SB 122-REAL ESTATE TRANSFER FEES/TITLE PLANTS    4:11:15 PM  CHAIR OLSON announced the consideration of SB 122. 4:11:25 PM DANA OWEN, staff to SB 122 sponsor, said the bill's second section bans the use of transfer fee covenants that are contractual obligations imposed upon any subsequent sale of the land. He noted that more than half of the states currently ban transfer fee covenants; the earliest was New York in 1852 when the courts noted the practice as a "vestige of feudalism." He said the second section of SB 122 has no opposition from the title insurance industry. MR. OWEN said the first section of SB 122 extends the length of time spanned by a "title plant," which comprises of a record for all transactions or conditions that affect titles to land located in a specific area. He said the length of time would be extended from 25 years to 50 years. He said the proposed change is controversial within the title insurance industry and work was being done to find new language to satisfy all parties via a committee substitute. 4:14:02 PM CHAIR OLSON asked when the committee substitute would be presented. MR. OWEN replied by the next meeting. CHAIR OLSON asked how substantially different the committee substitute would be. MR. OWEN answered that minor changes would be made. He said the focus was on protecting customers from title insurance companies located outside of Alaska without limiting competition. 4:15:37 PM CHAIR OLSON asked why there was opposition to allow more people into the title insurance market. He noted that buying real estate was one of the biggest expenditures an individual would have and allowing competition should bring down prices. MR. OWEN answered that the idea was not to limit people from getting into the title insurance market; the intent was to keep out companies that are not able to give the kind of service that Alaskan-based title insurance companies could provide. CHAIR OLSON commented that upcoming testimony would be from companies with a financial interest rather than a public interest. He said it is important to keep what is in the best interest of Alaskan residents first. 4:17:29 PM MR. OWEN said that the committee was very concerned that public interest be protected. He said the first step was to make sure there was agreement within the title insurance industry without taking sides. CHAIR OLSON asked if Mr. Owen was suspicious from the infighting within the title insurance industry. MR. OWEN answered yes. 4:19:42 PM CRYSTAL PELTOLA, Vice President/General Manager, Alaska USA Title Agency, said the current title plant law has worked well for decades and there was no value to the industry or consumers by changing something that was not broken. She said the title search process was dictated by underwriters, not by the number of years title plant documents were statutorily required to be on record. She said SB 122 would be anticompetitive by limiting the number of title agencies, doubling startup costs and adding time to acquire additional years of records. She said increasing the title plant requirement would only benefit a few agencies, most of which were the main proponents of SB 122. She said the length of records retained in title plants had no bearing on claims or loses. She said technological change has provided broader access to electronic records and allowed more competition to keep down costs for consumers, and that SB 122 would mandate a step back in time by requiring older, outdated title plants to be expanded. 4:23:14 PM CHAIR OLSON asked about mortgages that go longer than 25 years. MS. PELTOLA answered that the length of any claim of lien mechanics, mortgage or judgment, had no bearing on how far back a search was done. She said there was no correlation between length of mortgage and title record search and that title insurance underwriters are the ones who dictate the length of time. CHAIR OLSON asked how the consumer would be protected if hazardous materials were found from WWII when a 25 year title plant was used. 4:24:22 PM MS. PELTOLA answered that underwriting contracts dictated searches, there was no bearing on the search process by the amount of records statutorily required to have in a title plant. 4:25:19 PM RAYMOND DAVIS, Vice President, Old Republic Title Insurance Company, said he was Alaska USA Title Agency's underwriter and provided the financial backing behind the title policies that were issued in Alaska. He said SB 122 would give unfair advantage to two companies in Anchorage that have 50-year title plants; it would affectively give them a monopoly on all future business in Anchorage. He said in anticipation of SB 122 passing, the two Anchorage title companies have considered charging subscription fees to the other title companies at $7500 per month, $90,000 per year. MR. DAVIS said technology allowed title insurance companies to go directly to government records and search titles without old title plant mandates. He said the goal should not be to limit competition; the goal should be to expand competition without allowing "fly by night" operators. He said the real threat was to companies that had big investments in old title plants. 4:29:36 PM CHAIR OLSON asked about Old Republic Title being located in Seattle and the impact on the consumer having to legally deal with an out-of-state company. MR. DAVIS answered that Old Republic Title only issues policies through Alaska-based companies. He said the majority of title policies in Alaska are underwritten by out-of-state insurance companies. 4:31:01 PM MICHAEL PRICE, President, Alaska Land Title Association (ALTA) said he owned several title insurance companies in the Anchorage area and was a real estate lawyer. He said ALTA supports banning transferring covenant fees but he disagreed with prior testimony regarding title plants. He said the title plant change in SB 122 addressed out-of-state examiners who are not licensed in Alaska. He noted that 13 states within the past four years had adopted similar changes. He said the title plant section of SB 122 would require an Alaskan resident and licensed title examiner to examine and sign preliminary commitments for policies being issued. He said the SB 122 controversy comes down to two things, changing plant law from 25 years and allowing two types of title insurance companies to operate in Alaska. He said changing plant law from 25 to 40 or 50 years was recommended due to Alaska not having curative title provisions. He said adding years to the title plant does not put unnecessary burden on title insurance companies and was not anticompetitive; records can be downloaded directly from the Recorder's Office at a relatively small fee. 4:36:49 PM MR. PRICE said the second issue addressed a legislative decision from 2002 that designated two types of title companies; a single company required to have a title plant and a joint-plant of two or more companies that was not required to have a title plant, e.g., Old Republic Title and Alaska USA Title's arrangement. He said ALTA, not for anticompetitive reasons, believes Alaska should return to a "title plant state." He said as far as he knew, Alaska was the only state which allowed two different types of title companies where one was required to have a title plant. He noted that Old Republic Title was based in a "title plant state" and the company's president told him that he believed in title plants. He said he disagreed with prior testimony which indicated consumer costs would increase. He noted that prices were set by the Division of Insurance. He said Alaska should protect the public and not allow the limited underwriters in the US to dictate search policy. He referenced Countrywide Home Loans as an example of a large mortgage lender which no longer existed and it was the largest in the country five years ago. He noted that it only takes $1 million to become an underwriter in Alaska and one claim could wipe that out. 4:41:49 PM CHAIR OLSON asked if it was true what Mr. Davis brought up regarding a possible monopoly with only two land plant companies in the state of Alaska. MR. PRICE said there were over 20 title plant companies in the state and Mr. Davis may have referred to the two companies in the Anchorage Recording District. He said there were actually more than two companies in the Anchorage area. CHAIR OLSON asked what the normal subscription rates were for title plant information. MR. PRICE answered that the monthly subscription was $7000 to $8000 for a joint-plant company and $10,000 to $12,000 for a single owned company. 4:43:02 PM CHAIR OLSON asked if Mr. Davis's claim was accurate that his subscription fees were in the $7,500 per month range. MR. PRICE answered yes for a joint-plant organization. 4:43:26 PM CHAIR OLSON expressed interest in protecting the public. He said real estate market suspicion was justified after the economic problems caused by the 2008 housing crisis. 4:43:55 PM MR. PRICE responded that the title industry only insures loans and has nothing to do with making loans. He said anti competition is not the issue when title companies have relatively low entrance and startup costs. He said the public would be better served by title agencies that have more invested into their industry and access to every document. 4:45:31 PM TERRY BRYAN, Vice President, First American Title Company, said he operated as a title and underwriting company in approximately 10 Alaskan communities. He said Alaska is a "file and approve" state; title insurance prices are not set by the state, prices are submitted to the Department of Insurance for approval. 4:47:15 PM MR. BRYAN referenced Oregon and Washington as states with mandatory title plant laws between 40 and 50 years. He said he was not aware of title insurance underwriting contract language that required a specific age of title plant. He said most underwriting contracts identified certain reasonable search criteria and standards, but no chronological identification due to unique differences in each state. He said ALTA recommends 40 years as a required title plant based upon Alaska's history. He noted that the title insurance industry was probably the only part of the real estate industry that came through the mortgage crisis unscathed and was portrayed as the good guy in the media. 4:49:10 PM CHAIR OLSON asked if the reason for the positive media coverage was due to having better legal representation. MR. BRYAN replied that the title insurance industry facilitates the transaction and does not negotiate or barter the transaction. He confirmed that $7500 was the correct monthly subscription rate for a joint-plant organization. 4:50:23 PM CHAIR OLSON asked how many claims against title companies occur. MR. BRYAN answered that he did not know. He said when compared to other types of insurance, title insurance claims occur at a very low percentage. 4:51:34 PM CHAIR OLSON asked him to explain prior testimony regarding $1 million required for underwriters. MR. BRYAN answered that the state required a $1 million bond for licensing. He added that dramatic obligations through civil and legal courts provided added coverage for consumers who dealt with Alaska based companies. 4:52:32 PM ROGER FLOERCHINGER, President/Owner, Yukon Title Company, said his company insured conveyances in the most northern 11 recording districts and dealt directly with buyers of real estate in villages and small communities. He said contrary to Mr. Davis' testimony, his company was not solely a distribution system for title underwriting companies. He disagreed with testimony that consumer prices would increase from a change in title plant law by requiring all companies to have title plants. He said he believed it was in his customer's best interest to operate his company with a title plant. He noted that a proposed committee substitute included a grandfather clause for current companies that operate without a title plant. 4:55:41 PM CHAIR OLSON asked what was wrong with companies consolidating subscription on identical services to save money. MR. FLOERCHINGER answered that consolidating was fine. He said the issue was allowing companies to operate without a title plant. 4:56:39 PM CHAIR OLSON asked if SB 122 was a good bill for his rural constituents in Shishmaref or Shaktoolik, for instance. MR. FLOERCHINGER answered that he does insure titles in Shishmaref and Nome. CHAIR OLSON commented that there was a big difference between Nome and Shishmaref; Nome has been incorporated for over 100 years while Shishmaref was eroding away. He asked if he was indeed insuring titles in Shishmaref and if he did not know a customer's name, what the difference was between him and Mr. Davis in Seattle. 4:57:37 PM MR. FLOERCHINGER answered that he does have insurance title plants in Shishmaref and would have to review his title order book. 4:58:15 PM CHAIR OLSON announced he would hold SB 122 for the next Senate Community and Regional Affairs Standing Committee meeting.