SB 122-REAL ESTATE TRANSFER FEES/TITLE INSURANCE  3:39:36 PM CHAIR OLSON announced that the next order of business would be the 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 proposed HCS CSSB 122, labeled 27- LS0789\D, Bailey, 3/19/12, adopted at the April 4, 2012 meeting.] 3:40:01 PM DANA OWEN, Staff, Senate Labor & Commerce Committee, Alaska State Legislature, on behalf of the Senate Labor & Commerce, Senator Egan, Chair, stated that the bill provides two important things. First, it provides that titles researched and issued in Alaska will have some anchor to the state, including that the people who perform the research have a physical presence in the state. Second, it would prevent the use of transfer fee covenants, which are fees that the original seller of a property would reap for resale of the real property into perpetuity. This practice would be outlawed under the bill. 3:42:01 PM ROGER FLOERCHINGER, President and Owner, Yukon Title Company, Inc., stated that he would like to focus on the residency requirements in SB 122, which are an effort to prevent Alaska jobs from being sent overseas. He said, "It is nothing more and nothing less." He related that similar bills have passed in 13- 14 other state legislatures. He predicted that some other companies, such as First American Title Insurance, which is a multi-national title company, will oppose this portion of the bill. He offered his belief that First American Title currently examines a large percentage of their Washington state orders in overseas countries. This company pays their overseas examiners approximately 10 percent of the fees they would pay local examiners. He reported that he receives letters weekly from overseas companies in countries such as Pakistan, India, or the Philippines, who offer to perform title examinations for a fraction of what it costs to do the work locally. He remarked that this offends him. He reported that his examiners receive wages that far exceed the per capita wages in Fairbanks. These examiners pay local property taxes and contribute to the economy of the state. He offered his belief that examiners in the Philippines receive "slave wages" and contribute to no one except the shareholders of the multi-national corporations. He stated that unlike his examiners, the overseas examiners are not licensed by Alaska's Division of Insurance (DOI) and are not within the department's reach for review. He also predicted the committee would hear testimony from others that direct operations, including those owned by regional national and multi-national underwriters. These companies will state that they cannot open offices in Alaska or cannot keep their current offices open because of the requirement for a limited producer's license. Further, these opponents will claim this bill would restrict competition. However, those claims are simply "smoke and mirrors." The direct operations that currently have offices in Alaska also hold limited producer licenses, which will not change under SB 122. He encouraged the committee to ask an existing national underwriter whether this bill would impact their ability to open offices in Alaska. He stated that the Alaska Association of Realtors supports this bill as written since this organization knows its clients will be better served by local examiners as opposed to someone who resides in India or Pakistan. He emphasized that realtors would fight a bill that would restrict competition in the industry since such a bill would adversely impact their clients; however, SB 122 is an Alaska hire issue. He highlighted that he supports SB 122 since he is in favor of keeping good paying Alaska jobs in Alaska. 3:45:19 PM KIM GLISSON, Vice President and General Manager, Alaska Escrow & Title Agency, Inc. stated that she has been in the title and lending industry for 22 years. Alaska Escrow & Title Agency, Inc. provides title insurance and escrow services to all seven recording districts in Southeast Alaska. She asked to speak in favor of SB 122, Sections 1 and 2 in order to keep local jobs. She stated she is a second-generation title industry professional, plus her daughter is working in her office. She said that her company employs 14 fulltime people and two part- time local employees. She highlighted that this is best for Alaska's communities. She stated that she has an employee who worked for a Washington state firm. When she started they had seven examiners, but after two years they were all laid off except for one, due to outsourcing. She referred to Section 3, which she suggested is best for consumers since without this provision developers could add additional funds to each transaction each time property changes hands. She offered her belief that overall this bill would help protect property owners in the state. 3:47:26 PM CHRIS NEWBILL, Manager, Ketchikan Title Agency, Inc. stated that he is in agreement with SB 122 and the previous testimony by Mr. Floerchinger and Ms. Glisson. She stated that she has three employees, who are all residents of Ketchikan and the state. She said she would hate to see the jobs go overseas. 3:48:10 PM CRYSTAL PELTOLA, Vice President and General Manager, Alaska USA Title Agency, stated that the company began in 2008 and now has five branches located throughout the state. She has been working in the title insurance business since 1982. She stated that her organization has always supported the transfer fee portion of SB 122, Section 3. She also thanked the Alaska Realtors' Association for their support of the bill. She emphasized that the company also supports legal competition and remains a pro-consumer company. She pointed out that this bill has gone through several changes since it was introduced last year. Currently, the only remaining item from the original bill is the transfer section. She said that Sections 1 and 2 are being touted as Alaska hire, but nothing in the current language does this. Section 2 of the bill seems to be unconstitutional, according to the Legislative Legal opinion of March 15, 2012, by Dennis Baily. She said that Alaska USA Title Agency cannot support anything that could be deemed unconstitutional. She related that Section 2 also seems to contradict itself, since on the one hand it requires licensing provided for in Sections 21 and 27, which have provisions for resident and nonresident licensing. The language states that one may not obtain a license unless the individual is a resident of the state. She predicted that no one today will testify against local hire, but the language in SB 122 does not seem to provide local hire. She referred to Section 1, which retains the current law to require companies owned by national underwriters, such as Stewart Title and First American Title to obtain their title work from agencies instead of doing the work themselves. Although the ownership of these two companies resides in Texas and California, respectively, their local offices hire Alaskans, which adds to the economy of the state. She said that one company's legal counsel has stated the company will modify their arrangements and become agencies if this bill passes. Thus this bill would not change how businesses operate, even though the bill appears to create another layer of paperwork for those engaged in direct operations. She concluded by stating that she personally does not see the value of creating this additional paperwork, nor does she see how SB 122 addresses Alaska hire. She reiterated her support for Section 3, but emphasized that she cannot support Sections 1 and 2 at this time. CHAIR OLSON mentioned the bill has a further referral to the House Judiciary Standing Committee. 3:51:03 PM TERRY BRYAN, Vice President and Manager, First American Title Company, stated that he has 75 employees throughout the state in ten separate offices. He related that First American Title Company has been very involved with the evolution of SB 122. He asked to withdraw his support for SB 122 since the company cannot support the bill at this time. 3:52:05 PM REPRESENTATIVE SADDLER asked whether he was withdrawing his support for all sections of the bill. MR. BRYAN answered that the primary support was initially for portions of the bill that have subsequently been stripped from the bill, which related to the number of years a title plant would need to be in existence. He highlighted that the company is currently evaluating issues with respect to Section 2 - the Alaska hire segment of the bill. He concluded that the company cannot support the bill in its current form. REPRESENTATIVE SADDLER understood he opposed all three sections of the current version of SB 122. 3:53:08 PM CHAIR OLSON asked whether his company does any outsourcing. MR. BRYAN answered no; that currently in Alaska, First American Title Company does not do any outsourcing. 3:53:22 PM CHAIR OLSON asked whether the company could outsource at some point in future. MR. BRYAN answered yes, that just as other companies can outsource, First American Title would also have the capability to do so. 3:53:43 PM REPRESENTATIVE MILLER asked whether he knew how many title sources for 100 title searches in Alaska how many are being done outside of Alaska MR. BRYAN anticipated that about 99 of 100 title searches are currently being performed in Alaska. 3:54:26 PM HOWARD HANCOCK, Chief Title Officer, Fidelity National Title Insurance Company, stated that Fidelity National Title Insurance Company is in support of SB 122. He stated that he has been in business for 30 years and is also a board member of the Alaska Land Title Association. He asked to testify in support of SB 122. He related that the practice to grant a license to individual residents currently applies to all employed title examiners in approximately 30 offices around the state. This provision could also allow the division to grant a nonresident license. He pointed out that Fidelity National Title Insurance Company has seen a monthly increase in the number of solicitations from the Philippines or Bangladesh asking if they could perform title searches. He has also observed other title companies in the Lower 48 having title examinations performed by examiners in foreign countries. He related his company tested an overseas company from India by giving them a property and asking them to search the title. The overseas company initially anticipated it would complete the title search in four days, but after a week the company reported it was having difficulty retrieving and interpreting the documents for the chain of title. His company gave the company in India a few more days, but the company still could not furnish the report and eventually the company from India canceled since they could not complete the job. He emphasized his point is that laws relating to titles on real property are unique to the state in which the property is located. He suggested that homebuyers or mortgage lenders, who are probably the largest title insurance consumers, should want their titles examined by local expert trained in Alaska laws and title issues. He pointed out that Alaska has unique laws and issues including the Alaska Native Claims Settlement Act (ANCSA), the Native Allotment Act, the mechanic's lien law, foreclosure laws, and others. He pointed out these are laws that title insurance companies encounter on a daily basis. He concluded that SB 122 provides corrections to give guidance to the division with respect to the division's current practices to keep jobs local and to require local resident title examiners perform title searches. 3:57:38 PM MICHAEL PRICE, President, Alaska Land Title Association; Owner, Fidelity National Title Insurance Company, stated that he is also the owner of the Mat-Su Title Agency in Wasilla. He testified in support of SB 122 as it is currently written. He said he supports testimony by previous testifiers who spoke in support of SB 122. He related that his company employs 80-100 Alaskans throughout the state who earn from $50,000 to $100,000 annually as title examiners. He offered his belief that if SB 122 does not pass that those jobs are in jeopardy. He related his understanding that his good friend, Terry Bryan's company, First American Title Company, outsources - not in Alaska - but in other states. He emphasized the importance to pass a local hire law or it will only be a matter of time before the jobs will go overseas. He suggested that the Division of Insurance's director, Linda Hall, could confirm there is nothing in the two sections of SB 122 that preclude a direct underwriter from entering business in the state. He further highlighted that First American Title Company and Stewart Title - as they currently exist in Alaska - exist as local limited producers and as Alaska corporations. He related his understanding that these businesses do not operate as an underwriter from California or Texas, but as corporations in Alaska. Additionally, in terms of the constitutionality, he offered he has been an attorney for over 40 years prior to working in the title insurance business. He said he believes in the constitutionality of SB 122. He pointed out that approximately 13 states have passed legislation that demands the licensed title examiners for title insurance be residents of the state in which the property is insured. He recalled that Oregon was the last state to do so approximately two years ago. He asked members to compare Oregon to the state of Washington, which does not have such a law. He pointed out that it is just too easy to consider outsourcing these types of jobs. He concluded that as president of Alaska Land Title Association and as owner of the two title companies in the state, he fully supports SB 122 and urged members to pass SB 122 to protect Alaskans' jobs. 4:01:01 PM REPRESENTATIVE JOHNSON asked whether there is any difference in the cost of title insurance in Washington and Oregon. MR. PRICE answered no. He explained that each state files its rates with the Division of Insurance. He suggested that every state in the western U.S. have filed rates, such as Alaska. He pointed out that some rates are promulgated by the respective director of insurance. He related his understanding that the title insurance in Washington is less than in Oregon, but comparable to Alaska. Additionally, Alaska has unique laws and risks due to ANCSA and laws relating to public lands; however, generally speaking title insurance in the Western U.S. have filed rates, which means they are filed by national companies. Thus the rates are set by companies such as Fidelity National Title Insurance Company and not local agents. He concluded by advising that filed rates are approved by various directors of insurance and would be available to the legislators and staff through an Internet search. 4:02:56 PM REPRESENTATIVE JOHNSON remarked that when jobs are outsourced and it affects companies that is one thing, but if it actually results in less cost to consumer that is a different issue. MR. PRICE answered that he was not aware of any empirical evidence that an underwriter sending an order to Bangladesh results in reductions to insurance costs. He offered his belief that most of the costs of insurance is based on overhead, administrative, and claims handling. He offered his belief that states in the Lower 48 that outsource cannot provide evidence that the cost of insurance has gone down. He highlighted that the general rate schedule in Alaska has not changed since 1968. 4:04:17 PM CHAIR OLSON, after first determining no one else wished to testify, closed public testimony on SB 122. 4:04:35 PM LINDA HALL, Director, Division of Insurance, Anchorage Office, Department of Commerce, Community & Economic Development (DCCED), provided a brief summary. She explained the DOI regulates various aspects of the title insurance industry. She pointed out that companies exist in the title insurance industry as well as agencies. Thus two types of licenses exist. She stated that there is not an Alaska domiciled insurance company in Alaska and companies may be located in Texas or other states. These companies are licensed in same way as other insurance companies, such that application processes and deposits are required. 4:06:10 PM CHAIR OLSON related his understanding these companies would be admitted companies. MS. HALL answered yes. She explained that the company files rates for the product sold by the agent. She further explained that much of that product is based on overhead. It is much more difficult for the division to examine specific information. The overhead, the majority of the employees conducting title research, the cost of running an office, and conducting electronic research represents the bigger part of the rate, which is not an expense of the insurance company. She further explained that loss ratios in the title insurance industry are very low. The division has seen historical losses in most lines of insurance the division regulates, including the much smaller piece of overhead and commissions. She explained that the title world is different so the title insurance company receives a small portion of the premium. The title agent, on the other hand, called the limited lines title producer - the agency - keeps a majority of the premium since they perform the majority of the work and have the overhead. Thus if the overhead is less expensive since some of the work is outsourced it will not affect the rate that is filed by the title insurance company. She hoped this helps. 4:07:56 PM CHAIR OLSON agreed her explanation helps. He asked about licensing aspects. MS. HALL stated she referenced the licensure of the insurance company. She explained that the agency is also licensed since the division licenses title plants, noting two or more entities can form together as a joint title plant. She indicated the division inspects them and provides a test, similar to one Mr. Hancock conducted when he tested a title search by someone in India. She described the process, such that the division would give the company a piece of property to determine how well they can research and find anything wrong with the title that would prevent it from being a clear title. Additionally, the division licenses the limited title producers as agents, licensed under a different section of statute than the insurance companies. She highlighted that Title 21 specifically outlines specific requirements for title agents, including that they must have a place of business in the recording district in which they will operate. She noted this does not require residency, but the company must have a place of business in Alaska. She reiterated that limited title producers as agents are licensed differently. 4:09:28 PM REPRESENTATIVE SADDLER referred to page 2, to Section 2 of the bill, which makes reference to title insurance limited producers. He asked whether there is any distinction between the term "licensed title insurance limited producer" on page 1, and the "title insurance limited producer to be licensed" on page 2. MS. HALL responded that in Section 1 the licensed title insurance limited producers are not required to be a resident, but are required to be licensed under AS 21.27. She offered her belief that the division has never issued a nonresident - to a resident of another state - license, but that is not to say they couldn't do so. She noted that some of reciprocity laws do not apply to title insurance specifically, but if a title agent was licensed in another state and applied for a nonresident license that it is possible, but not likely the individual would be licensed. She pointed out the agent would still need to have to have a place of business in Alaska. 4:10:56 PM REPRESENTATIVE SADDLER recalled that AS 21.27 does include a provision for alien license. He asked whether the state has ever issued an alien license. MS. HALL answered that no, not in the title industry. She explained that the division has issued 6 of 39,000 licensees as alien licenses. 4:11:33 PM CHAIR OLSON asked whether this is something the division used to do routinely. MS. HALL answered no. 4:11:40 PM REPRESENTATIVE JOHNSON asked if this bill passes whether it will drive up the cost of insurance. MS. HALL answered that she did not know why it would drive up costs. She stated that the division has issued a zero fiscal note. She further stated that rates enforced should represent the expenses and did not note anything in the bill that would increase expenses. 4:12:22 PM REPRESENTATIVE JOHNSON asked if the bill did not pass if rates would be reduced. MS. HALL answered that she doubted it. 4:12:30 PM REPRESENTATIVE JOHNSON remarked that the consumer is the ultimate payer. He did not have any issue with the bill since Ms. Hall indicates the costs to consumers will not likely change. 4:12:58 PM CHAIR OLSON asked whether is it safe to assume that one reason that issues on title policies is that there is not a frequency in the number of claims against title policies. MS. HALL answered yes; that would be accurate. 4:13:16 PM CHAIR OLSON recalled only one issue in his community in 30 years, which was due to a surveying error. 4:13:37 PM REPRESENTATIVE SADDLER pointed out that Ms. Peltola suggested Section 2 may be self-contradictory. He said an owner producer may not obtain a license unless they are a resident, however, AS 21.27 allows for alien or nonresident licenses. He asked whether an inherent contradiction exists. MS. HALL suggested that is probably a legal question she did not think she was qualified to answer. 4:14:18 PM REPRESENTATIVE JOHNSON moved to report the proposed House Committee Substitute (HCS) for Senate Bill 122, labeled, 27- LS0789\D, Bailey, 3/19/12, out of committee with individual recommendations and the accompanying fiscal notes. There being no further objection, HCS CSSB 122(L&C) was reported from the House Labor and Commerce Standing Committee. 4:15:09 PM The committee took an at-ease from 4:15 p.m. to 4:17 p.m.