Real Estate Commission audit results
What will happen to the Recovery Fund,
Errors and Omissions Insurance?
For the first time in over 20 years, Colorado's State Auditor has performed an audit on the Division of Real Estate, within the Department of Regulatory Agencies (DORA).
On Nov. 14, 2004, the Legislative Audit Committee, consisting of equal members of the House and Senate, reviewed the audit report and its 19 recommendations and hearing testimony from the agency itself. DORA Director Tambor Williams and Division of Real Estate Director Debbie Campagnola commented on and, for the most part, agreed with recommendations given by the Audit Committee.
The audit report recommends that the Errors and Omissions insurance requirement and the state-negotiated group policy, as well as the Real Estate Recovery Fund, be critically assessed and evaluated in regards to any policy alternatives of either program.
In response to the recommendations, Director Williams convened a Real Estate Advisory Committee of 11 members consisting of real estate industry, real estate commission, insurance industry and regulatory representatives. The Committee has met several times since early November to create legislative recommendations regarding the Recovery Fund. The group reconvened Feb. 15 to complete its discussions on Errors and Omissions insurance.
Colorado Association of REALTORS® (CAR) President Jim Rhoades, who sits on the DORA Real Estate Advisory Committee, recognized the importance of these programs and their effects on members and the ability of all licensees to conduct business.
Rhoades appointed a CAR Recovery Fund and E&O Insurance Task Force, which met Jan 5. CAR Past President Bob Brown chairs of this task force made up of over 12 CAR members from various leadership positions statewide. They discussed the benefits of retaining or eliminating the Recovery Fund, as well as viable options of continuing or changing the way the E&O Insurance program operates.
CAR will be monitoring the actions of the recommendations of DORA and the legislature, and will continue to advocate for the protection of the public, as well as Colorado REALTORS® ability to conduct business in a cost effective manner.
Real Estate Recovery Fund
Background
The fund was established by the General Assembly in 1973 to cover willful wrongdoing in real estate transactions, and several years later was amended to include negligence claims. However, in 1996, the negligence claims from the fund were removed and covered under the mandatory Errors & Omissions insurance coverage.
Funding
The Fund was originally funded by licensees paying a $40 fee upon renewal, which is no longer collected. It currently continues to be funded by administrative fines, license reinstatement fees and interest income. In 2002, the General Assembly swept $3.2 million out of the fund, along with other cash funded programs (totaling $203 million) to decrease the state's budget deficit. According to the statute, once the balance of the fund drops under $350,000, the Commission is required to reinstate the licensee fee. Currently, approximately 12,000 licensees who renewed their licenses for 2005 were required to pay $31 to the Fund. The current balance of the fund is $250,000; nine claims are pending with approximately $200,000 payable.
Proposal
DORA presented the legislature's Joint Budget Committee at the Jan. 3, 2005, budget hearing, the first set of recommendations from the Real Estate Advisory Committee.
The recommendation is to eliminate the Recovery Fund, because they believe that the fund has outlived its usefulness, the compensation qualification process is cumbersome, the fund benefits only a select few (seven claimants in 2004), and the elimination of the fund would have a positive impact on the TABOR Amendment of the state budget.
CAR position
The CAR Recovery Fund and E&O Insurance Task Force is concerned about the elimination of the fund since its purpose is to protect the members of the public. Since the Fund cannot be protected from a future sweep by the General Assembly, CAR supports the Division's recommendations in concept, but will closely monitor the issue and any DORA potential legislation.
Errors and Omissions Insurance
Background
In 1996, legislation was created to empower the Real Estate Commission to contract with an insurance carrier to provide non-cancelable coverage for all active real estate licensees, for all acts which require a license, at a premium cap which was $100 per year with appropriate deductibles. Licensees still have the right to obtain independent coverage so long as minimum requirements are met, and that they provide proof of insurance coverage to remain active. Currently, 11 other states have mandatory E&O insurance with the policy being negotiated by the state's real estate commission.
The group policy negotiated by the Colorado Real Estate Commission in 2004 is currently being provided by Rice Insurance Services Company (RISC), with limited basic coverage at a premium of $230.00.
Proposal
The audit report recommended that the Division of Real Estate and the Real Estate Commission evaluate the E&O insurance requirements for all real estate licensees, and determine whether a state-contracted group policy is the optimal arrangement for the State.
Currently under statute, if the state cannot negotiate a contract to provide E&O coverage, then the mandatory insurance requirement for licensees is waived. The DORA Real Estate Advisory Committee reconvened Feb. 15 to complete recommendations regarding the E&O Insurance program, its mandatory requirement for licensees, and the function of the state to negotiate a group policy.
CAR position
The CAR Recovery Fund and E&O Insurance Task Force strongly believe that the E&O Insurance mandatory requirement protects all real estate licensees and the buying and selling public. There is major concern that if the state doesn't negotiate the contract and/or repeal the state's mandatory insurance requirement, the public would be unprotected, and brokers would not have liability coverage and may not be able to obtain preferred insurance rates. |
