MINUTES OF THE SENATE COMMITTEE ON JUDICIARY Sixty-eighth Session March 30, 1995 The Senate Committee on Judiciary was called to order by Chairman Mark A. James, at 8:00 a.m., on Thursday, March 30, 1995, in Room 224 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator Mark A. James, Chairman Senator Jon C. Porter, Vice Chairman Senator Maurice Washington Senator Mike McGinness Senator Ernest E. Adler Senator Dina Titus Senator O. C. Lee GUEST LEGISLATORS PRESENT: Senator Ann O'Connell STAFF MEMBERS PRESENT: Allison Combs, Senior Research Analyst Lori M. Story, Committee Secretary OTHERS PRESENT: M.K. Yokum, Member, Independent Americans Lucille Lusk, Lobbyist, Nevada Concerned Citizens Dale Erquiaga, Chief Deputy, Office of the Secretary of State Bob Barengo, Lobbyist, Securities Industry Association SENATE BILL 286: Revises provisions relating to homestead exemption. The hearing opened with a presentation from Senator Ann O'Connell. As a cosponsor of Senate Bill (S.B.) 286, along with Senator James, she explained its provisions and importance to the committee. The homestead act, the senator told, dates back to the Nevada state constitutional convention in 1864, with the exemption then set at $5,000, where it remained until 1949. The most recent increase to the exemption, she continued, was in 1989, from $90,000 to $95,000. Senator O'Connell stated this bill increases the value of the homestead allowed by the Nevada Revised Statutes (NRS) from $95,000 to $125,000, and makes changes to sections 1, 3, 4, 5, and 6, where the increased homestead value is incorporated. Additionally, section 1, subsection 4 states the effective date of the change, and section 2, subsection 4 clarifies the fees and requires notice of them by persons offering to file homestead actions for others, she explained. Senator O'Connell told the committee the reason for the change to section 2 was in response to correspondence from one of her constituents. She disbursed a copy of the letter (Exhibit C) and a form the constituent enclosed in the letter (Exhibit D). According to statute, the only charge imposed for filing a homestead is the fee to record the paperwork with the county recorder, the witness stated, but some companies, who offer to file a homestead for a home owner charge much more than the recording fee. The fees vary by zip code, she speculated, as suggested by the form sent by her constituent and the form she received at her own home (Exhibit D). The change in section 2 is designed to remedy such a solicitation, the senator said, or at least allow persons to make an informed decision about the services. Senator O'Connell told the committee the $125,000 figure is a result of information provided by area realtors and home builders from Clark and Washoe counties. The Legislative Counsel Bureau (LCB) research personnel also provided the witness with information from the loan administration office for the Housing Division in the Department of Business and Industry: the average new house costs $125,813 in Las Vegas; and existing homes in Las Vegas average $138,184; while in Reno, existing housing runs an average of $126,554; with the rest of the state falling closely within that range. Noting the bill indicates a local government fiscal impact, the witness reported she has requested information from the LCB regarding that impact. She stated she had not yet received it. Senator Adler reminded the committee of his bill draft request (BDR) which attempts to remedy a problem that arose during the previous session. He explained a bill passed last session, which attempts to encourage self-funded retirement by allowing persons to put up to $100,000 in exempt retirement accounts. This has allowed persons who anticipate bankruptcy to dump that much into a retirement account and "rip off their creditors, then after bankruptcy is over pay the 10 percent penalty"...and withdraw the funds, he said. The senator then suggested language be added on page 6 of the bill which would call these transfers voidable, if they occur within 12 months prior to bankruptcy of lawsuit in order to prevent this. Senator O'Connell stated she has no objection to amending the bill as requested, it is simply her goal to provide this option to her constituents. She told the committee that when she mailed notice to her constituents telling them of the homestead option, she received over 600 responses. This makes her believe, she told, the people are concerned about this option and need to be informed or have access to information regarding its existence. Senator Lee asked if it would be feasible to place some type of automatic escalating scale into the bill, rather than revisit the issue every few years. Senator Adler noted there could be problems, citing Texas which has an unlimited homestead (up to $1 million). The problems are similar to those encountered in the retirement plans, people attempt to disguise their resources in their mortgage, he explained. He added that bankruptcy statistics show that Florida and Texas, with their unlimited homestead laws, also have far more bankruptcy filings than any other state, per capita. Senator James pointed out that Senator Lee was not discussing unlimited homestead, but a gradual increase based on the consumer price index (CPI) or some other such index. There was a bill just the previous session that was designed to increase the dollar amount, Senator James observed, which passed the Senate but did not make it through the Assembly before session ended. Senator O'Connell confirmed this. The chairman opined $125,000 is a reasonable amount to allow a homeowner to protect through this law. Senator O'Connell interjected that Pat Coward, who represents Nevada realtors, has just provided information regarding property values in Washoe County. The figures appear to be quite a bit higher than the bill's amount: $133,500. Senator James agreed this was the same in the previous session, adding the idea behind the bill is to protect the home, as a place to live, but it is sometimes necessary to liquidate the excess equity in order to pay creditors. The chairman took an opportunity to explain more thoroughly the system in Texas, noting the state has a rural and city allowance, with allowances varying based on the location of the property. There is no limit set on the value of the homestead, it is set more on the amount of property allowed in the homestead exemption, he said. The senator opined the problem with the CPI is it fluctuates too much and is influenced by many factors outside of real estate values. There was no further testimony and the chairman thanked Senator O'Connell for her presentation. M.K. Yokum, Member, Independent Americans, took the floor stating he only wished to voice support for the bill. Lucille Lusk, Legislative Liaison, Nevada Concerned Citizens, also testified in support of the bill. She spoke of her group's interest in the bill as rooted in the way it helps to prevent the loss of a home when unforeseen circumstances cause financial failure. She told the committee of discussion about a primary residence versus a specific dollar value. It was concluded, without unanimous agreement, $125,000 is a reasonable limit, she said. If the house is worth a great deal more than the limit, but the owner is unable to pay their debts, it does not seem unreasonable for the owner to be required to sell the residence, retain enough to purchase another more reasonable residence, and still pay some of their debts, Ms. Lusk offered. Ms. Lusk stated she favors Senator Lee's suggestion of an escalating scale, noting it would save legislative effort and time. She suggested a timed CPI adjustment, every 3 or 5 years, might be effective. Also, she noted her agreement and support for the requirement in the bill to notify citizens of the true cost of filing a homestead with the county of residence. Senator Adler asked to add that generally, a bankruptcy trustee will not make individuals with homes valued above the limit sell them. They more likely require that they take out a second mortgage on the value over the homestead limit and pay their debts. Senator Lee asked Senator Adler, who would lend a bankrupt person money, even on a second mortgage. Ms. Lusk asked for clarification of wording on page 3, line 17-23. Senator James explained the phrase means a previously filed homestead would automatically be increased up to the value limit under the new law. There was no further testimony on S.B. 286 and the chairman closed the hearing. SENATE BILL 154: Makes various changes to provisions governing securities. SENATE BILL 244: Makes various changes relating to violations of statutes governing securities and commodities. The chairman opened the work session on Senate Bill (S.B.) 154. Dale Erquiaga, Chief Deputy, Office of the Secretary of State, and Bob Barengo, Lobbyist, Securities Industry Association, took the floor. Mr. Erquiaga explained differences between the state and the securities industry had been ironed out. Mr. Erquiaga referred to Exhibit E which is proposed amendments to the bill. The first amendment, resulting from the first hearing on S.B. 154, amends page 2, section 4 to clearly indicate the exclusion of salaried clerks and secretaries, and other employees within a firm from the prohibitions therein. Additionally, Mr. Erquiaga explained, two other amendments are proposed which come from Senate Bill (S.B.) 244, a related bill. These amendments call for an increase in fines imposed (from $20,000 to $100,000) for violations of securities laws and of orders issues by the securities division administrator. This amendment seeks consistency in levels of violation and penalties, he added. Mr. Erquiaga observed the judiciary committee is working on a sentencing reform bill, and voiced his willingness to incorporate these changes into that bill, if that would prove more effective. Mr. Barengo spoke next, offering a request regarding wording on page 1, lines 8-9, which discusses "issues, or otherwise...." He stated it was the association's desire to make clear that individuals who work in the back room, actually generating reports and issuing securities, but with no connection to the sales, are not "going to be regulated and called forward" to answer for sales violations. He emphasized these individuals do not have contact with customers. The chairman asked if the association was asking to have the section deleted. Mr. Barengo opined the secretary of state wished the phrase to remain, but the association wishes to have it clarified who is covered by the word "issues." The chairman offered wording, "to the extent that person has contact with the public." On line 12, Mr. Barengo continued, there is question as to why the term "sales representative" is not included in "broker- dealer or an investment adviser." He noted it is already a regulated term and should be included there. The chairman reiterated the request, to clarify. Mr. Barengo told the committee he is unsure whether the association agrees with wording on page 2 (Exhibit E, amendment (1)), but he could offer no alternative. On page 6, line 2 and 5, he observed, there is an issue which broadly expands the powers of the law. He opined the powers afforded in the section are not properly situated. Mr. Barengo stated: The word `issuer' is in here. The word issuer is a corporation, municipal government, or somebody who is doing something to issue some securities. We're talking in these regulations, about people who are selling them. So, we think that this word,...this is a different policy, a mixing of policy. Senator James asked why "issuer" is there. Neither of the witnesses could offer an explanation. Mr. Barengo emphasized this is not the proper place for this regulation. The chairman agreed to remove it. On page 11, lines 22-28, the witnesses agreed there should be a requirement for a certified or registered mail notification, as a measure of due process. Mr. Barengo told the committee if the person subject to a hearing is not properly notified, or if there is no means to determine if notification is accomplished, there is no reason to proceed with a hearing, anyway. Mr. Erquiaga concurred. There was general discussion as to where this language should be inserted, Mr. Erquiaga stated, "add either in section 2 or in the new subsection 3, is the notice required must be sent certified." It was agreed it should be entered in subsection 2 of section 18, lines 9, and in subsection 3. SENATE BILL 545 OF THE SIXTY-SEVENTH SESSION: Provides duties and liabilities of financial planners. Finally, Mr. Barengo asked to add a new section to the bill. This section is a result of Senate Bill (S.B.) 545 of the Sixty-seventh Session, which requires certain persons to have "certain liabilities." Mr. Barengo explained it is designed to exempt people who were already licensed, but it failed to do it effectively. There resulted emergency regulation and other "convoluted things to try to solve the problem in the bill," he said. Mr. Barengo noted S.B. 545 of the Sixty-seventh Session cited the wrong sections, and should have cited the entire [Nevada Revised Statutes (NRS)] chapter 90. He provided the chairman with a copy of the emergency measure which was drafted to correct the problem (Exhibit F). Mr. Erquiaga explained to the committee that S.B. 545 of the Sixty-seventh Session was proposed by the AARP (American Association of Retired Persons), who was concerned about persons who hold themselves out as financial planners, without any credentials or licensure. He opined "the brush was too broad" in the attempt to curtail this activity. Mr. Barengo asked to add, "under NRS 628.010 (3)(e), a broker-dealer or sales representative, licensed pursuant to chapter 90, is exempt from licensing thereunder." Senator Adler asked if there are still trust and estate planning seminars being put on by unlicensed people. He said he believes there are. He asked if the bill from the previous session was designed to stop those activities. Senator Titus opined these activities are what prompted S.B. 545 of the Sixty-seventh Session. Senator Adler opined if the present bill is going to address the issue, something should be done to include an enforcement mechanism. Mr. Barengo noted currently, under the law, a remedy to sue results from a violation. Senator Adler again opined there should be some criminal violation. He reiterated there is a great deal of money lost to these fraudulent financial planners. Senator James asked for clarification, inquiring where it is currently codified. The reply from Allison Combs, Senior Research Analyst, was NRS 628A.010(3)(e). The chairman continued his clarification, with Mr. Barengo again offering his proposed wording. The chairman asked if the secretary of state has any objection to this addition. Mr. Erquiaga denied any objection. Senator Adler opined the problem is the statute provides for financial planners who "foul up" but does nothing to people who simply profess to be financial planners. Senator James outlined the proposed changes, asking if everyone on the committee understood the proposals. He noted his concern with the second amendment proposed by the secretary of state (Exhibit E) is that the Legislature is doing "substantial revisions of the sentencing and penalty laws, and if the second amendment is made, as proposed, it will eventually change again. After confirming the truth-in-sentencing bill will address fines, Mr. Erquiaga agreed with the chairman's request that the second amendment not be incorporated at this time, but would be addressed in the omnibus sentencing bill. The chairman called for a motion to amend and do pass S.B. 154. SENATOR McGINNESS MOVED TO AMEND AND DO PASS S.B. 154. SENATOR LEE SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. ***** At this point the chairman, after conferring with Senator Adler about his desire regarding changes to page 6, and confirming the senator's concerns would be better addressed elsewhere, asked for a motion to do pass S.B. 286. SENATOR TITUS MOVED TO DO PASS S.B. 286. SENATOR PORTER SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. ***** The chairman told the committee that with the referral of several more bills to the Senate Committee on Judiciary, it will become necessary to increase the meeting schedule. There was discussion regarding how best to shuffle the schedule and it was decided that Monday afternoons would be the best alternative meeting time. Senator James added the committee has, thus far, handled more legislation than any other Senate committee. Senator Titus told the chairman to expect some new bills which she had introduced on the Senate floor the previous day. She stated she is attempting to gather all the pertinent information and would provide it as soon as possible. BILL DRAFT REQUEST 15-1262: Prohibits person under the influence of alcohol or controlled substance from being in physical control of firearm. The chairman brought out Bill Draft Request (BDR) 15-1262 and requested a motion for committee introduction. SENATOR ADLER MOVED TO INTRODUCE BDR 15-1262. SENATOR PORTER SECONDED THE MOTION. Senator Adler noted the BDR "kinda [sic] tracks the DUI (driving under the influence) driving law." THE MOTION CARRIED UNANIMOUSLY. ***** SENATE BILL 299: Requires department of motor vehicles and public safety to issue permits to carry concealed firearms to certain persons. Senator Titus asked to note the interesting absence of the National Rifle Association (NRA) from the hearing held previously on the concealed weapon bill. She reported their representative Mr. Pappus, came to see her and noted the organization does not have a position on Senate Bill (S.B.) 299. Senator James stated his belief the subcommittee assigned to work on the bill might consider the development of a uniform, county based method. Otherwise, he opined, there will be a "huge fiscal note." Senator Adler retold a conversation he had with the sheriff of Washoe County, who suggested the formulation of a standardized application that all counties would use. Additionally, the sheriff was concerned about the "obvious psychotic" who has never been adjudicated of any crime. Senator Titus opined discretion must be preserved to the county officials. All the committee members agreed it was an issue of importance which might have impact in unexpected areas. The subcommittee, depending on the availability of the research analyst, would try to meet on Friday morning, Senator McGinness announced. There was no further business and the hearing adjourned at 9:30 a.m. RESPECTFULLY SUBMITTED: Lori M. Story, Committee Secretary APPROVED BY: Senator Mark A. James, Chairman DATE: Senate Committee on Judiciary March 30, 1995 Page