Legislature(1993 - 1994)
01/18/1994 01:35 PM Senate L&C
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SENATE LABOR AND COMMERCE COMMITTEE
January 18, 1994
1:35 p.m.
MEMBERS PRESENT
Senator Tim Kelly, Chairman
Senator Steve Rieger, Vice-Chairman
Senator Bert Sharp
Senator Georgianna Lincoln
Senator Judy Salo
NO MEMBERS ABSENT
COMMITTEE CALENDAR
SENATE BILL NO. 206
"An Act relating to real property transfers."
PREVIOUS SENATE COMMITTEE ACTION
SB 206 - See Labor & Commerce minutes dated 8/10/93.
WITNESS REGISTER
David Sommers
Alaska Association of Realtors
913 Noble Street
Fairbanks, Alaska 99701
POSITION STATEMENT: Supported SB 206.
Joe Russo
Greater Fairbanks Board of Realtors
913 Noble Street
Fairbanks, Alaska 99701
POSITION STATEMENT: Supported SB 206.
Bill Allen
Greater Fairbanks Board of Realtors
P.O. Box 73765
Fairbanks, Alaska 99707
POSITION STATEMENT: Supported SB 206.
Karl Schroeder
Real Estate Agent
1199 Viewpointe
Fairbanks, Alaska 99709
POSITION STATEMENT: Supported SB 206.
Greg Erkins
Alaska Association of Realtors
Greg Erkins Realty
3340 Arctic Blvd
Anchorage, Alaska 99503
POSITION STATEMENT: Supported SB 206.
Mark Korting
RE/MAX PROPERTIES, INC.
2600 Cordova Street
Anchorage, Alaska 99503
POSITION STATEMENT: Supported SB 206.
Rick Hunter
500 N. Main Street
Wasilla, Alaska 99654
POSITION STATEMENT: Supported SB 206.
Frank Michel
4901 E. Parks Highway
Wasilla, Alaska 99654
POSITION STATEMENT: Supported SB 206.
ACTION NARRATIVE
TAPE 93-1, SIDE A
Number 001
CHAIRMAN TIM KELLY called the Labor and Commerce Committee
meeting to order at 1:35 p.m.
SENATOR KELLY returned SB 206 (RESIDENTIAL REAL PROPERTY
TRANSFERS) to committee and distributed a proposed committee
substitute for consideration.
SENATOR KELLY directed his aide, JOSH FINK, to give an
overview of the committee substitute.
MR. FINK explained the Committee Substitute for SB 206 would
remove real estate professionals from liability for "innocent
misrepresentation" in real property transactions. He quoted
the Alaska Supreme Court Ruling in 1982 in Bevins v. Ballard
that brokers who make an "innocent misrepresentation" to a
purchaser of real property are liable for the misrepresention,
but SB 206 proposes this ruling puts an unjustified liability
on real estate professionals.
MR. FINK said SENATOR KELLY agreed with the dissenting opinion
by JUSTICE CONNOR, which reads, "When a realtor acts as a mere
conduit for passing on information supplied by the seller, he
should be under no duty independently to verify that
information unless he has reason to believe the information
to be false. ... Allowing an innocent representation action
against the broker in such circumstances is quite close to
imposing strict liability. There is no reason to make the
broker the 'insurer' of the seller's representations."
MR. FINK quoted a Supreme Court ruling in 1984 in State of
Alaska, Real Estate Commission v. Myrna Johnson and Eva Loken
stating the Alaska Surety Fund does not cover innocent
misrepresentation claims. This has made errors and omissions
insurance for real estate professionals more expensive and
difficult to obtain in Alaska. Additionally, he said the
passage of HB 298 last year, requiring detailed written
disclosures in residential real property transfers as of July
1st, have substantially increased brokers' liability risk.
MR. FINK explained written disclosures provided by the seller
to the broker, then forwarded by the broker to potential
buyers, could place liability on the broker for any
misrepresentation the seller makes.
MR. FINK concluded the overview by explaining SB 206 would
overturn the Court's decision in Bevins v. Ballard, and remove
an agent's liability for innocent misrepresentations as it was
prior to 1982.
MR. FINK noted the change in the committee substitute with the
addition of "transferor or" on line 6.
Number 051
SENATOR KELLY said the Trial Attorneys had sent a fax opposing
SB 206.
Next, SENATOR KELLY turned to the teleconference network to
invite DAVID SOMMERS in Fairbanks to testify.
MR. SOMMERS introduced himself as the president of the Alaska
Association of Realtors, went on record for the association
as supporting SB 206, explained their position, and suggested
a State Insurance Fund to cover problems caused innocently.
SENATOR RIEGER, in reference to the cover page from the
sponsor statement detailing written disclosures by the seller
in a real estate transaction, asked how much of that law would
remain in effect with the passage of SB 206.
MR. SOMMERS said it would remove the liability for what they
do not know.
SENATOR RIEGER asked if the seller is required to fill out the
disclosure and the broker is entitled to rely on that
disclosure unless they have reason to believe something is
wrong.
MR. SOMMERS said he was correct and explained what would still
be expected of a real estate agent in the State of Alaska.
Number 093
SENATOR RIEGER expressed curiosity as to the "due diligence"
requirement on a broker if SB 206 passes.
MR. SOMMERS said it would include anything that could be
ascertained by the agent in looking at the building, some
mandatory paper work completed by the seller, and any general
knowledge of the area.
SENATOR RIEGER asked if the "due diligence" was codified any
where, or just case law that has evolved over time.
MR. SOMMERS believed it was case law, but he didn't have a
legal answer.
SENATOR SALO asked an additional question of MR. SOMMERS as
to whether a "due diligence" included an engineer's report.
MR. SOMMERS explained they wouldn't necessarily know if an
engineer's report exists, unless it is disclosed; however, he
said it was common to recommend such a report in any case.
SENATOR KELLY then called on JOE RUSSO in Fairbanks.
MR. RUSSO, the vice-president for the Greater Fairbanks Board
of Realtors, said the bill was supported by the board.
Next, SENATOR KELLY called on BILL ALLEN, also representing
the Greater Fairbanks Board of Realtors, who referenced HB 298
from last year to protest the cost and the difficulty in
obtaining insurance. He said he didn't think it was fair the
State of Alaska requires the real estate community to be
liable for the seller's representation, and he claimed his
sales commissions did not justify such an exposure to
liability.
MR. ALLEN expressed frustration that Alaska is one of only
three states where real estate professionals are made liable
for misrepresentation.
Last to speak from Fairbanks was KARL SCHROEDER, representing
himself as a real estate licensee, who spoke in support of the
legislation. He mentioned in AS 34.07 there was a disclosure
statement that also contained a provision which could be
waived because of the triple damages.
MR. SCHROEDER explained, as a real estate licensee, he felt
duty bound to disclose problems and suggest remedies he
encountered in his profession. He thought the innocent
representation provision increased the cost of doing real
estate business.
Number 169
Testimony in Fairbanks was concluded, and SENATOR KELLY turned
to the Anchorage LIO to call on GREG ERKINS, Chairman of the
Legislative Committee for the Alaska Association of Realtors.
MR. ERKINS explained he would add to the testimony from the
Fairbanks members protesting the members feel they are being
held liable for information from experts such as surveyors,
inspectors, heating and plumbing employees, appraisers, title
companies, and environmental engineers. He said they were
asking not to be held liable for information from these
persons.
Number 223
SENATOR KELLY explained that SENATOR PEARCE sponsored a bill
that provided, as a form of protection to the public, a
property disclosure form for each time a residential property
was transferred or sold in the State of Alaska. As her bill
went through the process, the innocent representation language
was in the bill. At the request of the realtors, the language
was removed from the bill, and SENATOR KELLY said only two
other states require liability on behalf of real estate
professionals in innocent representation cases.
SENATOR KELLY asked for any other testimony from Anchorage,
and MARK KORTING asked to speak.
MR. KORTING spoke in favor of SB 206, stressing it was a
question of fairness. He described the standards under which
the realtors operate, and said there should be a test of these
standards, but not for the innocent misrepresentation
requirement.
Number 265
SENATOR KELLY referred to the waiver position in testimony
from MR. SCHROEDER and from MR. ALLEN in Fairbanks, saying
there was a provision allowing both parties to agree to waive
the property disclosure form. SENATOR KELLY was not in
complete agreement with the waiver and questioned who would
be liable -the seller or the real estate agent?
SENATOR LINCOLN quoted a statement from a MR. GREEN, who asked
how the public would know which statements from a licensed
real estate professional could be relied upon. She wanted to
know what questions the public should be asking of the realtor
to get all of the information. She thought the waiver was a
good idea, because it would force both parties to understand
the status of the information, but she was still concerned
about the protection of the public.
SENATOR KELLY directed MR. FINK to read the fax from the Trial
Attorneys, because it dealt with the questions from SENATOR
LINCOLN.
MR. FINK read the fax from HAROLD GREEN, representing the
Trial Lawyers to say, "I am submitting this written testimony
on SB 206, which as I understand it, will remove civil
liability for innocent misrepresentation by a licensed real
estate agent in Alaska, and thereby reverse Bevins v. Ballard,
whether or not the process imbued in SB 206 involves real
public policy judgement on the part of this Legislature. Let
us assume that SB 206 were to become law, how will the public
be notified if they can no longer rely on upon certain
representations made by a licensed real estate professional?
Must each real estate transaction contain conspicuous language
such as 'WARNING - YOU SHOULD NOT RELY UPON STATEMENTS MADE
BY YOUR LICENSED REAL ESTATE PROFESSIONALS IN ALASKA.' Or
should the real estate professional be required to start a
conversation with a new perspective client with such a notice?
How will the public be notified if they can no longer rely
upon statements by a licensed real estate professional? How
will the public know which statements from a licensed real
estate professional can be relied upon and which statements
from a licensed real estate professional cannot be relied
upon? Wouldn't it be cruel to pass SB 206 without
concurrently passing expressed notice requirements that
clearly tell the public they should no longer rely on
statements of licensed real estate professionals in Alaska?
Perhaps SB 206 will erode public confidence in our licensed
real estate professionals. Does SB 206 truly benefit the real
estate professional? Does SB 206 benefit the citizens of
Alaska? By HAROLD GREEN, ESQ."
SENATOR KELLY asked if anyone on the Teleconference Network
wanted to answer the argument, and MARK KORTING from Anchorage
asked to try.
Number 318
MR. KORTING thought the real estate agents were already held
to a standard of practice, knowledge, and liability, and the
courts, in the past, have determined these standards. He
didn't think this would change with the wording of the bill,
and he thought the disclosure statement was different from the
innocent misrepresentation statement. MR. KORTING referred
to testimony from MR. ERKINS to prove his point.
SENATOR KELLY wasn't sure he had answered SENATOR LINCOLN
question and asked SENATOR RIEGER for his opinion.
MR. RIEGER said he understood the bill would make the seller
liable under either fraudulence, negligent, or innocent
misrepresentation, but the broker would be liable only under
fraudulence or negligence. He asked MR. KORTING if his
surmise was correct?
MR. KORTING was not clear in his understanding, and MR. RIEGER
wondered what kind of things might occur where there is a
liability on the seller but not on the broker.
MR. KORTING did not think the court would hold the same level
of responsibility against the seller that they would a real
estate agent, since they are expected to know more. He
thought what was being asked in the seller's disclosure form
would be the "best of their knowledge," but not to the same
standard as information from an engineer, attorney, or
architect.
Number 380
SENATOR LINCOLN asked if there was a seller disclosure form
and an agent or broker disclosure form to be signed by the
buyer.
MR. KORTING thought the only disclosure form was the one
filled out by the seller for prospective buyers.
SENATOR RIEGER summarized the points in the legislation giving
protections for the buyer, beginning with the seller filling
out a disclosure form to the best of the seller's knowledge.
The broker or agent would have a "due diligence" liability
that is defined in case law for their investigations. He
concluded by suggesting buyers could hire their own
professional for additional information.
MR. ERKINS asked SENATOR KELLY if he could answer some of the
questions in MR. GREEN'S fax about to whom do we listen when
we work with an agent. He referred to the Bevin's Case to
"the right and duty of inspection," to explain the agents were
not experts in the field, but if the buyer has concerns, then
an appropriate expert should be consulted. He discussed the
provisions of the waiver, treble damages, and earnest money,
and he gave a personal example of problems involving a dead
tree in "innocent misrepresentation."
Number 445
SENATOR KELLY said a good example was the Bevin's Case with
the hassle over the well, and he felt the duty of the real
estate agent was to get the buyer and seller together. He
turned to the MatSu Valley for anyone who wished to testify.
RICK HUNTER, the immediate past president of the Alaska
Association of Realtors and the present Legislative Chair,
testified the "innocent misrepresentation" legislation was
something needed to provide protection for false information
from very reliable sources, and he gave an example of "square
footage" irregularities of buildings in the valley.
MR. HUNTER claimed the agents were merely conduits for
information and thought all parties should check out anything
that looked irregular. He refuted MR. GREEN'S question of
cover-up and explained the agents were going to be as diligent
and professional as possible with the public.
SENATOR KELLY then called on FRANK MICHEL from the MatSu
Valley, who testified as the past chairman of the Legislative
Committee for the Alaska Association of Realtors.
MR. MICHEL responded to the concerns posed by SENATOR LINCOLN
and MR. GREEN, explaining there has to be a certain amount of
integrity in the transaction by an agent, and he claimed there
was no such thing as a perfect answer to every problem in a
real estate transaction. He believed, after research in other
states, that the problem was the lack of insurance on the part
of some real estate agents and brokers. He said the waiver
did not relieve any responsibility, but would increase the
responsibility by the agents. MR. MICHEL said agents were not
experts, but had the duty to pass on information from the
experts to the buyer.
SENATOR KELLY checked the teleconference network for anyone
else wishing to testify in opposition to SB 206. There being
none, he asked for the will of the committee.
Number 499
SENATOR RIEGER moved to adopt the new Committee Substitute for
SB 206 (RESIDENTIAL REAL PROPERTY TRANSFERS). Without
objections, so ordered.
SENATOR REIGER then moved to pass the Committee Substitute for
SB 206 (RESIDENTIAL REAL PROPERTY TRANSFERS) from committee
with individual recommendations. Without objections, so
ordered.
SENATOR KELLY noted SB 206 would be going to the Judiciary
Committee where some of the questions would be examined again.
There being no further business to come before the committee,
the meeting was adjourned by SENATOR KELLY at 2:15 p.m.
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