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." REPRESENTATIVE NORMAN ROKEBERG explained that HB 13 was submitted at the request of the Alaska State Escrow Association and was reintroduced in an effort to assure consumers that their money would be safely received in a timely manner, and properly accounted for when delivered to a settlement agent for a residential real property transaction. Currently, there are no Alaskan laws addressing that concern. He continued, an increasing number of incidents have occurred demonstrating the need for Alaska to join the large number of states having "good funds" legislation. 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 companies to properly fund transactions in a timely fashion or in some cases left with bankruptcy. Representative Rokeberg summarized that when drafting the bill, he worked with various interest groups and financial institutions throughout Alaska. Representative Rokeberg advised that the bill had been rewritten, resulting from an attached fiscal note in a previous Committee hearing. The new version would eliminate the regulatory necessity of the Department of Commerce and Economic Development to oversee that particular chapter of law. Representative Foster MOVED to adopt work draft 1-LS026\M, Bannister, 2/19/99, as the version before the Committee. There being NO OBJECTION, it was adopted. Representative Rokeberg explained the changes to the work draft: ? Amendment #1, addressed on Page 2, Line 5, language after "transaction agreement" was deleted. ? Amendment #2 was not addressed in the proposed bill since that particular section "Civil Penalty" was replaced by "Civil Action" on Page 3, Lines 22-27. That section removes all departments from the legislation and makes the violation of the "good funds act" a private right of action. ? Amendment #3 was withdrawn. ? Amendment #4 was addressed on Page 6, Lines 28-29; however, the definition has also had the following language added after "dwelling units", as "any number of apartments are in a horizontal property regime formed under AS 34.07 or any number of unites if the unites are in a common interest community created under AS 34.08". ? Amendment #5 deals with the "Civil Penalty" section that has been changed to the "Civil Action" section. ? Amendment #6 was pending, however, all references to the Department of Commerce and Economic Development, its supervisory authority, investigative authority, and regulation making authority are deleted from Version M. Also, deleted is reference to the referral to the attorney general's office if voluntary compliance was not obtained. ? Amendment #7 deals with the "Civil Penalty" section that is no longer in the legislation. ? Amendment #8 is not needed as the removal through the Department of Commerce and Economic Development since there are no provisions for an audit. Representative Bunde asked why the bill addresses only residential property and not commercial property. Representative Rokeberg explained that because of the large amounts of money involved in commercial transactions and the different funding mechanisms, those projects were excluded. The primary focus of the legislation is consumer protection issues related to residential properties. Representative J. Davies requested further information regarding exclusion of "punitive damages". Representative Rokeberg replied that the intent was to provide a cure for grievance by allowing a private right of action. If there is a breech, then private right presides. Representative J. Davies advised that the reality is that these situations sometimes do get litigated and that there are circumstances in which punitive damages make sense. Representative Rokeberg replied that happens only in instances where the money has been reserved in trust. The concern here is that the money is available at the time of recording. Representative Rokeberg pointed out that each time there is a property closing, there are two contracts involved; ? The contract with the buyer and seller of the property; and ? The contract between the buyer and the lender. Co-Chair Therriault clarified that an escrow agent must have the funds in hand and under control before the transaction of the title can take place. Representative Rokeberg explained that previously, they were recording before the money was in hand and it was not determined who was in charge of carrying the "float". Representative J. Davies noted that when an agent violates the proposed law, the resulting remedy is civil court. Representative Rokeberg replied that in some cases, the Title Company could be sued for not following the law. At this time, there is no law, so there is no cause of action before them. Co-Chair Therriault clarified that the proposed legislation would make it easier to bring forward a civil action. Representative J. Davies advised that either the Department of Law would be paid to do the work or it would rest upon the Alaska Court System. Representative Rokeberg responded that is what the Courts are to be used for. He suggested that this action would begin a mini privatization. Representative J. Davies referenced Page 2, Line 6, asking what "segregation" of the money meant. Representative Rokeberg explained the intent is that the funds are not commingled. Representative J. Davies understood that it meant having different bank accounts. He emphasized that the two statements specify keeping separate bank accounts. Representative Rokeberg stated that Subsection (a) provides for the segregation and Subsection (b) provides for the account. Co-Chair Therriault acknowledged the confusion caused by the wording. Representative G. Davis suggested that there must be a system within the banks, which segregates or separates the accounts. Co-Chair Therriault noted that the discussion before the Committee was if there was one account or a separate escrow account for each transaction. He suggested that a legal drafter be consulted to clarify the language. Representative Grussendorf additionally, voiced concern with the language and recommended that someone from the Division of Banking testify regarding these procedures. Representative Rokeberg clarified if Committee members were concerned if segregated meant separate accounts. Co-Chair Therriault stated that the Committee needed clarification if segregation would be a bookkeeping function rather than separate account. (Tape Change HFC 99 - 42, Side 2). Co-Chair Therriault reiterated that the issue needs to be clarified. He requested that legal counsel comment on the concern. Co-Chair Therriault questioned if the House Finance Committee would need to prepare a zero fiscal note to accompany the legislation. HB 13 was HELD in Committee for further consideration. 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." Representative J. Davies MOVED to adopt Amendment #1. [Copy on File]. Representative Rokeberg noted that he would accept the amendment in the spirit of clarification. There being NO OBJECTION, Amendment #1 was adopted. Representative Foster MOVED to report CS HB 13 (FIN) with individual recommendations and with the fiscal note. Co- Chair Therriault advised that the fiscal note would be the front page only of the previous fiscal note. There being NO OBJECTION, it was so ordered. CS HB 13 (FIN) was reported out of Committee with "do pass" recommendation and with a new House Finance Committee zero fiscal note.