Legislature(2007 - 2008)CAPITOL 120
04/27/2007 01:00 PM House JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| HB22 | |
| HB163 | |
| HB194 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 22 | TELECONFERENCED | |
| += | HB 225 | TELECONFERENCED | |
| + | HB 163 | TELECONFERENCED | |
| + | HB 195 | TELECONFERENCED | |
| += | HB 194 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 163 - PROPERTY FORECLOSURES AND EXECUTIONS 1:54:29 PM CHAIR RAMRAS announced that the next order of business would be HOUSE BILL NO. 163, "An Act relating to real property foreclosures, executions, and deeds of trust." [Before the committee was CSHB 163(L&C); included in members' packets was a proposed committee substitute (CS) for HB 163, Version 25- LS0630\K, Bannister, 4/24/07.] CHAIR RAMRAS, speaking as the sponsor, relayed that the genesis of HB 163 was the result of the failure of subprime borrowers. The bill is meant to clarify things for borrowers, lenders, and title companies. He mentioned that in the prior committee hearing it was evident that the lenders and title companies do an able job of looking out for themselves but no one is looking out for the interest of the borrowers once it becomes clear that they are in trouble. No one seems to be the trustee of that [home] equity when a borrower is going to lose their property. Once a borrower is in trouble and it is clear the property was going to be lost, there is often equity in the property with which neither the lender nor the title company is concerned, beyond that which the bank was reimbursed. 1:57:09 PM REPRESENTATIVE DAHLSTROM moved to adopt the proposed CS for HB 163, Version 25-LS0630\K, Bannister, 4/24/07, as the working document. REPRESENTATIVE GRUENBERG objected for the purpose of discussion. REPRESENTATIVE LYNN declared he may have a possible conflict of interest as he is a licensed real estate broker. REPRESENTATIVE HOLMES also declared a possible conflict of interest, as she is a real estate attorney. REPRESENTATIVE GRUENBERG objected, thus requiring Representatives Lynn and Holmes to participate in any necessary voting. 1:58:11 PM JANE W. PIERSON, Staff to Representative Jay Ramras, Alaska State Legislature, sponsor, remarked on behalf of Representative Ramras that current Alaska statutes on foreclosures are antiquated, ambiguous, unclear, and prone to litigation. House Bill 163 would clarify, simplify, and modernize, as well as reduce litigation. Currently, the process of foreclosure is one that allows auction on the courthouse steps. At this point, there is a group, which she characterized as "bottom feeders," who regularly attend these auctions, purchase the properties with the intention of making a quick sale, and don't really care about the neighborhoods surrounding the foreclosed properties. House Bill 163 would make property foreclosure auctions more open and accessible. It would benefit borrowers, lenders, title insurers, individuals, and neighborhoods. The bill was drafted using examples from the best practices of 11 other states. Currently banks are averaging a loss of $20,000 per foreclosure. This bill would clarify how dispersal of excess income from the sale would go back to the borrower, and would require properties to be listed on the internet and in the newspaper. This increased exposure would attract more bidders to bring up the price, purchase homes, and repay more money to the borrowers. MS. PIERSON, referring to Version K, relayed that the versions of the bill on both sides of the legislature are moving simultaneously and similarly. The title was changed to remove "post office" as a place of notification, because some post offices no longer want to post public notices. CHAIR RAMRAS added that another change was such that the bill used to say "three months" and now says 90 days. 2:03:50 PM REPRESENTATIVE GRUENBERG removed his objection. CHAIR RAMRAS indicated that Version K was now before the committee. CHAIR RAMRAS went on to explain that the Internet offered a wider base to bring in more potential buyers, and that Version K addresses the issue of more competition for distressed real estate; the issue was "who is looking out for the borrower, who's already in trouble." It is fair to anticipate, as these issues sweep across the country, that these problems will emerge in Alaska. CHAIR RAMRAS stated that when a loan rate goes up significantly, the borrower cannot afford the higher rate, and so is then forced to try to find a new loan. However, because the market could then be much tighter, the borrower may have difficulty finding a new loan, and yet the borrower cannot afford his/her current loan at the higher rates, but may have equity in their home. By creating more clarification for timelines and broadcasting the notice of de-fault, this will better protect the consumer. REPRESENTATIVE GRUENBERG asked for a sectional analysis of the bill. 2:08:51 PM STEPHEN ROUTH, Attorney at Law, Routh & Crabtree, APC, mentioned that his field of expertise is real estate finance and the foreclosure process, and that he has written and spoken nationwide on matters relating to non-judicial foreclosures. His office has identified several areas of foreclosure law that could be made more efficient, fairer, and less prone to litigation. This bill addresses many of these areas. Section 1 deletes the requirement of public posting at post offices. It has become impossible to post at some post offices due to the interpretation of federal regulations by postmasters that one cannot post these kinds of notices inside post offices. His office suggested, instead of requiring three public places including a post office, just requiring three public places, none mandated to be a post office. REPRESENTATIVE GRUENBERG referred to a bill regarding election notices from a few years ago, and acknowledged that the concept of posting in public places, especially in larger places, may be anachronistic. He asked whether such posting is helpful in the foreclosure field, or whether something besides posting on the Internet, in addition, should be done. MR. ROUTH offered that his experience showed the most effective method was through the Internet. REPRESENTATIVE LYNN asked what would constitute a "public place." MR. ROUTH responded that this is not specifically defined in statute. However, in practice, in most judicial districts, this would include any public building, a state court house, and the post office. However, as it is not defined specifically in statute, it "could be a tree on the corner, as long as it's public." MR. ROUTH continued discussing Sections 2 and 3. He summarized that both are designed to attract more interest in public foreclosure auctions. The wider publicity would attract more bidders. Section 3 provides a mechanism for "proving up the web site." REPRESENTATIVE GRUENBERG asked how people would find out where the web sites are, both to look at and to advertise on. MR. ROUTH replied that it should be the same way as with legal newspapers. The final arbiters would be the title companies who would provide a list of web sites that qualify. People would most likely learn about these web sites by using a search engine, and typing in the request, for example, Alaska foreclosure notices, or something similar. This would result in a list of sites. MR. ROUTH continued, explaining that Section 3 simply allows for a mechanism to approve a web site, similar to the current system to approve newspapers. Section 4 refers to time limits for reinstatement. It changes some language from three months to 90 days, and also puts a limit of 5 days before the foreclosure auction to reinstate or pay off. The reason for this limit is that one of the most litigation-prone areas of this practice is at the sale. 2:16:41 PM REPRESENTATIVE HOLMES offered that [Section 4] appears to limit the rights of property owners to hold on to their property if they could come up with the money, for example, in the last five days before the sale. REPRESENTATIVE GRUENBERG expressed similar concerns. He pointed out there are some people who might have a temporary problem. He asked whether deleting the phrase "up to five days" and allowing the bill to state "up to the date of the sale", would be alright. MR. ROUTH said he has no objection to such a change. He commented that his experience is that no bank would refuse a payment if it had time to process the payment. This [provision] gives the bank this right, if there is a mix up at the sale, to say it is too late. A last minute flurry can be expensive for the borrower, because the deed of trust says any money spent to protect the security of the deed of trust goes to the borrower's account. He characterized this section as system friendly and efficient adding that he did not feel this section is "borrower hostile." REPRESENTATIVE GRUENBERG commented that the law tries to ensure borrowers are given a fair shake. MR. ROUTH reported that Section 5 clarifies mailing requirements; it proposes to change the language of "grantor" to "trustor" to make it consistent with the rest of the bill. It also clarifies actual possession, an area of some litigation. REPRESENTATIVE GRUENBERG asked whether the term, "actual physical possession," may cause additional litigation, particularly since raw land or similar property is not necessarily subject to actual possession. MR. ROUTH answered that the law has always said "physical possession" or "possession". This proposed change would simply clarify this. There was prior litigation regarding what possession really meant, whether that was inferred possession. Section 5 states, in combination with the change in Section 6, how to deal with determining possession. He went on to detail Section 6, which as a follow on of Section 5, clarified what kind of notice is inferred from possession. The mailing requirement is just one of five types of notices mandated by the statute. Internet notification would be an added type of notice with this bill. Section 6 also speaks about non-possession liens, and cleans up some of the language. REPRESENTATIVE GRUENBERG commented that the [Version] is not a statute of limitations but a conclusive presumption, which is fairly unusual in the law. He surmised that the reason for using conclusive presumption rather than statute of limitations is that the sponsors did not want two parties to waive a statute of limitation that might impact others who might not be privy to that information and are, instead, relying just on the records as to the ownership of the property. MR. ROUTH concurred with that summation. In response to a question, he explained that this is an area of litigation that can unsettle title to real estate. This provision sets a time limit regarding complaints pertaining to affidavits of posting. He recognized the conclusive presumptive is not often used, but if one had complied with the requirements of the statute, then one could not go back and complain about the affidavit. The affidavit is considered to be correct after one year. This allows real property settlements; record title to real property could be relied upon. 2:25:22 PM REPRESENTATIVE GRUENBERG voiced that a statute of limitations can be waived in civil cases by the parties involved, but a conclusive presumption cannot be waived. He said he assumes this is a good policy. MR. ROUTH agreed with Representative Gruenberg, stating the issue is to get to the same place of settling the title of real estate. MR. ROUTH continued the overview of Section 6: the procedure on delivering notice if the property is raw land or inaccessible; the procedure if the borrower is deceased and the necessity of extra notices; and clarification of who could bring an action to restrain a trustee sale. MR. ROUTH went on to discuss Section 7: what happens with the proceeds from a sale and that it is mandated that the proceeds go into escrow until dispersal. He explained that Section 7 allows the trustee to accept bids in places which are in addition to the court house steps, such as by telephone, internet, and e-mail, as long as the trustee has taken steps to ensure that those methods are workable and would result in fair access for people. It is designed to allow money for dispersal to be available immediately after the sale. MR. ROUTH continued with Section 8: confirmation of the present practice that agents for the trustee may conduct the foreclosure auction. Section 9 clarifies the procedure on postponing a sale. REPRESENTATIVE GRUENBERG referred to Section 8, and asked whether the rules and conditions for the conduct of a sale must be made available in advance. MR. ROUTH responded that yes, in practice the published notice of sale that is mandated by statute would contain some information. Currently, the practice is to have the rules read prior to the opening of the auction. This bill would clarify that the current system, which works well, would continue. REPRESENTATIVE GRUENBERG questioned who will qualify an Internet bidder. MR. ROUTH responded that this qualification process would be left to the discretion of the trustee. He continued by explaining an already tested solution: the bidder would go to a bank and put money on deposit and that deposit would be made instantly available and transferable to the trustee. MR. ROUTH continued on to Section 9, which dealt with the procedure of postponement of a sale. REPRESENTATIVE DAHLSTROM asked who would be responsible for the maintenance and security of the property during a postponement, and who would be responsible for that expense. MR. ROUTH explained the reason for the postponement would be that the borrower is still in the house and is simply trying to work out a payment plan. This situation would not involve a vacant property. He said he could think of no reason for a vacant property sale to be postponed. In general, the lender doesn't have a right to access the property. REPRESENTATIVE DAHLSTROM asked who would make that determination for the postponement of a sale, referred to in Section 9. MR. ROUTH relayed that this decision would come from the lender. Current law determines that the lender can postpone for any period of time, for any reason. The change in law would also protect the borrower with the requirement to give new notice. 2:35:52 PM MR. ROUTH went on to explain Section 10, which clarifies the division of the proceeds of a sale, and addresses the unwinding of a foreclosure auction should a mistake occur in the process. Sections 11 and 12 clarify the substitution of trustees. Section 13 requires a bond on foreclosure trustees, since currently foreclosure trustees have no fiscal responsibility requirements. MR. ROUTH, in response to a question from Representative Coghill, said that one bond exemption is for title underwriters and one exemption is for the agents of the underwriters, because both are already licensed through the state. REPRESENTATIVE COGHILL asked if these are the only exceptions to the bonding. REPRESENTATIVE GRUENBERG asked whether the bond amount of $250,000 would be adequate in all cases. He suggested, instead, a bond amount tied to the value of the property. MR. ROUTH explained the bond was not per transaction but for each trustee. He agreed that the bond might not be enough but since currently there is no bond requirement, it might be good to have an incremental approach. He continued to explain that bonding companies feel this is a reasonable bond which the companies are comfortable bonding. 2:40:19 PM REPRESENTATIVE GRUENBERG remarked that this bond amount might not be enough to satisfy the cumulative claims. MR. ROUTH acknowledged that this could be the case, since the bond is per trustee, not per property. The bond requirement is similar to current contractor bond requirements. To have a bond requirement per sale, the sale cost to the borrower would go up so much that it wouldn't be workable. As there is no current requirement, this would be a modest first step. REPRESENTATIVE GRUENBERG added that this bond would be in force and cover all claims made through the statute of limitations on any action against the trustee. He asked what the statute of limitations would be for the bond coverage. MR. ROUTH replied he is not sure there is an endpoint for these bonds. His basic understanding, though, is that the bond would be period to period. REPRESENTATIVE GRUENBERG questioned whether there should be a requirement that a bond be in force until the end of the statute of limitations. MR. ROUTH agreed that a "tail period" would be a good requirement, but not at this time. He said he would prefer to see how the current proposal works, particularly given that nothing currently exists. [HB 163 was held over.]
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