SB 122 - REAL ESTATE TRANSFER FEES/TITLE INSURANCE  2:45:10 PM VICE CHAIR THOMPSON announced that the next 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." [Before the committee was HCS CSSB 122(L&C).] 2:45:57 PM DANA OWEN, Staff, Senator Dennis Egan, Alaska State Legislature, on behalf of the sponsor of SB 122, the Senate Labor and Commerce Standing Committee, which is chaired by Senator Egan, explained that SB 122 would limit who may conduct searches and examinations of title to only licensed title insurance limited producers, would statutorily stipulate that only residents of Alaska may be issued such licenses, and would preclude the use of transfer fee covenants. On the latter point, he relayed that in 1852, the courts in New York outlawed transfer fee covenants, describing them as a vestige of feudalism, and that since then, 41 other states have also outlawed the practice. In addition to outlawing the use of transfer fee covenants in Alaska via Section 3, the bill is also intended to address concerns that future imperfections in title could result if title searches/examinations are performed by people who don't live in Alaska. Specifically, Section 1 of the bill would require that all title searches be done through licensed title insurance limited producers, and Section 2 would require that such licenses be issued only to residents of Alaska. He acknowledged, however, that the drafter has pointed out that Section 2 could potentially be ruled unconstitutional by the court; each of the prior committees of referral discussed this issue but chose to retain Section 2 in the bill regardless. REPRESENTATIVE GRUENBERG suggested that a severability clause be added to the bill if the aforementioned language remains. MR. OWEN said the sponsor would not object to the addition of a severability clause, and noted that members' packets contain [memorandums] from Legislative Legal and Research Services addressing the issue of Section 2's constitutionality. 2:51:56 PM KIMBERLY GLISSEN, General Manager, Alaska Escrow & Title Insurance Agency, Inc., said she is in favor of SB 122, specifically, Sections 1 and 2 because she believes steps must be taken to keep jobs local and prevent outsourcing, and Section 3 because of the savings it will provide to consumers. Overall, she opined, SB 122 will help protect jobs, consumers, and property owners in Alaska. 2:53:49 PM CHRIS NEWBILL, Manager, Ketchikan Title Agency, Inc., testified in favor of SB 122 and said she concurs with the testimony of Ms. Glissen. REPRESENTATIVE GRUENBERG noted that the aforementioned memorandums in members' packets are dated February 15, 2012, and March 15, 2012; and, in response to a question, explained that the term, "provision" as used in Section 3 of SB 122 refers to a provision in the document that conveys real estate. 2:57:17 PM MICHEAL PRICE, Co-Owner, Mat-Su Title Insurance Agency, Inc.; Co-Owner, Fidelity Title Agency of Alaska, after mentioning industry-associated positions he's held within the Alaska Bar Association (ABA) and the Alaska Land Title Association (ALTA), testified in support of SB 122, and expressed disagreement with the drafter's comments in the aforementioned memorandums that Section 2's proposed residency requirement might be found unconstitutional. Noting that his company gets solicitations from people in foreign countries to conduct title searches/examinations of property in Alaska, concurred that the intent of the bill is to require those who conduct such searches/examinations of property in Alaska to be Alaska residents and thereby be subject to Alaska law. He offered his understanding that 13 states have passed a similar residency requirement, and said he thinks Alaska has the right to do so as well since no waiting period is required in order to become a resident. In conclusion, he too noted that 41 states now ban [transfer fee covenants], and asked that Alaska do so as well. 3:06:06 PM ROGER FLOERCHINGER, Owner, President & CEO, Yukon Title Company, Inc., testified in support of SB 122 as currently written and stressed the importance of providing for what he termed "Alaska hire." 3:08:07 PM STEPHAN ROUTH, Attorney at Law, Routh Crabtree Olsen, P.S. - mentioning that he's owned title agencies in Washington, Oregon, Idaho, California, Nevada, Arizona, and Hawaii - said he has concerns about Section 2 of SB 122, but characterized Section 3's proposed ban on transfer fee covenants as something that should have been instituted long ago. With regard to Section 2, he noted that in the aforementioned memorandums, the drafter has said in part: "In my opinion, it seems likely that a court construing the proposed residency requirement would find the provision unconstitutional". He said he appreciates the suggestion to insert a severability clause into the bill, but opined that a better approach - from a financial perspective, given the high cost associated with litigating constitutionality issues - would be to simply delete Section 2. Referring to an earlier comment, he said his research shows that only [8] states still have a specific residency requirement, and that the trend is for states to instead move away from having such a requirement. Regarding the concern about outsourcing title searches/examinations to people in other countries, he offered his belief that nothing in the bill would prevent that from occurring, because the bill addresses the issue of licensure - not the actual work itself. In conclusion, he again suggested that Section 2 be removed from SB 122. 3:14:20 PM CRYSTAL PELTOLA, Vice President & General Manager, Alaska USA Title Agency, concurred with Mr. Routh's testimony and stated support of Section 3 of SB 122, but expressed concern regarding the constitutionality of Section 2. She pointed out that Section 2, in addition to perhaps being unconstitutional, seems to contradict itself in that it says both that a title insurance limited producer shall be licensed in the manner provided for in AS 21.27 - which provides for the licensure of both residents and nonresidents - and that a title insurance limited producer may not obtain a license unless [he/she] is a resident of the state. In conclusion, she said Alaska USA Title Agency would support SB 122 if Section 2 were deleted. REPRESENTATIVE GRUENBERG noted that Section 2 addresses what's required to obtain a license, not what's required to maintain such licensure; in other words, a resident could obtain a license to be a title insurance limited producer, and then move out of state and still be licensed in Alaska. 3:17:32 PM TERRY BRYAN, Vice President & State Manager, First American Title Insurance Company, characterized SB 122's proposed residency requirement as disruptive to the flow of commerce and inconsistent with common sense, particularly given that the end product - the title insurance policies themselves - all originate outside of Alaska, and given that no other segment of the real estate industry in Alaska operates under such a residency requirement. With regard to the concern that future imperfections in title could result if title searches/examinations are performed by people who don't live in Alaska, he predicted that the marketplace would remedy any such problems that actually do arise. 3:22:06 PM HOWARD HANCOCK, Chief Title Officer, Fidelity Title Agency of Alaska, relayed that he was testifying in support of SB 122. He offered his understanding that the current practice of the Division of Insurance - as stated on its web site - is to grant licenses to residents only, even though AS 21.27.150(5) appears to allow for the issuance of what's called a nonresident limited producer license. The intent of SB 122, he surmised, is to correct what industry feels to be conflicting statutory provisions and provide guidance to the division in light of its existing practices. Further, it would help protect the jobs of title examiners in Alaska, who understand the industry laws unique to the state. In conclusion, he reiterated his support for SB 122, and urged the committee to pass it. 3:24:44 PM LINDA HALL, Director, Anchorage Office, Division of Insurance, Department of Commerce, Community & Economic Development (DCCED), in response to questions, indicated the administration's attorneys have reviewed the aforementioned memorandums from the drafter and have concurred that Section 2 might potentially be found unconstitutional, though she's not yet received a written legal opinion on the issue. 3:26:15 PM JERRY REED, President, Alaska USA Mortgage Company, LLC, said that generally his company is in support of Section 3 of SB 122, but is not in support of Section 2, believing that it would limit both consumer choice and market competitiveness. VICE CHAIR THOMPSON, after ascertaining that no one else wished to testify, closed public testimony on SB 122. The committee took an at-ease from 3:28 p.m. to 3:29 p.m. 3:29:57 PM REPRESENTATIVE GRUENBERG made a motion to delete Section 2. REPRESENTATIVE HOLMES objected, and said she'd prefer that Section 2 be left in the bill. REPRESENTATIVE GRUENBERG cautioned against adopting a potentially unconstitutional provision, spoke about the cost of litigating Section 2's constitutionality, and predicted that that provision isn't going to work as intended anyway because merely having an office in Alaska would suffice for purposes of obtaining licensure even though the actual work gets conducted elsewhere by nonresidents. He too noted that in the aforementioned memorandums, the drafter has said in part: "In my opinion, it seems likely that a court construing the proposed residency requirement would find the provision unconstitutional as a violation of the privileges and immunities clause of the U.S. Constitution". REPRESENTATIVE HAWKER expressed disfavor with Amendment 1, and offered his belief that it remains unclear what the ultimate consequences of adopting Section 2 will be. A roll call vote was taken. Representatives Lynn, Keller, and Gruenberg voted in favor of Amendment 1. Representatives Holmes, Pruitt, Thompson, and Hawker voted against it. Therefore, Amendment 1 failed by a vote of 3-4. 3:33:30 PM REPRESENTATIVE GRUENBERG made a motion to adopt Conceptual Amendment 2, to add a severability clause to SB 122. REPRESENTATIVE HAWKER objected and pointed out that all legislation is automatically severable [under AS 01.01.030]. REPRESENTATIVE PRUITT concurred, and said he does not see the necessity of adding a severability clause to the bill. REPRESENTATIVE GRUENBERG argued that including a severability clause wouldn't do any harm and would be prudent. 3:37:16 PM A roll call vote was taken. Representatives Gruenberg and Lynn voted in favor of Conceptual Amendment 2. Representatives Holmes, Keller, Pruitt, Thompson, and Hawker voted against it. Therefore, Conceptual Amendment 2 failed by a vote of 2-5. 3:37:54 PM REPRESENTATIVE KELLER moved to report HCS CSSB 122(L&C) out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, HCS CSSB 122(L&C) was reported from the House Judiciary Standing Committee.