Legislature(2003 - 2004)
05/06/2004 08:05 AM Senate FIN
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* first hearing in first committee of referral
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SENATE CS FOR CS FOR HOUSE BILL NO. 418(L&C)
"An Act extending the termination date of the Real Estate
Commission; relating to real estate; relating to home
inspectors; relating to real estate licensees; and providing
for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that this bill, SCS CS HB 418 (L&C), Version
23-LS1548\Q, is sponsored by the House Labor & Commerce Committee
and Representative Norm Rokeberg and would extend the Real Estate
Commission until June 30, 2008. In addition, he noted that the bill
would further clarify the State's Home Inspector law. He specified
that a Department of Community and Economic Development fiscal note
accompanies the bill.
JANET SEITZ, Staff to Representative Norm Rokeberg, the bill's
sponsor, informed the Committee that in addition to extending the
life of the Real Estate Commission until 2008, this legislation
would clarify existing procedures regarding real estate licenses
and notice procedures as recommended in the Alaska Division of
Legislative Audit, Audit Digest #08-20023-03 [copy on file]. She
explained that this bill would also change language to address
issues arising from the enactment of the 2003 Home Inspector
legislation, HB 9, as recommended by the Regulation Writing
Procedure and the Home Inspector industry.
RUTH BLACKWELL, Realtor and Representative, Alaska Association of
Realtors, informed the Committee that the Alaska Association of
Realtors (AAR) supports extending the life of the Real Estate
Commission. On another matter, she pointed out that AAR is in favor
of a forthcoming amendment that would reduce the real estate surety
fund award to a claimant from the $20,000 level specified in the
Senate Labor & Commerce (L&C) version of the bill to its current
level of $10,000.
Co-Chair Wilken asked which amendment would address the surety bond
issue.
Ms. Seitz responded that it would be addressed in forthcoming
Amendment #3.
Ms. Blackwell explained that with the exception of the year 2003
when the number of surety claims amounted to fourteen, the average
number of claims has been three or five claims a year. She stated
that during her most recent tenure as a Board member of the Real
Estate Commission, it was noted that few surety claim hearings were
heard due to the fact that the Commission has limited access to the
lone surety fund hearing officer, who is shared with another
entity. She stated that AAR recommends that the Committee continue
the $10,000 surety bond level and allow time for a process to be
developed to "fix the system so that the public is served." She
argued that increasing the surety bond to $20,000 would result in
an increase in the number of claims filed which would escalate the
problem regarding the scheduling of hearings.
Ms. Blackwell informed the Committee that AAR has, in place for its
members, a mediation, arbitration, and professional standards
hearing system that has conducted 60 hearings within the last year.
She voiced optimism that some manner of processing hearings to
better serve the public could be developed through a cooperative
effort between the Commission, the Department of Community and
Economic Development, and the AAR.
Co-Chair Wilken stated that when Amendment #3 is discussed, AAR's
support of it would be noted.
Senator Dyson asked whether AAR supports the licensing of home
inspectors.
Ms. Blackwell affirmed that it does.
Senator Dyson asked the methodology used by AAR to reach this
conclusion.
Ms. Blackwell explained that AAR conducted a poll of its various
boards and that information was provided to the AAR Legislative
Committee, which consists of a minimum of one member from each of
the other AAR boards. She noted that AAR has monitored, discussed,
and provided input regarding the Home Inspector bill for
approximately four years.
Senator Dyson asked whether 99 percent or 60 percent of realtors
support the licensing of Home Inspectors.
Ms. Blackwell responded that the answer would depend on the area
being polled as, she disclosed, the City and Borough of Juneau and
several other communities in the State do not have either licensed
or unlicensed home inspectors. She commented that, Juneau, for
instance, instead utilizes licensed engineers as, she noted, it is
felt that "their license was better than ours." However, she
disclosed that access to licensed inspectors would be acceptable as
their service would be less expensive than that of a licensed
engineer. In summary, she surmised that a minimum of 75 to 80
percent of the Association's members support licensing Home
Inspectors.
CHARLES SANDBERG, Realtor and Representative, Alaska Association of
Realtors, testified via teleconference from Anchorage, and informed
the Committee that he, a realtor for 17 years, was formerly the
National Director of the National Association of Realtors and is
currently a member of the Professional Standards Committee on the
national, State, and local Anchorage Board and Association level.
He also disclosed that he is an arbitrator on the AAR Hearing
Panel. This panel, he shared, is a very effective system that
resolves disputes between both consumers and consumers and between
consumers and realtor members. He stated that the AAR Hearing Panel
is less expensive to operate and is more efficient system than the
system utilized by the Commission and, in addition, has a 95-
percent resolution history. In contrast, he avowed that the Surety
Fund claim process is slow and resolves less than 10 percent of the
claims that are filed. He stated that none of the fourteen Surety
Fund claims that were filed in 2003 were heard, as compared to the
AAR process in which 60 claims were filed and processed.
Furthermore, he noted that the AAR system usually addresses and
resolves disputes in two to four months; whereas, the Commission's
hearing system process might require several years. Echoing Ms.
Blackwell's comments, he urged that the Surety Fund claim limit be
rolled back, via Amendment #3, from $20,000 to $10,000, and allow
the appropriate parties to review and determine a more effective
manner through which to deal with the issues.
Amendment #1: This amendment inserts new bill sections into the
bill on page two, following line 20. The new language reads as
follows.
Sec. 3. AS 08.18.071(a) is amended to read:
(a) Except as provided in (d) and (e) of this section,
each [EACH] applicant shall, at the time of applying for a
certificate of registration, file with the commissioner a
surety bond running to a state conditioned upon the
applicant's promise to pay all
(1) taxes and contributions due the state and
political subdivisions;
(2) persons furnishing labor or material or renting
or supplying equipment to the applicant; and
(3) amounts that may be adjudged against the
applicant by reason of negligent or improper work or breach of
contract in the conduct of the contracting business or home
inspection activity, as applicable, or by reason of damage to
public facilities occurring in the course of a construction
project.
Sec. 4. AS 08.18.071 is amended by adding a new subsection to
read:
(d) A general contractor or specialty contractor who is
in compliance with the surety bond or deposit requirements of
(a) and (b) of this section is not required to file another
surety bond or increase a deposit with the commissioner when
the general contractor or specialty contractor applies to be a
registered home inspector. However, if the general contractor
or specialty contractor subsequently is neither a general
contractor nor a specialty contractor and becomes only a
registered home inspector, the home inspector shall provide a
surety bond or deposit in lieu of the bond in the manner and
amount required for registered home inspectors under this
section.
(e) An applicant for, or holder of, a certificate of
registration as a home inspector may, in lieu of filing with
the commissioner a surety bond or deposit that meets the
requirements of this section, file evidence satisfactory to
the commissioner that the applicant is employed by a
registered home inspector who is in compliance with the surety
bond or deposit requirements of this section.
Co-Chair Green moved to adopt Amendment #1.
Co-Chair Wilken objected for explanation.
Co-Chair Green noted that one issue not resolved by the passage of
HB 9, was how to deal with home inspectors who are not employees of
a city or borough and who conduct the majority of the home
inspections.
Co-Chair Green informed the Committee that by restoring some of the
original language pertaining to home inspections, the amendments
she would be offering today would assist in alleviating the
unintended consequences resulting from the passage of HB 9.
Co-Chair Green stated that Amendment #1 "would correct" provisions
established by HB9 that require each home inspector to be
individually licensed, to provide a surety bond, and to have a
general liability insurance policy. These requirements, she
continued, require an individual to acquire "multiple bonding and
insurance requirements" in such situations as when a home inspector
business owner employs one or more persons who are also registered
home inspectors, or when a general or specialty contractor also
wishes to be a registered home inspector. She voiced the
understanding that the current requirements result in multiple
layers of requirements that are unnecessary in that they would not
provide any additional protection. She stated that Amendment #1
would change the provisions so that an owner/home inspector's
coverage would not be duplicated.
Ms. Seitz informed the Committee that Representative Rokeberg
supports Amendment #1, as it would address the "dual bonding"
concern. She exampled that currently a specialty contractor who
also desires to be licensed home inspector is required to acquire
two bonds, and she continued, this dual bonding requirement also
applies to a owner/employee situation in which both the employee
and the owner are currently be required to have a bond.
Senator Dyson asked whether there is a national home inspector
association.
Co-Chair Green understood that there is; however, she would defer
to the industry to provide further information.
Senator Dyson specified that he "did not agree" with the State
being involved in the licensing of home inspectors and, voicing
support for "eliminating that entirely." He asked whether this
amendment would eliminate the licensing requirement and replace it
with a registration requirement.
Ms. Seitz responded that the amendment retains the requirements
established by HB 9 that specify that a home inspector be required
to register in a manner "similar to a license, but it's not called
a license, it's called a registration."
Senator Dyson asked whether meeting the standards of the national
organization would serve to quality someone as a licensed
inspector.
Ms. Seitz stated that once the transitional licensing period, that
allows someone to be qualified in the profession based upon a
certain number of years' experience, has expired a person would be
required to pass certain examinations.
Senator Dyson asked whether the examinations would be administered
by the State or by a professional organization.
Ms. Seitz responded that the tests would be administered by
professional testing agencies.
Co-Chair Green referred to language in Section 2, subsection (a)
(1) (A) on page one, line 13 through page two, line two, of the
bill that reads as follows.
(A) existing home is the examination offered by the American
Society of Home Inspectors, [AMERICAN HOME INSPECTORS TRAINING
INSTITUTE,] or National Association of Home Inspectors;
Co-Chair Green noted that this legislation would require an
applicant to provide additional information as denoted in Section
2, subsection (a)(3)(B), located on page two, line nine, that reads
as follows.
(B) accompanied by documentation that the applicant has
completed continuing education requirements established by the
department;
Co-Chair Green clarified that this amendment does not address the
registration requirements as they are addressed elsewhere in the
legislation.
Co-Chair Green stated that forthcoming Amendment #2 would address
other issues that have resulted from the enactment of HB 9.
DAVE OWENS, Owner, Owens Inspection Services, testified via
teleconference from an offnet site and explained that his business
conducts both residential and commercial inspections. He discussed
the "stumbling blocks" that he and his business have experienced as
a result of HB 9's licensing requirements, in that, in addition to
the "problematic" dual bonding requirement, he, who has been
accredited in the home inspection business for numerous years, was
denied his license because he had not been tested in all applicable
categories within a year prior to his licensing application.
Mr. Owens also requested that the AS 18.56.300(c) provision, as
would be addressed in a forthcoming amendment, remain in Alaska
Housing Finance Corporation (AHFC) statutes.
Mr. Owens asked the Committee to address the dual bonding issue as
well as to determine a method through which the Department of
Community and Economic Development could recognize qualifying
certifications in lieu of when a test was undertaken.
Senator Dyson asked for clarification that while Mr. Owens remarks
referenced licensing requirements in his remarks, he was, in fact,
speaking to the registering requirements.
Mr. Owens concurred that he was speaking in regards to the
registration requirements.
Senator Dyson commented that although he would not require further
discussion at this time, he would be interested, at some time, in
further clarification between the difference in registration,
certification, and licensing.
Co-Chair Wilken removed his objection.
There being no further objection, Amendment #1 was ADOPTED.
Amendment #2: This amendment deletes "Section 44(e), ch. 134, SLA
2003, is" and replaces it with "Sections 41, 42, 44(e), and 47, ch.
134, SLA 2003, are" in Section 11, page five, line two.
Co-Chair Green moved to adopt Amendment #2.
Co-Chair Wilken objected for explanation.
Co-Chair Green explained that this amendment would reestablish the
AS 18.56.300 (c) provision, as earlier mentioned by Mr. Owens, that
was repealed by HB 9. She noted that a home inspection is required
for either the purchase of home through AHFC or for the
implementation of a housing loan for residential housing
constructed after June 30, 1992 with AHFC. She noted that AHFC
ascertains that this would apply to approximately "thirty to forty
percent of the market share of mortgage lending for single family
residential dwellings." Furthermore, she noted that subsection (c)
limited the liability of a home inspector performing the
requirements of subsection (b) to gross negligence and intentional
misconduct. Therefore, she stated, removal of subsection (c) served
to "expose home inspectors to greater risk of legal actions against
them for which a prudent business owner would require professional
liability or errors and omissions insurance." Furthermore, she
informed that this insurance is unavailable in Alaska, as confirmed
by the Division of Insurance. Therefore, she stated, HB 9 required
home inspectors to seek an unobtainable product. She stated that
the bill's sponsor concurs with this amendment.
Co-Chair Wilken removed his objection.
There being no further objection, Amendment #2 was ADOPTED.
Amendment #3: This amendment deletes "one year" and replaces it
with "three years" in Section 2, subsection (3)(A), on page two,
line seven of the bill. The amended language would read as follows.
(A) within three years after passing the examination required
under (1) of this subsection; or
In addition, the amendment would delete Section 6, on page three,
lines 12 through 22, which proposes changes to the claim level
associated with the Surety Fund.
Co-Chair Green moved to adopt Amendment #3. She stated that the
first portion of the amendment would address Mr. Owens' concern
regarding testing and registration time limitation requirements by
increasing the one-year time window to a three-year window.
Co-Chair Green noted that the second portion of the amendment has
been suggested by various individuals and would serve to delete the
Senate Labor & Commerce bill's language pertaining to the Surety
Fund.
Co-Chair Wilken objected for clarification.
Co-Chair Wilken requested that Amendment #3 be divided into
Amendment 3A and 3B.
There being no objection, Amendment #3 was divided.
Amendment #3A: This amendment deletes "one year" and replaces it
with "three years" in Section 2, subsection (3)(A), on page two,
line seven of the bill. The amended language would read as follows.
(A) within three years after passing the examination required
under (1) of this subsection; or
Co-Chair Green moved to adopt Amendment #3A.
REPRESENTATIVE NORM ROKEBERG, the bill's sponsor, concurred with
the proposed language.
Co-Chair Wilken removed his objection.
There being no further objection, Amendment 3A was ADOPTED.
Amendment #3B: This amendment deletes Section 6 which is located on
page three, lines 12 through 22 of the bill. The language being
deleted reads as follows.
Sec. 6. AS 08.88.470 is amended to read:
Sec. 08.88.470. Findings and payment. At the conclusion
of the commission's consideration of a claim made under AS
08.88.460, it shall make written findings and conclusions on
the evidence. If the commission finds that the claimant has
suffered a loss in a real estate transaction as a result of
fraud, misrepresentation, deceit, or the conversion of trust
funds or the conversion of community association accounts
under the control of a community association manager on the
part of a real estate licensee, the commission may award a
claimant reimbursement from the real estate surety fund for
the claimant's loss up to $20,000 [$10,000]. Not more than
$20,000 [$10,000] may be paid for each transaction regardless
of the number of persons injured or the number of parcels of
real estate involved in the transaction.
Co-Chair Green moved to adopt Amendment #3B.
Co-Chair Wilken objected.
Co-Chair Green stated that the Senate Labor & Commerce committee
adopted this language, and that there has been support for
continuing the $10,000 surety fund level.
Senator Bunde, Chair of the Senate & Labor Committee, asked whether
the removal of the entire section would serve to eliminate the
Surety Fund in its entirety.
Ms. Seitz responded that removal of this section would serve to
retain the current language of the section; specifically, she
stated, its removal would assure the continuance of the $10,000
Surety Fund claim level.
Representative Rokeberg commented that he supports this amendment,
as it would address the concerns raised by AAR. He echoed the
comments regarding the limited availability of the hearing officer,
and characterized the situation as not being "very workable." He
stated that currently the Surety Fund could be utilized to
reimburse injured parties for cases involving misrepresentation,
fraud, or deceit. He stated that were the limit to increase to
$20,000, the cases would be "more appropriately addressed by the
judiciary system" due to the high cost involved. He also noted that
claims at that level should be adjudicated in the Court System
rather than via the hearing office system. Furthermore, he opined,
increasing the level to $20,000 might result in an increase in the
number of claims. He noted that separate legislation is being
considered that would increase the current damages amount allowable
in Small Claims Courts.
Representative Rokeberg stated that the Surety Fund was originally
developed to "simplify the process to the consumer, but he opined,
the system is currently "more complicated and more expensive," and
that, in the case of a "frivolous claims," the licensee is
"required to expend a large amount of money for legal fees in order
to defend himself and achieve a dismissal." He concluded that
increasing the amount of the Surety Fund would be wrong in that, in
reality, the entire "system needs to be reformed" rather than
"making it more attractive to go the wrong way." He acknowledged
the AAR hearing process that allowed 60 cases to be addressed and
rectified in a short amount of time.
Senator Bunde stated that he respectfully disagreed and objected to
the amendment. He provided Members with a handout on Surety Bonds
titled "A Selection of Other States with State Administered Real
Estate Recovery Funds" [copy on file], that compares Alaska to
other states. He noted that Alaska with a $10,000 Surety Bond
requirement is one of approximately four states with the lowest
level. Furthermore, he declared that the majority of other states
have an established level of $20,000 or more, which, he attested,
has not "destroyed" their real estate industry.
Senator Bunde declared that the Committee should pay more attention
to the recommendations of the Legislative Budget & Audit division.
He pointed out that as specified in the aforementioned Legislative
Audit report in Recommendation #1, on page 11, the $10,000 claim
limit was established in 1974 statute. Furthermore, he noted that
the Surety Fund statute language was amended in 1998 to specify
that licensees would not be required to pay a Surety Fund fee
greater than $125 to support the Fund. He also noted that Statute
requires a minimum Surety Fund balance of $250,000 and a maximum
fund balance of $500,000, and that the Commission determines a fee
level to support these amounts. In addition, he noted that during
the auditing period, the Fund balance maintained a level close to
$500,000. He stated that the current $30 fee is sufficient to
support the statute requirements. He declared that increasing the
claim level to $20,000 would have minimal impact on the licensee,
and that consideration should be equally given to the impact on the
consumer, as he continued, while the last five successful Surety
Fund claim payments were at the $10,000 level, all of those alleged
losses exceeded that amount. Therefore, he supported the Audit's
recommendation to increase the level from $10,000 to $20,000. He
reiterated his objection to the amendment.
Representative Rokeberg informed the Committee that while the
primary purpose of the Surety Fund is to support awards to
consumers, it's secondary use is to provide funds for educational
purposes such as those associated with a restructuring of a
licensing law. He stated that the Fund balance is healthy due to
the manner in which the fund's fees are managed.
Senator Olson asked whether the amendment would result in costing
the consumer more or might serve to make the claim process more
complicated.
Representative Rokeberg replied that the amendment would result in
neither of these concerns, as it specially pertains to the ceiling
on the level of a Surety Fund award that might be determined.
Representative Rokeberg declared that the Surety Fund would also be
available to support any claim awarded by the Superior Court that
fits the Fund's established criteria. He stated that the fund is
there to protect the consumer against such things as "a fly-by-
night builder." He reminded the Committee that testimony has been
provided attesting to the fact that a higher award level might
attract people as it might be viewed as "a pot of money."
Senator Bunde respectfully disagreed. He contended that passage of
this amendment would cost the consumer, as he noted that the legal
cost associated with pursuing a claim via the Superior System would
be expensive, and that increasing the limit to $20,000 would allow
the claims to be addressed via the hearing process. Furthermore, he
noted that $10,000 is a small percentage of the cost of a home in
today's market.
Senator Olson asked whether the sponsor agrees with Senator Bunde's
comments.
Representative Rokeberg stated that while he does not agree with
Senator Bunde's comments, he would agree that the level has not
been adjusted for some time.
PAT DAVIDSON, Director, Legislative Budget & Audit, spoke to
Recommendation #1 which recommends increasing the claim limit from
$10,000 to $20,000. She stated that this recommendation was based
on a review of claims submitted through the hearing process during
the four-year audit period. All of those claims, she stated,
exceeded $10,000 and all but one was less than $20,000. She stated
that the recommendation is also based on the fact that the limit
had not been raised since its inception in 1974. These facts,
combined with the health of the Surety Fund and the fee limit of
$125, which assure that no excessive costs would be borne by a
licensee, support increasing the claim limit increased to $20,000.
Ms. Davidson shared that, in addition to the $10,000 individual
transaction limit, the Audit's recommends that the overall maximum
limit be increased from $50,000 to $100,000 due to the fact that a
licensee could be involved in multiple transactions. However, she
noted that, unlike the supporting history regarding the individual
claim levels, there was no history regarding the overall maximum
limit.
Representative Rokeberg suggested that in order to address the
inflation factor concern and the Audit's concerns, the individual
claim limit could be adjusted to $15,000.
Amendment to Amendment #3B: This amendment retains Section 6 and
reduces the maximum amount of a Surety Fund claim from $20,000 to
$15,000, as specified on page three, lines 20 and 21 of that
section.
Co-Chair Green moved to adopt Amendment #3B, as amended.
There being no objection, Amendment #3B, as amended, was ADOPTED.
Representative Rokeberg noted that this legislation and its
amendments were necessitated in order to address regulatory making
process requirements. He stated that while he did not agree with
many of those interpretations, they required addressing.
Co-Chair Green thanked the sponsor for his assistance in developing
this legislation as it has addressed numerous constituent concerns
Co-Chair Green moved to report the bill, as amended, from Committee
with individual recommendations and accompanying fiscal notes.
There being no objection, SCS CS HB 418(FIN) was REPORTED from
Committee with zero fiscal note #2, dated March 25, 2004, from the
Department of Community and Economic Development.
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