Legislature(2007 - 2008)BELTZ 211
03/05/2008 01:30 PM Senate JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| SB273 | |
| HB163 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 273 | TELECONFERENCED | |
| + | HB 163 | TELECONFERENCED | |
| + | TELECONFERENCED |
CSHB 163(JUD)-PROPERTY FORECLOSURES AND EXECUTIONS
CHAIR FRENCH announced the consideration of HB 163
2:12:28 PM
JANE PIERSON, staff to Representative Ramras, sponsor of HB 163,
reminded committee members that they heard the companion bill,
SB 18. She explained that HB 163 will clarify and modernize the
antiquated and ambiguous statutes on non judicial property
foreclosures. The hope is that more open and accessible
foreclosure auctions will benefit borrowers, lenders, title
insurers, individuals, and neighborhoods, and help soften the
impact that foreclosures can have on an economy. Best practices
from 11 other states were used to draft the bill. She noted that
banks in Alaska currently lose about $20,000 per foreclosure
sale.
CHAIR FRENCH asked if someone could elaborate on where the loss
comes from. Ms. Pierson deferred the question to Stephen Roath.
MS. PIERSON highlighted that HB 163 would improve the
foreclosure process by making the following changes:
· Clarify how the proceeds from a foreclosure auction can be
distributed.
· Assure that foreclosure trustees are fiscally responsible
by imposing reasonable bond requirements.
· Create deadlines to deter unnecessary delays.
· Allow trustees to nullify sales when mistakes have been
made that would negatively affect the integrity of a sale.
· Establish procedures involving deceased borrowers.
· Create rules to govern times and methods for posting
foreclosure sales.
· Create Internet publication procedures.
· Define when rights are terminated in the foreclosure
process.
· Allow acceptance of foreclosure auction bids via email,
Internet, and telephone.
2:16:03 PM
SENATOR WIELECHOWSKI asked if there are significant differences
between HB 163 and the companion Senate bill that the committee
heard last year.
MS. PIERSON replied one of the few differences is in Section 4,
which sets a time limit to cure a default of up to two days
before the sale rather than five days. Other than that, there
were no substantive changes.
DENNIS FENERTY, Attorney at Law, Groh Eggers, LLC, said he has
represented lenders for 23 years and has been involved in many
foreclosure sales. HB 163 is a good bill, but he has concern
with Section 2 related to Internet advertizing of foreclosure
sales. As presently written, the qualifications for the Internet
websites would exclude the Anchorage Daily News (ADN) and the
Alaska Journal of Commerce (AJC) because neither of those
classified ad websites is used primarily to advertize real
property under foreclosure. Both sites are instead generally
used for all classified advertizing. Disqualifying those would
not be a good outcome. It's in the best interest of both the
lender and the borrower to have competing websites because that
tends to reduce advertizing costs. "That certainly was the case
when the Alaska Journal of Commerce was recognized as an
acceptable publication for newspaper ads," he said.
2:19:59 PM
MR. FENERTY said he has no idea whether the required 5,000
visits per month is realistic for either of the aforementioned
papers. But as an attorney who represents lenders and conducts
foreclosures, he is interested in having a site where he can
place the required Internet advertizing. He suggested the
committee amend Section 2 by striking subsection (c)(3), and
reducing the required visits in subsection (c)(5) so that
present advertisers would qualify.
CHAIR FRENCH asked Ms. Pierson if she wanted to address either
issue. She deferred to Mr. Roath for a response.
2:21:47 PM
SABRINA FERNANDEZ, Attorney at Law, Default Services Alaska
(DSA), said she has done many foreclosure sales over the years.
The title company she currently works for recently formed DSA to
act as a trustee to conduct non judicial foreclosure sales. She
is testifying today to object to Section 2 because it will make
it difficult for new companies, like DSA, to act as trustees.
The Internet publication conditions under subsection (c)(4) and
(5) become onerous for newspapers and servicers such as AHFC,
banks, title companies and attorneys. None of those business
websites could be used to get foreclosure sale information out
to the public so that more people would attend a sale. She
surmised that no website other than Alaska Trustees would
qualify for the Internet publication conditions. Other
qualifications could be established to readily allow other
websites to pop up using simple Google-type searches, she said.
CHAIR FRENCH asked Mr. Routh to address the concerns voiced
about Section 2 in addition to his overall view of the bill.
2:24:44 PM
STEPHEN ROUTH, Attorney at Law, Routh & Crabtree, APC, stated
support for HB 163. He's conducted many foreclosure sales over
the years and has the perspective of the Alaska market and seven
other states. This bill is an attempt to do best practice
legislation and take innovative steps with regard to
foreclosures.
MR. ROUTH explained that the qualifications in Section 2 mirror
the minimum circulation requirements that currently apply to
newspapers. Those are in current statute, he said. The
requirement to have 5,000 visitors each month isn't a lot. He
suspects that four or five websites would qualify now, and more
will follow. He pointed out that the newspapers won't be
impacted because this doesn't remove the requirement for the
printed publication as part of the foreclosure process. The
Anchorage Daily News and the Alaska Journal of Commerce, for
example, will derive fees from print media and they'll continue
to place ads on the Internet without mandate. The only thing
that changed in that area is that companies that specialize in
getting the message out to prospective bidders will be
encouraged to step into the market.
2:28:03 PM
CHAIR FRENCH asked if this bill is the same as the one Senator
Bunde introduced and the committee heard last year.
MR. ROUTH said it's the same with the exception of the two areas
of change that Ms. Pierson identified. The reinstatement period
was shortened from five days to two days and the other change
occurs in Section 5. The term "grantor" was changed to "trustor"
for consistency.
2:29:22 PM
DAN NICHOLSON, representing himself as a private real estate
investor from Anchorage, said he has invested in foreclosures
for about 10 years. In addition to buying and selling foreclosed
real estate at tax sales and trustee sales, he's also acted as a
trustee in a trustee foreclosure sale. Referring to Section 2 of
the bill, he noted that the notice of a sale must be posted in
three public places, but it doesn't define what a public place
is. That should be spelled out, he said. Posting at the
courthouse ought to be one of the requirements and the post
office might still be a possible option. Turning to the Internet
website requirements, he said he doesn't know if Mr. Routh
mentioned that he owns a website that, as it happens, is
probably the only one that would meet the qualifications in this
bill. For that reason he questions whether the qualifications
would do anything other than enhancing that business.
2:33:13 PM
MR. NICHOLSON suggested expanding the Alaska online public
notice website to include the mandatory public foreclosure
notices. He reviewed the new provisions to AS 34.20.080(a) in
Section 7, and said he doesn't see how it will be possible to
have a courthouse auction and also take bids by telephone, the
Internet, and electronic mail. Keeping all the bidders abreast
of what's happening seems unworkable in this kind of
environment. He suggested that the requirement to take bids by
phone, Internet, and electronic mail should either be deleted or
amplified so the procedure is a matter of law.
2:36:52 PM
MR. NICHOLSON referred to Section 10 and said he's pleased that
the procedures for distributing the cash proceeds of a sale
according to priority will become a matter of statute. His
concern relates to the trustee having to find and inform the
various parties that there are excess proceeds. The notice could
include a clause that the parties need to check on whether or
not there are excess proceeds. The parties of interest have all
been notified so perhaps the various note holders, lien holders,
mortgage holders, and beneficiaries of the trustee should be
given a certain statutory time in which to submit a claim. That
could be an additional clause in the notice.
2:40:45 PM
MR. NICHOLSON turned to AS 34.20.080(f)(3), Section 10, that
says "the trustor's successor in interest whose interest appears
of record at the time of the foreclosure sale," and observed
that, as a matter of law, a deed doesn't need to be recorded in
order to be effective. Recording does establish a priority of
claim. A trustor could sell his or her interest in the property
for consideration, but that interest may not be recorded before
the foreclosure sale so he'd like "appears of record" to be
struck.
2:44:20 PM
MR. NICHOLSON said Section 13, which amends AS 34.20, by adding
section .125, deals with the required trustee bond. When he was
a trustee he had no difficulty doing the foreclosure and he
doesn't believe there is a need to require a surety bond.
MR. NICHOLSON observed that distribution of excess proceeds
isn't addressed in the bill.
CHAIR FRENCH asked him to email his suggestions for possible
inclusion in the bill as an amendment.
MR. NICHOLSON agreed to do so.
CHAIR FRENCH asked Mr. Routh if he'd like to address the points
that Mr. Nicholson raised.
2:48:16 PM
MR. ROUTH mentioned the request for a definition for public
place and said that the statute currently mandates posting in a
post office and two other places. This bill removes the post
office requirement because postings are often no longer allowed
there. Since post office regulations and state law don't comply,
this cleans up that area of existing statute. With respect to
Section 2 and providing notice on an Internet website, he said
he doesn't own or know about the website Mr. Nicholson
mentioned. He explained that the Internet advertizing process is
intended to widen the potential pool of individuals who would
show up at an auction. That works to everyone's benefit because
any funds that are left over go to the borrower. He believes
that the more notice the better, the wider the audience the
better, and the higher the bids the better. If the price goes
beyond the cost of the foreclosure and the amount that is due
the excess money goes to the borrower.
With respect to the concern that was voiced about escrow funds
in Section 7, he said the goal of trustees should be to maximize
bidding at the sale for the protection and benefit of the
borrower. As a trustee you should take every opportunity to get
bids in and qualified. This will make it a more reasonable,
open, efficient, and transparent process.
2:51:48 PM
CHAIR FRENCH clarified that he is saying a trustee would have
the obligation to lay out the ground rules before the sale and
if telephone bids are going to be accepted, they'd be accepted
by anyone provided he or she could make the money immediately
available for disbursement.
MR. ROUTH agreed. He sees no reason why someone in New York
can't bid on property in Homer. "Anybody can bid from anywhere
as long as it's cleared funds that are available [and there is]
a process for the funds to be brought in in a fair, open, and
competitive process."
SENATOR WIELECHOWSKI asked how many other states allow telephone
or Internet bidding.
MR. ROUTH replied he believes some states allow bids by
telephone with similar protection language with regard to
cleared funds being available. This would probably be a first
for allowing Internet bidding, he said.
MR. ROUTH said Section 10 relates to title insurers in Alaska
and the bill proposes a common-sense way for handing out funds
after a sale. This would take away the opportunity to litigate
on who gets the money. With respect to the comment that it
wouldn't be fair that an unrecorded interest wouldn't be aware
of a foreclosure process, he said that's how equity skimmers
operate and it's not a good thing. Anyone who takes a deed from
a homeowner in distress should make a legitimate deal and record
that deed. "Don't hide the deed and then claim foul that you
somehow didn't get notice of the sale because you hid your
interest," he said.
2:55:07 PM
MR. ROUTH said the thinking is similar for trustee bonds in
Section 13. Trustee defalcation hasn't happened in Alaska yet,
but it will, he said. There's no requirement that funds be
placed in a trust account or escrowed and there's no requirement
of a bond so it's open season for hurting someone. This bill
seeks to get ahead of that happening. The suggested language is
the result of conversations with bonding companies about
reasonable cost and what would work in this environment.
CHAIR FRENCH asked if there's a model act on this topic.
MR. ROUTH said not that he's found.
SENATOR WIELECHOWSKI asked who typically acts as a trustee and
if this potentially hurts small businesses that couldn't get a
$250,000 bond.
MR. ROUTH replied he doesn't believe this would hurt anyone.
Title companies, attorneys, and law firms typically serve as
trustees. Being a trustee is nothing to step into lightly.
Valuable rights that are conveyed away in this process and there
ought to be some minimum level of competence.
2:57:49 PM
CHAIR FRENCH asked what the cost might be to obtain a bond.
MR. ROUTH recalled that it wasn't at all onerous.
CHAIR FRENCH assumed that the requirement would apply to anyone
who wants to be a trustee.
MR. ROUTH said title insurers are exempt. They're already
licensed by the state to issue title insurance, and that's
probably why they have a statutory waiver on the escrow bond.
There are no other exceptions.
SENATOR WIELECHOWSKI observed that currently he could help a
friend by serving as a trustee, but if this passes he'd need to
pay $5,000 for the surety bond.
MR. ROUTH said if he's representing his friend as the
beneficiary, the way it typically works now is that the title
insurance company would be the trustee in the foreclosure sale.
3:00:15 PM
MR. FENERTY commented that the trustee is tasked with duties to
the lender and the borrower and therefore is supposed to fairly
fulfill the duties under the deed of trust in both directions.
As an attorney he represents the lender, and he would rarely if
ever agree to be a trustee because he doesn't want to owe duties
in both directions. It's his practice to use title companies to
act as a trustee.
MR. FENERTY highlighted that three witnesses voiced concern
about the requirements for an Internet website and that it's
likely that not a single site in Alaska qualifies. He said he
knows that Mr. Routh has a regional multi-state site that may
qualify. He asked the committee to pay attention and make sure
that not just one site qualifies, effectively shutting out
competition.
CHAIR FRENCH held HB 163 in committee.
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