SB 122-REAL ESTATE TRANSFER FEES/TITLE INSURANCE    3:23:11 PM CHAIR OLSON announced that the first order of business would be CS FOR SENATE BILL NO. 122(L&C), "An Act relating to research on and examination of titles; relating to residency requirements for title insurance limited producers; relating to real estate transfer fees; and providing for an effective date." 3:23:17 PM DANA OWEN, Staff, Senate Labor & Commerce Committee, Alaska State Legislature, of which Senator Dennis Egan is the chair, referred to CSSB 122(L&C), Version I, which passed the Senate. He explained the bill's purpose is first, to ensure that the real property titles researched and issued in Alaska have an Alaska perspective. He explained that many businesses want to perform work outside the U.S. and regularly solicit business in Alaska. The title insurance industry has expressed concern that allowing companies outside the state to perform title searches could result in imperfect real property titles in Alaska. This bill would ensure that at least some company located in Alaska has reviewed the title. Second, SB 122 would eliminate a practice - also eliminated in approximately 40 other states - related to transfer fee covenants. He offered that transfer fee covenants allow the original seller of real property to gain a fee in perpetuity each time the real estate transfers ownership. He noted this practice was first outlawed in 1857 in New York, when the New York courts ruled it to be a "vestige of feudalism." It has not become a significant issue in the state, but this bill would eliminate that possibility. 3:26:13 PM MR. OWEN reviewed the changes made to SB 122 in the Senate. He referred to page 1, lines 7-9, of SB 122, which requires title insurance be issued by a title insurance limited producer. He offered that the Division of Insurance's director, Linda Hall, could provide more detail; however, this provision would require that in order to acquire a title insurance for a limited producer's license the business must be located in the state and be open to the public. He acknowledged that this provision will not guarantee that an Alaskan will run the title insurance business, but it is probably as close as the state can get to ensure an Alaskan will be involved. He referred to Section 2, which states that the title insurance limited producer cannot obtain a license unless the producer is a resident of the state. He acknowledged that this provision is controversial. He referred to members' packets to a memorandum from the bill drafter who expressed doubt as to whether this provision would pass constitutional muster. Still, the sponsor chose to leave the provision in the bill. He referred to Section 3 to the title transfer fee covenants, which remains unchanged; however, he understood a proposed committee substitute (CS) - which the committee may take up today - does change this provision. 3:28:17 PM REPRESENTATIVE MILLER referred to page 2, line 8. He said he assumed the use of "state" refers to the State of Alaska, although the language does not specify which state. MR. OWEN answered that this is an issue that did not arise previously. He also assumed that since the provision falls within Alaska's statutes that it refers to the State of Alaska. He had no objection if the committee wished to clarify that point. 3:29:28 PM REPRESENTATIVE MILLER made a motion to adopt Conceptual Amendment 1, on page 2, line 8, at the end of the sentence to read, " ... a resident of the State of Alaska." REPRESENTATIVE THOMPSON objected for the purpose of discussion. REPRESENTATIVE HOLMES pointed out that she has no objection since Conceptual Amendment 1 is a conceptual amendment; however, she offered her belief that the term "state" is frequently used and the term is not generally specified as the State of Alaska. REPRESENTATIVE MILLER agreed if the use of "state" without specifying "Alaska' is the current convention and it is understood as meaning "State of Alaska," that further clarification would not be necessary in the bill. CHAIR OLSON wondered if "state" would be capitalized in State of Alaska. MR. OWEN understood that the bill drafters tend to minimize using capital letters. REPRESENTATIVE HOLMES clarified the intention of Conceptual Amendment 1 is to make sure that the provision means the State of Alaska and if Conceptual Amendment 1 is not necessary, that the drafter should follow the normal drafting procedures in this provision of SB 122. REPRESENTATIVE THOMPSON withdrew his objection. There being no further objection, Conceptual Amendment 1 was adopted. 3:31:31 PM REPRESENTATIVE SADDLER asked how many people will be "aced out" of the title insurance business by limiting it to companies that meet the definition. MR. OWEN answered that he was uncertain. He commented he has heard assertions that some people may not be able to go into business; however, the sponsor crafted the language to minimize any impediments to market entry. He elaborated that some proposals in the original bill would have substantially extended the time and requirements to maintain title plant records, but these provisions are no longer in the bill. He concluded that the sponsor hopes that the bill has eliminated some impediments, but in direct answer to how many businesses would be affected he said he could not estimate. 3:33:22 PM REPRESENTATIVE JOHNSON asked how many title insurance companies currently operate in the state. MR. OWEN answered eight or nine title insurance companies operate in Alaska. He suggested Director Hall may be able to answer more accurately the number. CHAIR OLSON noted Director Hall is indicating by shaking her head that she does not know for certain either. 3:33:41 PM REPRESENTATIVE JOHNSON asked whether competition would be limited and also whether the cost to obtain title insurance information will rise if the competition is being eliminated since a limited number of companies currently issue title insurance. MR. OWEN responded that he did not believe that would be the outcome. He suggested it may have been the result in the original bill, but changes to SB 122 have carefully been crafted so that will not be the case. CHAIR OLSON remarked that his office has been contacted by only two title insurance companies. MR. OWEN remarked that the sponsor has heard from several more companies than that. In further response to Chair Olson, he thought the title companies were happy with the bill. 3:34:47 PM REPRESENTATIVE JOHNSON made a motion to adopt the proposed committee substitute (CS) for SB 122, labeled 27-LS0789\D, Bailey, 3/19/12, as a working document. CHAIR OLSON objected for the purpose of discussion. 3:35:29 PM MR. OWEN explained the changes in Version D. He referred to page 2, lines 15-16 of Version D, which read, "(1) payable on a one-time basis only on the next transfer of the interest in real property;" and explained the intent of this provision is to eliminate transfer fee covenants. He acknowledged that he has reviewed paragraph (1) several times and mistakenly interpreted it to mean that the first time the property was sold the fee could be charged. He now interpreted this provision to mean when real property is sold and the transfer fee is collected that each time the property is sold another transfer fee can be collected. However, he related that is not the sponsor's intent. He offered the sponsor's support for the changes in the proposed CS, Version D. 3:36:26 PM CHAIR OLSON removed his objection, and therefore Version D was before the committee. He then announced that public testimony on SB 122 will be kept open. 3:36:45 PM [SB 122 was held over.]