SENATOR KELLY, Chairman, called the Senate Labor & Commerce Committee meeting to order. Due to the lack of a quorum, the meeting was considered a work session. SENATOR KELLY introduced SB 206 (RESIDENTIAL REAL PROPERTY TRANSFERS) as the only order of business and requested that Josh Fink, committee aide, present an overview on the legislation. JOSH FINK explained that SB 206 would remove real estate professionals from liability for innocent misrepresentation in real property transactions. In 1982, the Alaska Supreme Court ruled in Bevins versus Ballard that brokers who make an innocent misrepresentation to a purchaser of property are liable for the misrepresentation. Alaska is one of only three states that puts such an unjustified liability on real estate professionals. Moreover, in 1984, the Alaska Supreme Court ruled that the Alaska Surety Fund does not cover innocent misrepresentationclaims. This has made errors and omissions insurance for real estate professionals more expensive and difficult to obtain in Alaska and takes away protection for buyers. The passage last year of the residential real property transfer disclosure form has substantially increased brokers' liability risk if they are to be held liable for innocent misrepresentations. Written disclosures provided by the seller to the broker, then forwarded by the broker to potential buyers, could place liability on the broker for any misrepresentation the seller makes. Mr. Fink said SB 206 would overturn the court decision of Bevins versus Ballard, thus removing a real estate agent's liability for innocent misrepresentation. Number 035 SENATOR KELLY stated the committee would take testimony statewide over the teleconference network and that It is his intent to have a bill that is supported by the realtors ready to go the first day of session in January. Number 040 RICK HUNTER, President, Alaska Association of Realtors, testifying from Wasilla, stated their support for SB 206 and noted the committee had been provided with copies of a signed resolution from the members of the realtor boards statewide urging passage of the bill. Number 047 SENATOR KELLY requested an update from Ron Johnson, Chairman of the Alaska Real Estate Commission, on the status of the disclosure form. RON JOHNSON, testifying from the Kenai/Soldotna LIO, said the Commission has amended and slightly adjusted the original form that they had adopted and, with the concurrence of the Attorney General's office, they have come to an agreement and eliminated some of the things that the AG's office felt were not acceptable. The final draft will be available for distribution in two to three days. Speaking on behalf of the Real Estate Commission, Mr. Johnson said the position of the Commission is probably going to be neutral on SB 206, which is aimed primarily at the real estate professional. He said they are primarily a public interest group, and taking a position would be throwing the support of the Real Estate Commission behind licensees. Number 075 KIRK WICKERSHAM, an Anchorage attorney and real estate broker testifying in Anchorage, noted he is a former chair of the Alaska Real Estate Commission. Mr. Wickersham said that in a 1981 case, it was ruled that a buyer had the absolute right to rely on any representation that they received from an agent or seller, unless their reliance is preposterous, irrational, or in bad faith. He said he does not know of any other state or any other area of Alaska law where that is the legal standard for conduct on the part of a party to a transaction or a party to a lawsuit. He added that the combination of the rulings by the court, as evolved over the last eleven to twelve years in practice, has ended up being that the agent is absolutely and vicariously liable for the two-year statute of limitations on which a liability and action can be brought. Mr. Wickersham stated his support for SB 206, but thinks that it should be amended on line 6, which relates to information provided to the transferee. He said that in recent years, there has been more and more reliance by sellers on representations made about the ability of the buyers to carry through on the transaction, and he recommended that language be amended to read "provided to the transferee or transferor." Mr. Wickersham suggested that either this bill or a subsequent bill should also deal with the possibility of making errors and ommission insurance available to Alaska real estate agents. In his closing comments, Mr. Wickersham said the provisions in SB 206 should have been part of the property disclosure law that was passed in the 1992 session, and noted that it was part of the original bill, but was dropped out of the final version. Number 150 SENATOR KELLY asked Mr. Wickersham how he would go about establishing E&O insurance in the State of Alaska. KIRK WICKERSHAM responded that in the late eighties, the State of Kentucky contracted with an E&O carrier to provide a standard coverage E&O policy for all real estate licensees in Kentucky. A licensee in Kentucky did not have to use the state plan, but had to provide his own coverage. At that time, coverage was $60 per agent per year for $1,000 deductible and $100,000 maximum payoff policy. Subsequently, other states have adopted that format, and he said it is his understanding the main impediment to Alaska establishing a program like that is laws such as Bevins and Cousin which make agents unreasonably liable and insurers loath to cover them. He said he thinks that the only cost to the State of Kentucky was an administrative cost of going out to bid with the state program. Senator Kelly requested that staff contact the director of insurance for the State of Alaska for more information on what the major impediments of a program such as that might be in Alaska. He also requested that Mr. Wickersham submit his suggested amendment and the rationale for it in writing to the committee for its consideration. Number 192 DAVID SOMMERS, President-elect of the Alaska Association of Realtors in Fairbanks, stated his strong support for SB 206. Number 205 PAMELA THROOP, a broker with Remax of Fairbanks testifying from Fairbanks, related that her company has had only one lawsuit, which is still not resolved, filed against it since it went into business over nine years ago. She has E&O insurance, but her insurance carrier has been fighting this suit since 1986. She said everyone agrees that her company did not nothing wrong in the transactions, and that information was willfully and knowingly withheld by the seller. She estimated that this suit has probably cost the insurance carrier close to $106,000, and it is still not resolved. Ms. Throop stated her support for SB 206, as well as the disclosure law, but thinks the form needs modification. She added that she would like to see the state adopt uniform building codes that apply to single family residences whether they are built in Bush Alaska or in a municipality. Number 251 BILL ALLEN of Allen Realty in Fairbanks said he thinks it is imperative that SB 206 passes. From an economic standpoint, he does not feel his broker fee or commission really covers guaranteeing a seller's representation on the sale or transfer of a property. Mr. Allen agrees with Mr. Wickersham's comments on "e and o" insurance, and said he hopes that the Division of Insurance and the Alaska Real Estate Commission will explore the possibility of establishing it in Alaska. Number 280 WALTER WOOD, a broker at Valdez Realty in Valdez, testified from Valdez in support of SB 206, stating that he agrees with Mr. Wickersham's suggestion that the legislation leaves out responsibilities to the buyer and that it should be included in the bill. Number 304 PEGGY ANN MCCONNOCHI, broker/owner of a real estate company in Juneau and a past president of the Alaska Association of Realtors, voiced her support for SB 206. Ms. McConnochi said the current situation puts the real estate agent in the position of having unjustifiable liability for inadvertent misrepresentations by sellers. That liability is even greater now with the advent of property disclosures, for which she is a great proponent. When a real estate agent is passing information from a seller to a buyer, they are put into a position where they are responsible for whatever those statements are. Ms. McConnochi also supports Mr. Wickersham's suggested amendment to the bill. Number 330 FRANK MICHEL, Legislative Chair of the Alaska Association of Realtors testifying from the Matsu LIO, voiced his support for Mr. Wickersham's suggested amendment. Number 340 BOB ROGERS, a broker with Rogers Realty testifying from the Matsu LIO, stated his support for Mr. Wickersham's amendment and said it will release realtors from harassing lawsuits. He said his agency was involved in a such a lawsuit, which it won, but it has cost him thousands of dollars. He added that innocent misrepresentation is just that, however, he believes that when agents do make deliberate misrepresentations, they should be held liable for them. Number 366 BONNIE AULABAUGH, broker/owner of Chelsea Realty in Kodiak, expressed her appreciation to Senator Kelly for introducing SB 206, stating it is a much needed piece of legislation. She noted that the Kodiak Board of Realtors, of which she is president, also supports the legislation. She urged passage of the legislation, as well as making affordable E&O insurance available to real estate professionals in the state. Number 390 LARRY CLARK, an associate broker with Remax Properties in Anchorage, as well as president of the Anchorage Multiple Listing Service (AMLS), stated the board's support for SB 206. He said AMLS has put together a real estate property transfer form, which was approved by the Alaska Real Estate Commission, and they are trying to be the lead factor in a high tech information system. Number 400 SENATOR KELLY pointed out that there has been a new format for the disclosure form agreed to by the Attorney General and the Alaska Real Estate Commission. LARRY CLARK said AMLS realtors will start using that form when it becomes available. Number 455 ELOUISE SCHMIDT, a real estate broker in Anchorage, said she was first licensed in Alaska as a real estate agent in 1965, and that the real estate profession has come a long way since that time. She believes that the new disclosure form, which states that the seller will be responsible for the information provided to the buyer, is a big step forward. She strongly urged passage of SB 206 and its suggested amendment. Number 505 SENATOR SALO said that right now, realtors are highly motivated to learn everything they can about the property, but she is concerned that with this change in the law, it might have the effect of the realtors not wanting to know everything about the property. MS. SCHMIDT said she did not think that would happen, especially with the new property information sheet that the seller must fill out. Number 555 SENATOR KELLY asked if the new law covered all real estate transactions. KIRK WICKERSHAM clarified that the property disclosure law that was adopted in 1992 covers single family and duplexes. It does not cover multi-family, commercial land, etc. SB 206 would cover any real estate transactions. Number 590 GIL KIRSCHWITZ, an Anchorage real estate broker, voiced his support for SB 206, stating it is much needed. He also stated his support for the suggested amendment. Number 603 ANGELITO CORRE of Anchorage told the committee that approximately two years ago he was involved in a transaction as a selling agent, where the owners of the property stated there were no problems with the property. However, it was later discovered that there was a problem with the foundation of the dwelling, and the buyer filed a lawsuit against Mr. Coore, which was settled out of court for several thousands of dollars. He said as a broker who relied on the information he had on hand, he does not feel that he should have been held responsible in that case. Number 665 JEAN SMITH, an Anchorage real estate broker for the past 35 years, stated her support for SB 206. She also supports a property disclosure form, although it is no guarantee that the seller is going to tell everything, and there may be things that the seller is really not aware of. TAPE 93-31, SIDE B Number 015 SENATOR SALO asked if the real estate profession has an ethics code, and is a license pulled based on ethical violations. MS. SMITH acknowledged that they do have an ethics code, and if a grievance is filed, at some point in time the Alaska Real Estate Commission can pull a license, or suspend it, or take whatever action they deem necessary. Number 045 CHARLES MCKEE of Anchorage stated his opposition to SB 206 because he feels that the state has misrepresented him in the past. He also expressed his dissatisfaction with the insurance industry in the state. Number 100 GREG ERKINS, an Anchorage real estate broker, said his first transaction as a realtor involved an innocent misrepresentation which he settled for a sum rather than paying an attorney to go to court over the case. Now if he is asked by a buyer about a particular aspect of a property that he does not have knowledge of, he advises the buyer to contact someone who has the expertise in that particular area. Number 190 SENATOR SALO asked Mr. Erkins if the fact that AHFC can ask for a waiver from buyers is something that causes him problems. MR. ERKINS answered that AHFC removes themselves from liability, but doesn't remove the real estate agent from liability. He added that most institutions can do that. Number 204 SENATOR SALO expressed her concern that now there are some environmental problems regarding transactions on houses that we maybe didn't have 15 years ago. She said waivers, such as on underground storage tanks, is a more serious and a more prevalent issue than it used to be, so this inequity is a bigger inequity now. Number 255 PAT SWAIN, an associate broker and co-owner of Jack White Co., a company in business in Anchorage for 40 years, read portions of a letter from their vice president of residential sales. The letter says that when the court established liability for realtors' innocent misrepresentations, it created liability which makes a realtor liable for failure to tell a purchaser something the realtor does not know. It goes on to say that what may not be obvious to many lay people is how the Alaska Supreme Court has singled out real estate professionals for liability which has never been applied to other professionals. Number 290 CHUCK HYLAN, a real estate broker with Remax Properties, stated his support for SB 206 and the proposed amendment. He added that there are some marginal properties out there that for a brokerage fee, an individual just does not want to deal with it. On some of those properties, it could be very beneficial to have the real estate experience of an individual who has 10 or 20 years of experience. He also spoke to the problems created by underground storage tanks. Number 342 SENATOR KELLY thanked all the participants and said he was optimistic for the legislation's chance of passage, probably with the amendment. He then adjourned the meeting.