objections, CSHB 13(L&C) moved out of the House
Labor and Commerce Standing Committee.
Number 2248
CHAIRMAN ROKEBERG called a brief at-ease at 4:47 p.m. as the
committee members signed the bill file. [The length of the at-ease
was not noted.]
ADJOURNMENT
Number 2259
CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing
Committee at 4:52 p.m.
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