FOR CAUCUS & FLOOR ACTION
AMENDED
ARIZONA STATE SENATE
RESEARCH STAFF
|
BRANDY PETRONE LEGISLATIVE RESEARCH ANALYST COMMERCE & ECONOMIC DEVELOPMENT COMMITTEE Telephone: (602) 926 -3171 Facsimile: (602) 926 -3833 |
DATE: February 16, 2006
SUBJECT: Strike everything amendment to S.B. 1393, relating to multihousing; recovery fund
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Purpose
Requires the Commissioner of the Arizona Department of Real Estate (ADRE) to establish and maintain the Multiple Unit Residential Project Recovery Account (Account) for the benefit of any person aggrieved by default of a developer of a multiple unit residential project. Specifies fee requirements, application requirements and ADRE approval and denial requirements for an application to the Account.
Background
ADRE was established in 1921 to protect the public interest through licensure and regulation of the real estate profession in Arizona. ADRE is responsible for licensing and regulating real estate, cemetery and membership camping salespersons and brokers; investigating complaints from the public and licensees regarding real estate transactions; prosecuting licensees to resolve alleged violations of real estate statutes and rules; and providing information to the public on department licensees, including complaints filed and disciplinary history.
In addition, ADRE is responsible for the oversight and regulation of all real estate schools and instructors in the state and the issuance of public reports for subdivisions and unsubdivided land. ADRE also audits brokers’ records and their handling of client monies to ensure compliance with statutory requirements.
ADRE also administers the Real Estate Recovery Fund (Fund). The purpose of the Fund is to compensate persons who have been defrauded in a real estate transaction and subsequently suffered monetary losses. Those persons may seek a court order for an award from the Fund if the person who committed the fraud does not have any assets. The Fund covers up to $30,000 per transaction and up to $90,000 per licensee. In addition to any other fees, a real estate or cemetery broker applicant is required to pay $20 into the Fund and a real estate or cemetery salesperson applicant is required to pay $10 into the Fund.
The strike everything amendment to S.B. 1393 establishes the Account for the benefit of any person aggrieved by default of a developer of a multiple unit residential project. The fiscal impact associated with the strike everything amendment is undeterminable. There is a potential fiscal impact to ADRE due to the creation and administration of the Account.
Provisions
Multiple Unit Residential Project Recovery Account (Account)
1. Requires the Commissioner of ADRE to establish and maintain the Account in the Fund for the benefit of any person aggrieved by default of a developer of a multiple unit residential project.
2. Requires the Account to pay only for a loss that is an actual and direct out-of-pocket loss to the aggrieved person directly arising out of the real estate transaction, including reasonable attorney fees and courts costs, in which both of the following apply:
a) the buyer is harmed as a result of a developer accepting earnest money deposits in connection with the sale or lease of a multiple unit residential project.
b) the developer is not required to and has not placed earnest money deposits in a neutral escrow account at a company licensed to perform escrow business in Arizona or in the trust account of a licensed real estate broker for the benefit of the purchaser.
3. Prohibits an award from the Account from exceeding:
a) 20 percent of the base price for each unit.
b) $1 million for each project, regardless of the number of person aggrieved or the number of units involved.
4. Prohibits a developer acting as a principal or agent in a real estate transaction from having a claim against the Account.
5. Requires the Account to pay only for loss of earnest money deposits arising out of a transaction in which the defendant developer failed to perform acts for which a subdivision public report for a multiple unit residential project is required.
6. Prohibits the Account from paying for loss of earnest money in a subdivision of detached, single-family homes.
7. Specifies what the Account is not liable for.
8. Requires the State Treasurer to invest and divest monies in the Account on notice from the Commissioner.
9. Allows the Commissioner to expend interest monies from the Account necessary to increase public awareness of the Account, not to exceed $50,000 in any fiscal year.
10. Requires an applicant for a subdivision public report for a multiple unit residential project to pay $10 per unit to the Account.
Statute of Limitations and Application for Payment from the Account
11. Requires an action for a judgment that subsequently results in an order for payment from the Account to be started no later than three years from the accrual of the cause of action.
12. Allows a summons for an action for a judgment that may result in an order of payment from the Account to be served by the alternative methods of service provided by the Arizona Rules of Civil Procedure.
13. Requires a judgment that was obtained after service by publication to only apply to and be enforceable against the Account and allows ADRE to intervene in and defend any such action.
14. Allows a person to apply to ADRE for payment from the Account after the aggrieved person obtains a judgment against a developer based on the developer’s failure to perform under the terms of the contract and to return to the buyer the buyer’s earnest money deposit.
15. Requires the claimant to file the original application within two years after the termination of all proceedings connected with the judgment.
16. Allows the Commissioner to waive the two year application deadline if the Commissioner determines that the waiver best serves the public interest.
17. Requires the application to be delivered by personal service or by certified mail.
18. Requires the application to be within the award limitations of the Account for the amount unpaid on the judgment that represents the claimant’s actual and direct loss of earnest money in the transaction.
19. Requires ADRE to prescribe an application form.
20. Allows the Commissioner to waive compliance with the requirements if the claim is based on an award pursuant to a criminal restitution order or if the Commissioner is satisfied that the claimant has taken all reasonable steps to collect the amount of the judgment of the unsatisfied part of the judgment from all judgment debtors but has been unable to collect.
21. Allows the Commissioner to petition the court to initiate a proration proceeding if the Commissioner finds that it is likely that the total of valid claims against any one developer will exceed the award limits.
22. Requires the court to grant the petition and order a hearing to distribute the Account awards among the claimants in a ratio that their respective claims bear to the aggregate of the valid claims or in such other manner deemed equitable by the court.
23. Allows the Commissioner or any party to file a proposed plan for equitable distribution of the available monies.
24. Requires the distribution of monies to be among the person entitled to share them without regard to the order they may have been received.
25. Allows the court to require all claimants against one developer to be joined in one action.
26. Prohibits the court from including in the claims for proration the claim of any person, has not filed complaint with court, served the developer and provided written notice in a timely manner.
27. Allows the court to refuse to consider or award prorated recovery to any person who fails to prosecute a claim or file an application for payment.
28. Requires the Commissioner, if there are insufficient monies in the Account to satisfy any duly authorized claim, to satisfy unpaid claims in the order the originally filed when sufficient money has been deposited, plus accumulated interest at the rate of four percent per year.
Notice of Claim to Judgment Debtor
29. Requires an aggrieved party who applies for payment from the Account to serve notice of the claim on the judgment debtor, including a copy of the application, in the form prescribed by the Commissioner.
30. Requires the judgment debtor to file a written response with the Commissioner within 35 calendar days from service of the notice and send a copy of the response to the claimant. Failure to timely file a response constitutes a waiver of objection.
31. Requires notice to be sent to a licensee’s latest address on file with ADRE.
32. Requires the claimant to publish the notice once a week for two consecutive weeks in a newspaper of general circulation in the county in which the judgment debtor was last known to reside if the claimant cannot effect personal delivery of the notice.
33. States the judgment debtor is not entitled to notice of any action taken or proposed to be taken by the Commissioner if the judgment debtor fails to file a written response to the application within 35 calendar days after service.
Correction of Deficiencies in the Application
34. Requires the Commissioner to mail an itemized list of deficiencies in an application to the claimant if the application fails to substantially comply with the application requirements.
35. Requires the claimant to respond within 60 calendar days after receiving the list of deficiencies by providing the information identified by the Commissioner.
36. Requires ADRE to close the file if the claimant fails to correct the deficiencies within 60 calendar days.
37. Suspends the deadline for the Commissioner to make a decision on the application if the Commissioner mails a list of deficiencies to the applicant.
Final Decision and Order on a Claim
38. Requires the Commissioner to make a final written decision and order on a claim with in 90 calendar days after receiving a completed application and specifies exceptions to the 90 day deadline.
39. Approves a claim that has not rendered a written decision and order within the deadline.
40. Specifies the language to be stated in a notice to deny an application.
Appealing the Denial of a Claim
41. Allows a claimant to file a verified application to the court in which judgment was entered in the claimant’s favor for an order directing payment from the Account based on the ground set forth in the claimant’s application to the Commissioner within six months after receiving notice of denial of the claim.
42. Requires the claimant to serve a copy of the verified application on the Commissioner and the judgment debtor and specifies the requirements for the service.
43. Requires the Commissioner and the judgment debtor to file a written response within 30 calendar days after being served with the verified application.
44. Requires the court to grant a request of the Commissioner for a continuance of up to 30 calendar days and may continue the hearing for such time as the court considers appropriate.
45. Requires the claimant to establish compliance with the application requirements.
46. Allows the Commissioner to compromise or settle a claim at any time if the judgment debtor fails to file a written response to the verified application and required the court to issue an order directing payment from the Account.
47. Allows the Commissioner to enter an appearance, file an answer, appear at the court hearing, defend the action or take any other action the Commissioner considers appropriate on behalf of and in the name of the Account.
Miscellaneous
48. States a failure of an aggrieved person to comply with the Account requirements constitutes a waiver of any rights under the Account statutes.
49. Specifies the Account statutes do not limit the authority of the Commissioner to take disciplinary action against any developer for a violation of the Account statutes or rules.
50. States a repayment in full of all obligations to the Account by any developer does not nullify or modify the effect of any other disciplinary action brought pursuant to the Account statues or rules.
51. Becomes effective on the general effective date.
Amendments Adopted by Committee
· Adopted the strike everything amendment.
Senate Action
CED 2/15/06 DPA/SE 8-0-0
BP/jas