Legislature(2003 - 2004)
03/24/2004 03:28 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 421-DEED OF TRUST RECONVEYANCE Number 1123 CHAIR ANDERSON announced that the next order of business would be HOUSE BILL NO. 421, "An Act relating to reconveyances of deeds of trust." CHAIR ANDERSON, sponsor, explained that HB 421 was introduced at the request of the Alaska Land Title Association (ALTA). The intent is to provide a process in state law whereby a reconveyance of deeds of trust can be recorded within a reasonable timeframe. Noting the presence of people from the title insurance industry to answer technical questions, he said the bill's language may appear complex, but the concept and purpose are intended to be simple. CHAIR ANDERSON offered details, saying in a home purchase through a standard mortgage there is a deed of trust. Once the homeowner pays off the mortgage, the mortgage-servicing company isn't required by law to record the reconveyance of the mortgage with the State Recorder's Office, under the Department of Natural Resources (DNR), within any timeframe; it could take years to get the reconveyance recorded. These mortgage- servicing companies often are out of state, a practice likely to continue, and often find it difficult to take care of the reconveyances with the recorder's office in Alaska. Problems arise when the homes or properties are resold and additional time and complications impede the new sale. CHAIR ANDERSON reported that since introduction of this legislation, Representative Berkowitz and Senator Stedman have identified this issue in recent property purchases. Pointing out that deeds of trust covered under HB 421 are only those held by a title insurance company, he said the heart of the bill is on page 1, lines 9-10, relating to the title insurance company's receipt of satisfactory evidence of the payment in full before beginning the reconveyance. Much of the bill focuses on ensuring a full and proper notification process, and standards are established for the notification forms in order to help ensure quality control. He noted that these sections were taken from Idaho's law on this matter. Number 1000 MICHAEL PRICE, Owner, Mat-Su Title Insurance Agency, Inc. (Wasilla), and Fidelity Title (Anchorage); Member, Board of Directors, Alaska Land Title Association, offered to be the main person to answer technical questions. Stating support for HB 421, he said 20 years ago perhaps 99 percent of deeds of trust in Alaska were done by in-state lenders; when mortgages were paid off, there was no significant problem with timely recording of releases. Increasingly, however, those are done by out-of-state companies that may even sell the mortgages to other companies. Whereas few deeds of trust experienced reconveyance problems previously, Mr. Price said he has been told several thousands now are known to have been satisfied and yet the reconveyance has become seemingly impossible. He agreed this situation isn't unique to Alaska. MR. PRICE explained that with this bill, upon satisfactory proof of evidence of payment - which companies like his will have because they'll have a negotiated check or wire transfer of funds - there will be a vehicle and method to provide the release. This will benefit the stream of commerce and all Alaskans, he predicted. He requested favorable consideration of this much-needed bill. Number 0801 REPRESENTATIVE LYNN disclosed that he is a licensed associate real estate broker with a major company that gets peripherally involved with reconveyances. CHAIR ANDERSON told members he'd been advised that members didn't need to disclose conflicts unless they were on the House floor voting. REPRESENTATIVE ROKEBERG said that's not necessarily true. He noted there is an advisory opinion before the Select Committee on Legislative Ethics [which he's a member of] on that very question. CHAIR ANDERSON thanked Representative Lynn for the disclosure and requested that he vote on the bill if there is a vote. Number 0766 REPRESENTATIVE ROKEBERG asked Mr. Price why it was decided to put the form itself in statute and whether there is a way to avoid that. MR. PRICE said he presumes and believes the form was generated as a result of having a specific amount of information to be provided and to make sure the notification is uniform, no matter where in the state it occurs. He surmised that members of the industry won't find it objectionable because they deal with statutory forms such as the general power of attorney on a regular basis. Number 0684 REPRESENTATIVE ROKEBERG mentioned, "Receipt of satisfactory payment" and asked whether the canceled check, if that was all the company had, would be adequate for the record. MR. PRICE answered affirmatively, saying 9 times out of 10 it will be a combination of the payoff information received from the outside lender and evidence that a check or wire transfer was sent to [that lender]. He added, "On some occasions, we will accept the evidence of the payoff amount ... and evidence that, let's say, a local bank did the closing ... as a result of a construction loan and that they sent the money." Thus he said he could foresee taking the representation of a reputable Alaskan business, principally a bank, that the payment was made. "But most of the time, I would say, it's going to be ourselves making the payment," he concluded. Number 0615 REPRESENTATIVE ROKEBERG asked how it works, expressed concern about what the current law is regarding this issue, and asked whether the lender has to formally acknowledge receipt of the payoff of the note in order for [the title insurance agency] to issue the reconveyance. MR. PRICE replied: We receive a ... request for reconveyance executed by the lender, saying that it was ... paid off in full and to release the deed of trust or mortgage. ... However, there is no state statute, at least that I am aware of, that requires the lender to do that. Now, local lenders have always done it because ... it serves our stream of commerce. ... Where we're having problems ... are those outside lenders ... who know ... they have refinanced ... 200,000 loans in the last year, and maybe in the next two or three years they'll get around to doing the request for reconveyance, but they're certainly in no hurry to add to their staff to do so. So there's currently no law that I'm aware of ... that requires them to provide us evidence that the loan has been paid ... and to release it. Number 0486 REPRESENTATIVE ROKEBERG pointed out that Mr. Price is a long- practicing attorney in this area, and suggested if he doesn't know about a law, there isn't one. He requested confirmation that there's no statutory mandate for notification or delivery of the request for reconveyance. MR. PRICE answered: Believe it or not, ... we do not. It is a matter of contract. And, of course, those companies that wish to do business in Alaska are more inclined to do so. However, as I indicated earlier and as you are aware, a lot of these deeds of trust go through three or four different assignments that we have to chase down to get the payoff, and those people are not licensed to do business in the state - they're not required to be, by the way - and ... they really have very little, if any, nexus to the state. ... Therefore, our ability to force them to do what is right is somewhat limited. This puts the burden on the title industry. But, on the other hand, it is our burden to clear title and therefore it is ... the most responsible group to sort of require the release of these deeds of trust upon. ... And we are, by the way, ... an industry that is regulated heavily by ... the Division of Insurance. ... We are required to have fiduciary bonds. ... We are used to dealing with people's monies, and ... I think, are a trustworthy group to release deeds of trust when they've been paid. Number 0300 REPRESENTATIVE CRAWFORD asked whether this bill would change the process of sending the owner a deed of trust to record after a property was paid off. He cited an example of his own rental properties [in Louisiana]. MR. PRICE said no. What happens to perhaps 95 percent of all deeds of trust won't change. When one is paid off, the request for reconveyance and the note are sent to the title company, which releases and reconveys it almost immediately. Once the mortgage is paid off, the collection agent would send it automatically to the title company, or would send it to the owner with advice to send it to the title company. He said this bill would only affect the approximately 4 to 5 percent of deeds of trust that "we cannot get the lending institution to release, though we know they have received their payment." Number 0205 REPRESENTATIVE CRAWFORD said he didn't recall ever sending a deed to a title company. REPRESENTATIVE ROKEBERG explained that the title company holds the deed until it's satisfied; the request for reconveyance is the request "to send you the deed when you paid it off." He said that's it in a nutshell: these outside lenders aren't sending the verification or the request for reconveyance to allow the title company, which holds the deed, to provide it to [the owner]. REPRESENTATIVE CRAWFORD noted that Louisiana doesn't have title companies. REPRESENTATIVE ROKEBERG said Louisiana has French codified law and contract real estate. However, Alaska is a "deed of trust state" where a trustee holds the deed until it is paid off. MR. PRICE affirmed the last statement and said in most instances the local title company is named the trustee. In order to release the mortgage, [the title company] executes a document called a "deed of reconveyance." He remarked, "It's somewhat fictional in the sense that we're not deeding back the property, we're simply releasing the mortgage." Number 0051 JEFF BLAKE, Stewart Title of Alaska, noted that he has been in the title insurance business since 1960 and in Alaska since 1975. Agreeing this problem has only appeared in the last decade because of dealing with outside lenders, Mr. Blake thanked Chair Anderson for sponsoring the bill and requested the committee's support. He said this speaks to the consumer who doesn't quite understand "how come we spent their money and documents still show there's an encumbrance on their property and, at this point, we can't effectively get that cleared for him." He said he'd like to be able to resolve this problem. TAPE 04-33, SIDE A Number 0006 TERRY BRYAN, President, First American Title of Alaska, noted that his company operates in 10 Alaskan communities and does business in 20 recording districts. Concurring with Mr. Price's testimony, he said liability for ensuring the transaction moves forward with this new reconveyance process "stays with a heavily regulated industry." Agreeing with Mr. Blake that this is consumer-oriented, Mr. Bryan described having to sit across the table from a single mother or an elderly couple and apologize that the house cannot be refinanced or sold because the title is clouded, since on the last transaction the lender hadn't provided what was needed, despite proof that the obligation had been satisfied. Mentioning one Anchorage company with 1,485 transactions [pending] from 1993 from outside lenders, he surmised that at least 6,000 consumers now have this problem of transactions where lenders haven't given the instructions to reconvey after [the terms] have been satisfied. Number 0160 CHAIR ANDERSON called attention to Amendment 1, labeled 23- LS1315\D.1, Bannister, 3/18/04, which read: Page 4, line 12: Delete "title insurer's" Insert "title insurance company's" Page 4, line 27, following "section,": Insert "(1)" Page 4, line 28, following "under the trust deed": Insert "; (2) "title insurance company" means a title insurance company or a title insurance limited producer; in this paragraph, "title insurance company" and "title insurance limited producer" have the meanings given in AS 21.66.480" CHAIR ANDERSON asked Mr. Bitney to explain it. Number 0178 JOHN BITNEY, Lobbyist for Alaska Land Title Association, explained that Amendment 1 was put forth at the association's request to clarify those locations within the bill where it says "title insurance company". He said in other states, insurance industries are brokers, agents, and carriers. However, Alaska doesn't have carriers; all companies here have an underwriter or a carrier outside the state. Thus this amendment clarifies that this law applies to Alaskan companies. CHAIR ANDERSON asked whether it is title insurance companies and only changes lines 12, 27, and 28 [of page 4] to be uniform in the bill. MR. BITNEY affirmed that. CHAIR ANDERSON closed public testimony. Number 0297 CHAIR ANDERSON [moved to adopt] Amendment 1 [text provided previously]. There being no objection, it was so ordered. REPRESENTATIVE LYNN remarked that he was shocked to hear there were 6,000 of these [pending cases related to this bill]. Number 0315 REPRESENTATIVE LYNN moved to report HB 421, as amended, out of committee with individual recommendations and the accompanying fiscal notes. REPRESENTATIVE GUTTENBERG commented that as someone who isn't in the business but has bought and sold real estate, he'd always had the impression that one reason for using a title insurance company is to ensure that transactions are handled "instantaneously." He said it amazes him to discover one aspect of the industry hasn't been playing at the same table, and if this helps, he'll certainly support. CHAIR ANDERSON announced that Representative Guttenberg had removed his objection. Number 0415 CHAIR ANDERSON asked whether there was any further objection. There being no objection, CSHB 421(L&C) was reported from the House Labor and Commerce Standing Committee.