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NEBRASKA REAL ESTATE COMMISSION June 14, 2004 Goldenrod Room Ramada Limited South Lincoln, Nebraska Opening Chairperson Gale convened a meeting of the Nebraska Real Estate Commission at 9:05 a.m. on June 14, 2004, in the Goldenrod Room of the Ramada Limited South, located at 1511 Center Park Road in Lincoln, Nebraska. All of the members of the Real Estate Commission were present, with the exception of Commissioner Shepard, who was absent and excused. Also present were Director Les Tyrrell, Deputy Director for Education Teresa Hoffman, Deputy Director for Enforcement Terry Mayrose, and Administrative Assistant Heidi Burklund. Abbie Widger, Special Assistant Attorney General and Counsel to the Commission, was present for the awarding of the errors and omissions insurance contract. Notice of Meeting (Adopt Agenda) Director Tyrrell presented a public notice and proofs of publication thereof relating to this meeting, all of which are attached to and made a part of these minutes. Chairperson Gale reported that all Commissioners had been notified of the meeting simultaneously, in writing, and that a proposed tentative agenda accompanied the notification. Chairperson Gale pointed out to those in attendance that a public copy of the materials being used during the meeting was available to the public on the counsel table in the meeting room, and that the procedures followed were in accordance with the Open Meetings Law. Chairperson Gale asked that guests sign the guest list. Director Tyrrell noted that agenda item 16a had been added since the tentative agenda was mailed to the Commissioners. Director Tyrrell reviewed the Nebraska Hall of Fame Commission =s situation regarding roll call votes. The intent of the Open Meetings Law was to know how each Commissioner voted. The Commission has always recorded Commissioner votes individually, even though voice votes were typically used for routine business. The Attorney General=s office suggested that each vote, regardless of the nature of the vote, be a roll call vote. It was the consensus of the Commission that all future votes of the Commission will be taken by roll call.After review of the final agenda, a motion was made by Johnson and seconded by Wiebusch to adopt the final agenda as presented. Motion carried with Johnson, Moline, Poskochil, Strand, Wiebusch, and Gale voting aye, and with Shepard not participating or voting, being absent and excused. Minutes of May 19, 2004 The minutes of the Commission meeting held on May 19, 2004, were considered. After review, a motion was made by Strand and seconded by Moline to approve the minutes as presented. Motion carried with Johnson, Moline, Poskochil, Strand, and Wiebusch voting aye, with Gale not participating or voting, not having been present at the meeting, and with Shepard not participating or voting, being absent and excused. Receipts and Expenditures Report Director Tyrrell presented the Receipts and Expenditures Report for May. A copy of said report is attached to and made a part of these minutes. Director Tyrrell noted that the only unusual item to report in Receipts was in Category 491300, Sale of Surplus Property, which was from surplusing the old examiner laptops, and was probably the highest amount ever received from selling surplus property. Expenditures Category 521500, Publication and Printing, was over for the month and year to date because of the Commission Comment; Category 522200, Conference Registration Fee, was for the District Meeting in South Carolina; Category 541500, Legal Services Expense, was primarily for the Martin hearing last month; and Category 573100, State-Owned Transportation, included charges for two months. The cash fund balance as of May 31, 2004, was $827,896.84, which compared to a cash fund balance of $711,636.24 on May 31, 2003. After discussion, a motion was made by Moline and seconded by Johnson to file the May Receipts and Expenditures Report for audit. Chairperson Gale said that the budgeted amounts seemed heavy on expenditures and light on revenues. Director Tyrrell noted that the Commission had always asked for conservative budget estimates, since renewal fees were based on the real estate market, which could fluctuate each year. Expenditures were generally based on the average of the last 3 years = expenditures, plus salary and benefit increases. The Commission wanted a more detailed budget than the state required, so Commission staff took what the state required and broke it down into monthly budgeted amounts. For cyclical expenditures, Director Tyrrell tried to plan in which months expenditures happened per category. Chairperson Gale said it seemed like a good year for expenditures, and an extremely good year for receipts. Director Tyrrell noted that receipts usually exceeded the budgeted amount.Chairperson Gale noted that the cash fund balance had grown by approximately $100,000.00 this year. He was concerned about the Legislature looking for money. Director Tyrrell said the amount was a little high, but the Commission =s low point was usually at the end of August or first of September, depending on when renewals were mailed. Revenue would continue to decline until renewal fees started coming in. The cash fund balance high point was around January 1. The Commission could look at it from a standpoint of reductions in fees if they did not want the cash fund balance to get too high. We tried to keep about 6 months of funds in the cash fund at the low point.Commissioner Moline said that, at last month =s meeting, a similar concern was expressed by Commissioner Strand. Commissioner Moline said there was a time when receipts had declined considerably. Director Tyrrell said yes, there had been very serious cash flow problems at a point in the past, because of economic fluctuations. Commissioner Moline said that some of that history should be helpful, now that we have a balance, to make the budget closer to the actual amount. Director Tyrrell noted that salaries and health insurance were pretty much the only non-constants. The Commission could reduce license fees if they wanted, but would want to be somewhat careful. A $10 reduction per licensee was about $70,000. Commissioner Moline said the budget was OK for today, but he did not know if license fees should be reduced. Commissioner Strand said that, if the Commission guidelines intended for 6 months of funds to be available at the low point, then it was OK, but there was no need to let the cash fund balance continue to creep up.A vote was taken on the pending motion. Motion carried with Johnson, Moline, Poskochil, Strand, Wiebusch, and Gale voting aye, and with Shepard not participating or voting, being absent and excused. Specialized Registrations There were no specialized registrations to be presented at the meeting. Non-Resident Licenses and Resident Licenses Issued to Persons Holding Licenses in Other Jurisdictions Report Deputy Director Hoffman presented for ratification the Non-Resident Licenses and Resident Licenses Issued to Persons Holding Licenses in Other Jurisdictions Report, a copy of which is attached to and made a part of these minutes. After review, a motion was made by Moline and seconded by Wiebusch to ratify issuance of the licenses as set forth in the report. Motion carried with Johnson, Moline, Poskochil, Strand, Wiebusch, and Gale voting aye, and with Shepard not participating or voting, being absent and excused. Reciprocal Agreement with Mississippi Real Estate Commission Deputy Director Hoffman presented an exhibit which consisted of the proposed reciprocal agreement with Mississippi, a copy of which is attached to and made a part of these minutes. Deputy Director Hoffman noted that it was a fairly typical agreement, which will allow Nebraska licensees to obtain reciprocal Mississippi licenses and allow dual license holders to meet continuing education requirements in their resident jurisdiction only. Nebraska licensees had to be licensed by Nebraska examination, and had to be on active status, in order for a reciprocal Mississippi license to be issued. After discussion, a motion was made by Wiebusch and seconded by Johnson to enter into the reciprocal agreement with Mississippi. Chairperson Gale noted the recent agreements with Pennsylvania and Mississippi, and said it seemed a remote chance that Nebraska licensees would want licenses there. Chairperson Gale asked if the other states were seeking them, so that their licensees could do agricultural sales. Deputy Director Hoffman said the Commission had a philosophy of giving full credit to our counterparts in other states, which worked well. Nebraska still required an application, background check, and certification for reciprocal licensees. Chairperson Gale asked if the agreement was offered at our licensees = request. Deputy Director Hoffman said no, and not at their end either. With the Internet, more people were doing business in multiple jurisdictions. Director Tyrrell noted there was a total of approximately 750-800 nonresident Nebraska licensees. License recognition was a philosophy fostered by ARELLO, and to some extent by the National Association of REALTORS7, to make licensing easier between jurisdictions. Management companies and commercial licensees frequently needed it, as well as residential licensees.Chairperson Gale asked if reciprocal licensees had to associate with a local broker. Director Tyrrell said no. Nonresident licensees had to sign an affidavit stating they read and understood the Nebraska laws, and if they were an associate broker or salesperson, their broker also had to hold a Nebraska license. The granting of a license in Nebraska gave the Commission service of process rights. Chairperson Gale said that lawyers from other states had to associate with local counsel. Director Tyrrell said that was not the case here. Chairperson Gale said that if licensees were still under their home broker, the broker may not know the law better than the salesperson. Director Tyrrell reiterated that nonresident licensees had to sign an affidavit stating they read and understood the Nebraska laws, and that the Commission had service of process rights. Chairperson Gale said if they did not have to take the test in Nebraska, if they violated the law, the Commission could discipline them after the fact. If a transaction was done wrong, it was done. Requiring education could get it done before the transaction. Director Tyrrell said it was handled exactly the same way as if a resident Nebraska licensee violated the law. Chairperson Gale questioned whether the Commission was being too liberal with reciprocal licensing or tempting people to move in on the market here, which was like outsourcing. Director Tyrrell said he did not have statistics, but in 25 years of license recognition, there had been maybe 3 disciplinary hearings on nonresident licensees. If there was a problem, the public would let us know. Commissioner Johnson asked if it was the same national test in other jurisdictions. Deputy Director Hoffman said that, among the 4 testing companies, there were very similar national examinations. Commissioner Johnson asked if some states did their own test. Deputy Director Hoffman said some did, but they used the outlines similar to those of the examination companies. Commissioner Poskochil noted the Commission had the power to revoke nonresident licenses. Director Tyrrell noted the Commission also had the right to issue or not issue a nonresident license, just like those on the examination list. Commissioners could bring it up if they saw a problem with a name on the nonresident list. Commissioner Moline said that, in one case, he had previous experience with a nonresident broker, and the Commission brought him in for a special appearance before allowing him to be licensed in Nebraska. Director Tyrrell said that Georgia had the same reciprocity law as ours, and a few other jurisdictions were going to that. Commissioner Poskochil said he would want to know the laws of another state if he was doing business there. Chairperson Gale asked if the Commission required proof of errors and omissions insurance. Director Tyrrell said yes, that the licensee had to get our errors and omissions insurance policy or its equivalent. Chairperson Gale said that solved a lot of problems for him, because the Commission had jurisdiction and knew the licensee had errors and omissions insurance . A vote was taken on the pending motion. Motion carried with Johnson, Moline, Poskochil, Strand, Wiebusch, and Gale voting aye, and with Shepard not participating or voting, being absent and excused. Examination Report - May Deputy Director Hoffman presented for ratification the May Examination Report, a copy of which is attached to and made a part of these minutes. After review, a motion was made by Moline and seconded by Wiebusch to ratify the May Examination Report for the purpose of issuing licenses. Motion carried with Johnson, Moline, Poskochil, Strand, Wiebusch, and Gale voting aye, and with Shepard not participating or voting, being absent and excused. Real Estate Education Matters Prelicense Education Instructor Approval Deputy Director Hoffman presented for ratification the Prelicense Education Instructor Approval Report, a copy of which is attached to and made a part of these minutes. Continuing Education Activity Approval Deputy Director Hoffman presented for ratification the Continuing Education Activity Approval Report, a copy of which is attached to and made a part of these minutes. Continuing Education Instructor Approval Deputy Director Hoffman presented for ratification the Continuing Education Instructor Approval Report, a copy of which is attached to and made a part of these minutes. After review, a motion was made by Moline and seconded by Poskochil to ratify the reports. Motion carried with Johnson, Moline, Poskochil, Strand, Wiebusch, and Gale voting aye, and with Shepard not participating or voting, being absent and excused. Pending Sworn Complaints and Investigative Matters Director Tyrrell presented a summary report of the pending complaints, which included a list of licensees presently under disciplinary action or on appeal. A copy of said report is attached to and made a part of these minutes. No action was necessary on this report. The following sworn complaints and investigative matters were presented to the Commission:
Presentation of Stipulation and Consent Orders Complaint #2004-011, Deputy Director for Enforcement Mayrose presented a stipulation and consent order in the matter of Complaint #2004-011, Brian A. Dostal & Russell S. Dostal vs. Thomas J. Haiar. A copy of said order is attached to and made a part of these minutes. Mr. Haiar was not present. Deputy Director Mayrose reviewed the circumstances involved and noted the provisions of the order, which had been signed by Mr. Haiar. The order specified a censure plus six hours of additional continuing education, with three hours in agency and three in ethics, to be completed within six months. After discussion, a motion was made by Johnson and seconded by Poskochil to enter into the order as presented. After additional discussion, motion carried with Johnson, Moline, Poskochil, Strand, Wiebusch, and Gale voting aye, and with Shepard not participating or voting, being absent and excused. Hearings There were no hearings scheduled for the meeting. Informal Special Appearances Gary Lind Hardt, Potential Applicant Director Tyrrell presented an exhibit which included correspondence regarding Mr. Hardt =s special appearance, and information regarding Mr. Hardt=s criminal history. A copy of said exhibit is attached to and made a part of these minutes. Mr. Hardt was present.Chairperson Gale reviewed the procedure for informal special appearances. Mr. Hardt said he was born and raised in Lincoln, and had been in retail and sales his entire life. He is currently 51 years old. About 13-14 years ago, in 1989, he had two locations of a clothing store. In transferring funds between Boulder and Lincoln, the Boulder account came up short, and a couple of checks were returned. The charge was theft by deception. Mr. Hardt really did not think he had intentionally done anything wrong, because he was used to doing business that way and anticipating deposits, so he decided to defend it and was not successful. He was sentenced to probation. In 1991, when opening his second location in Nebraska, there was a misunderstanding with O Street Carpet. Mr. Hardt did not know the total was due at delivery, and he was not prepared, but they were not going to lay the carpet without it, so he wrote the check. Mr. Hardt had a good relationship with the owner at O Street Carpet, but all returned checks were automatically sent to a collection agency, who had a note to send any bad checks directly to the Lincoln Police Department (LPD). The owner told LPD not to prosecute Mr. Hardt, but they told him they did not need the owner to prosecute, they would do it. Mr. Hardt was sentenced on that and resentenced on his probation, and had to serve 18 months at the Lincoln work release facility. Mr. Hardt ran the store there until his work release started, then managed the Sunglass Hut while on work release. Since then, after his sentence was all done, he was a night auditor at a hotel and managed the Bugle Boy outlet, so he was working both night and day shifts. Then he was the manager at Quality Inn, then went into business for himself selling sunglasses wholesale to convenience stores and tanning salons. That business was successful. Mr. Hardt had accounts all over the country with that, and went to trade shows. Mr. Hardt also opened a new division for Cellular One in 1995-96, placing kiosks in stores. He was very successful, and was promoted to retail sales manager for Lincoln, including all retail locations. Cellular One got a new general manager for Nebraska and Kansas, who developed dealer channels with businesses like Circuit City, Radio Shack, etc. Chairperson Gale noted that the Commission had the exhibit which contained this information. Mr. Hardt said he got shorted about $100,000 per month when Cellular One just withheld commissions. Mr. Hardt tried to hold on through that temporary problem, then it turned out it was not temporary. He had been the largest dealer in the country for Cellular One. Mr. Hardt could not pay the overhead, but tried to keep the business together. He was in the process of branching out with K-Mart when the bounced checks hit. The end of the collapse was March of last year, which had started in September, and ate up everything he had. Chairperson Gale asked about the personal judgments, and whether Mr. Hardt would need to file for bankruptcy. Mr. Hardt said he took out personal loans and sold stock to try to make payroll. He lost his home and everything he had, and had to move in with his parents. He had business-related debts, and he could not afford an attorney to defend them. He had to let the judgments be entered against him. Some of his current income went to that, and he hoped to pay the judgments off eventually. He was also selling some cellular accessories to convenience stores. His plan was to declare personal bankruptcy, but he also planned to pay off the judgments. He would not be able to rebuild his net worth until that was done. Mr. Hardt anticipated declaring bankruptcy this month. Chairperson Gale asked if there were no additional charges for the ensuing 12 years. Mr. Hardt said that, with the Cellular One problem, the police department thought he was kiting checks when he fell behind. Mr. Hardt got overdrawn, and got a 90-day $75,000 note. His electronic deposits went from $300,000 per month to $125,000 per month. The bank got nervous, and started returning checks even though there was money in the bank. Without investigation, LPD arrested him because of his past history. The lead detective was same as 12 years ago. Mr. Hardt met with the county attorney =s office in February. The police record was inaccurate regarding the dates, because he was actually arrested in February. After numerous continuances, the county attorney=s office finally got all his bank records and dismissed the charges on August 18.Commissioner Moline noted the April 14, 1993, forgery charge that was dismissed, and asked what was the complaint. Mr. Hardt said he had no idea. Some of those dates were skewed too. Mr. Hardt said LPD threw on a number of charges, and had stacked the charges to get a plea bargain. Mr. Hardt said he did not know what that charge was, and that he did not remember a forgery charge. He did not quite follow the terminology, but all the charges had to do with checks. Commissioner Moline referred to the potential second check kiting situation, and that Mr. Hardt =s materials said that Cellular One was stripping their sales force. Commissioner Moline questioned why Mr. Hardt was able to sell so much more than the existing sales force; and also asserted that most businesses had only one bank whenever possible. Mr. Hardt said that independent dealers could work their own deal with customers. Cellular One stores could only sell contracts set in stone by the company. Dealers bought their own equipment, and could sell it at whatever price they wanted or give it away. His company always gave away a leather case and a car charger, and could still make money. He also advertised very heavily. Cellular One paid a certain amount of advertising costs. At his in-store kiosks, he gave away a free phone, a case, a car charger, and the first month of service. His operation depended on the bottom line, based on how much you can give away and still be profitable. Mr. Hardt gave away lots, and operated on a smaller net. He paid twice the commission than company stores. His people were really going after business. The corporate stores did not advertise in smaller towns, and did not drive their business.Commissioner Moline reiterated his question about the multiple banks. Mr. Hardt said he did not have 5 banks at one time. For example, Wells Fargo had locations in Nebraska and South Dakota, but not in Kansas. He changed to Security First, which had no locations in Omaha or South Dakota. Wherever he operated, he opened an account at a local bank so his employees could cash their payroll checks. There were not consistent locations in all 3 states. Over the years, he had different banking arrangements depending on where his business was growing. He had to find banks in the areas of expansion, then transfer funds to Lincoln banks. Mr. Hardt distributed an exhibit consisting of letters of reference. A copy of said exhibit is attached to and made a part of these minutes, denoted as Exhibit 12a1. Mr. Hardt said there were references from his current employer and from Jim Bisignano, who was the district sales manager for Cellular One when he worked there, and was now director of retail sales for Alltel in Lincoln and Omaha. Commissioner Poskochil asked about the size of the returned checks. Mr. Hardt said they were each around $1000. Commissioner Poskochil asked if others were returned, but only two were prosecuted. Mr. Hardt said those were the only two checks that did not clear. He was trying to think back to that time, and thought the checks may have cleared on redeposit. Commissioner Poskochil noted that, in the past, banks usually gave customers the chance to make a check good. Mr. Hardt said this had happened at First Federal Lincoln, and the lady had called and said she needed a certified check by 5:30 Friday. Mr. Hardt could not do it because he did not do cash business. The bank shut off his ability to deposit into the account. Commissioner Poskochil asked if that was the first time it had ever happened. Mr. Hardt said yes. He could have brought in his deposits to cover the funds, but the bank would not take checks from his customers. Commissioner Poskochil said Mr. Hardt could have borrowed the money. Mr. Hardt said he did not have the borrowing ability at that time. Commissioner Poskochil asked when Mr. Hardt thought he would have to pay for the carpet. Mr. Hardt said he thought it was 30 days billed. Mr. Hardt said he had operated under an assumption, but the owner did not present it as needing a check on the day of delivery. All other work he had done had been invoiced. Mr. Hardt had not previously worked with O Street Carpet. Commissioner Poskochil noted Mr. Hardt was a first-time customer, but did not ask about the terms. Commissioner Poskochil asked what was the size of the check. Mr. Hardt said it was about $1000 or $1100. He had a lot of work done on all his locations, and it was always invoiced by all the workers. By itself the situation looked bad, but he had been putting stores together for a while, and never had a business demand a check on delivery. Commissioner Poskochil said there had been a misunderstanding, but Mr. Hardt was still on probation for the two previous bad checks. Mr. Hardt had to have known that the check was not covered, and that he would be in severe jeopardy if it bounced. Commissioner Poskochil asked when Mr. Hardt anticipated covering the check. Mr. Hardt said he would have been able to take care of it with deposits from customers if it came back. Commissioner Poskochil asked when it was paid. Mr. Hardt said it was probably about 6 weeks until the check was paid, but it was before he went to court. Commissioner Poskochil asked if Mr. Hardt was notified that the check did not clear. Mr. Hardt said not until he was arrested. Computer Check had been notified to let LPD know if they received a bounced check from Mr. Hardt. The check went directly from the collection service to the police, without notifying him. Commissioner Poskochil asked if any other checks were unpaid. Mr. Hardt said not that he recalled, and said the police would have pursued those too. Commissioner Poskochil asked who lowered the bar on credit criteria for Cellular One, since Mr. Hardt could set his own policies. Mr. Hardt said Cellular One lowered it, and set the criteria of who would be approved. Commissioner Poskochil asked if people had to pay for their phones if they did not fulfill their contracts, and if that type of situation caused the personal judgments. Mr. Hardt said the personal judgments were from vendors, not consumers. If the commission was charged back, it did not cost the consumer. In 2000-01, when technology stocks were doing badly, they were affected. His business was good, but theirs was horrible. Cellular One had lowered the credit criteria to generate business, but it cost them because the new customers were not creditworthy. It was totally Cellular One =s authorization, and he used their approval code on the applications. It was not just that the commission was taken away, but he also had all the costs of buying the phone, accessories, and first month, plus paying K-Mart a percentage per customer, so their costs were huge.Commissioner Poskochil noted Mr. Hardt had a couple of accidents, in 2002 and 2004. Mr. Hardt said that, in both instances, he was hit from the back and forced into the car in front of him. Commissioner Poskochil asked about Mr. Hardt =s DWI and driving on a suspended license. Mr. Hardt said he had a Texas license that was just renewed and sent to him, and he always had it. When the revocation period for his DWI was over, he had not gotten his Nebraska license reinstated, because he had a Texas license. When he got the ticket it was explained to him that the privilege of driving in Nebraska had been revoked, not just his license.Commissioner Poskochil asked for the total amount of the personal judgments. Mr. Hardt said it was about $100,000. Commissioner Johnson asked if Mr. Hardt had talked to brokers about employment. Mr. Hardt said he had not contacted brokers yet, until he had a license in hand. Commissioner Johnson asked if Mr. Hardt had completed his prelicense education. Mr. Hardt said he completed Principles and Practices last Friday, and the next class was coming up. Both were week-long courses. Chairperson Gale asked about Mr. Hardt =s educational background. Mr. Hardt said he attended the University of Nebraska for 2 years. He got a job offer in 1972 with a chain of clothing stores, and from 1972-75 he was promoted to assistant manager in Kansas City, then manager in Jackson, MS. He got promotions and worked his way up, and did not go back to school at that time because he was having success. In 1975, he was recruited by a South Dakota company with junior clothing stores which also had stores in Nebraska and Colorado. Mr. Hardt was vice president of sales until 1984, when they went out of business. They helped him open his own business, and he had clothing stores in Lincoln and Omaha area malls. He had those until 1989-90, and the check situation caused him to lose those businesses. He could just close them because he had month-to-month leases.Commissioner Strand said he was trying to get a sense of Mr. Hardt. He had a number of businesses that had not worked out successfully, over 10-12 years. In all of that, there was not much consumer risk. With a real estate transaction, it was usually the largest transaction an individual ever went through. It must be precisely done. Mr. Hardt had demonstrated sales ability, but not whether he could manage a successful financial venture. He was good at sales, but what was gnawing at Commissioner Strand was the consumer issue of the largest transaction in a person =s life. Commissioner Strand asked why Mr. Hardt=s businesses did not make it. Mr. Hardt said personally, he did not have deep enough pockets to ride out the tough times. The failures were not because of consumer issues. He was very customer oriented, and maybe gave away too much to the customer, to get them the best possible deal. That was where his sales ability was - he was very consumer oriented. He would not do anything to make it a bad deal for his customers, or a bad experience for them. That is ultimately how you sell, by taking care of the customer. Mr. Hardt did not know the back end of selling homes, and he assumed the broker had a lot to do with that as far as the final paperwork. Mr. Hardt said he was very consumer and customer oriented, because that was who was signing the paycheck at the end of the day.Commissioner Strand asked whether a future personal bankruptcy was ever a factor for applicants. Director Tyrrell said it was not normally an issue on an application, but they were usually discharged some time ago and there were usually not a string of them. If there were several, the applicant would appear before the Commission. Commissioner Strand asked if a pending bankruptcy should bear weight on the Commission =s decision. Director Tyrrell said the Commission could weigh it, but it would not necessarily keep an applicant from being licensed by itself.After discussion, a motion was made by Poskochil and seconded by Wiebusch to deny Mr. Hardt to sit for the examination. Commissioner Poskochil said he was troubled by Mr. Hardt =s financial problems. Mr. Hardt probably had great sales skills, but in real estate he would be handling other people=s funds. Writing checks without funds was not a good practice. Mr. Hardt had put himself in this situation more than once, and Commissioner Poskochil did not have confidence that he would not do it again. Mr. Hardt had been successful in other businesses, but had a very troubling of history of writing checks without covering them. His decisions may have been made to grow his businesses, but there was always a rainy day, and businesspeople must have the resources to cover what they set in motion. Especially since it was financial trouble, and Mr. Hardt would be handling checks for buyers and sellers, Commissioner Poskochil did not feel it would be in the public=s best interest to license Mr. Hardt.Mr. Hardt said the history was 13 years old, and asked when Commissioner Poskochil would be comfortable with it. Chairperson Gale intervened, and said he did not want the Commission =s discussion to become an argument. When the Commission was done discussing the motion, Mr. Hardt might be allowed to respond, if Chairperson Gale felt it was necessary. Mr. Hardt noted his financial history was 13 years ago, not over the last 13 years.Commissioner Moline asked if the negative motion failed, would it become a positive action. Counsel Widger said yes, if the motion to deny failed, then the potential applicant would be able to sit for examination, unless the Commission took other action. Commissioner Strand noted his personal history with the cellular phone business. When customers did not stay on, chargebacks occurred. That regularly happened with his business, and it was not an uncommon situation. As long as commissions grew, a business could cover that cost. The business scenario Mr. Hardt described was not unfamiliar. Commissioner Strand did not know if Mr. Hardt =s situation was a result of mismanagement or fraud, with the bad checks 13 years ago, but he had provided a not implausible description of what happened with Cellular One. That issue was not a cause of concern for Commissioner Strand.Chairperson Gale noted that the Pardons Board only required 10 years of a clean history. The fact that it happened 13 years ago was of concern at the time, but Mr. Hardt had no further criminal charges in the interim period. Chairperson Gale agreed with Commissioner Strand that bad business practices were not a basis of denying an application. Nine out of ten small businesses failed, usually for capitalization problems. A bankruptcy was strictly a civil proceeding. Chairperson Gale said he was not going to hold Mr. Hardt =s Cellular One business practices against him.A vote was taken on the pending motion. Motion failed with Moline, Poskochil, and Wiebusch voting aye, with Johnson, Strand, and Gale voting nay, and with and with Shepard not participating or voting, being absent and excused. A motion was then made by Strand and seconded by Johnson to allow Mr. Hardt to sit for the examination. Motion failed with Johnson, Strand, and Gale voting aye, with Moline, Poskochil, and Wiebusch voting nay, and with Shepard not participating or voting, being absent and excused. Commissioner Moline said it was a negative vote with a positive ending. Commissioner Moline would want outside verification to change his mind on what had gone on, if Mr. Hardt made a future appearance. Commissioner Moline said police officers had Mr. Hardt on a watch list. Chairperson Gale asked if Commissioner Moline was concerned about the Cellular One situation or the situation 13 years ago. Commissioner Moline said Mr. Hardt explained the situation from 13 years ago, but was still on a watch list when the Cellular One situation came up. Mr. Hardt said it was the same detective, who thought he saw a repeat of 13 years ago. Commissioner Moline said he did not believe police departments looked for ways to go after people. Chairperson Gale noted that the Commission had one missing member, and did not know how he would vote. Based on the motion, Mr. Hardt was not allowed to sit at this time. He could reappear at a future meeting, when the Commission would have a vote one way or the other. Director Tyrrell noted that Mr. Hardt would need to give him additional information from the Lancaster County Attorney or LPD to confirm the version of events Mr. Hardt provided, prior to his next special appearance. Awarding of Errors and Omissions Insurance Contract for 2005 Director Tyrrell presented an exhibit regarding the errors and omissions insurance request for proposals (RFP). A copy of said exhibit is attached to and made a part of these minutes. Director Tyrrell noted that the RFP was sent out as the Commission had instructed. The Commission received two proposals, from Rice Insurance Services Company LLC (RISC) and Williams Underwriting Group Inc. (WUGI). The Budget and Planning Subcommittee, consisting of Commissioners Moline, Wiebusch, and Gale, met two weeks ago. As a part of the process, clarifying questions are commonly asked by Director Tyrrell and Deputy Director Hoffman prior to the Budget and Planning Subcommittee meeting. In this case, clarifying questions were asked of both proposers. In response, one proposer gave a written response which, in addition to making clarifications, offered to amend their RFP to do two additional things, which were not part of original proposal sent in. Director Tyrrell contacted the Risk Manager and discussed the situation. The Risk Manager said the Budget and Planning Subcommittee could either: 1) start the entire RFP process over again; or 2) the Budget and Planning Subcommittee and the Commission could not be given the amendments prior to making a decision. Director Tyrrell and Deputy Director Hoffman knew what the amendments were, but that was acceptable, because they were not the decision makers. The Budget and Planning Subcommittee decided to proceed without the additional information, which was still not being used in this process. Commissioner Moline, chairperson of the Budget and Planning Subcommittee, also noted the information was still not being used, and that it was documented in the Budget and Planning Subcommittee minutes. The Subcommittee recommended that the Commission award the contract to Williams Underwriting Group Inc. Commissioner Moline reviewed the analysis contained in the exhibit, and compared the two proposals. The limits of coverage were basically the same. Both insurance carriers were reputable, with Best rating the WUGI carrier as A++ and the RISC carrier as A. RISC =s coverage cost rose through optional coverages, such as charging $15 extra for coverage in other states; for WUGI, only Iowa coverage cost an additional $40 because of Iowa=s zero deductible. RISC=s appraisal coverage was $200 extra, and was included at no extra charge in the WUGI proposal. RISC had an additional $100 charge for a property management endorsement. Commissioner Moline then reviewed the options for upper limits coverage with the Commission. He pointed out that WUGI=s proposal did not entail any qualifications for the coverage, while RISC reviewed the percentage of residential business and prior claims history. Commissioner Moline said that he did not know where one would get statistics on a licensee=s percentage of residential versus other real estate activity, and he felt pulling together prior claims history would be very difficult and time-consuming for the licensee. His experience was that past carriers were not very responsive in supplying this information. He stated that when WUGI had been the program administrator, his firm had been able to buy the basic policy coverage both in the name of the individual designated broker and in the name of the firm, which gave some additional coverage. He reported that he had asked staff to inquire into this practice with RISC to see if something similar could be done without going through the screening for upper limits described in the proposal. The answer from RISC had been Ano.@ While the WUGI base premium and the conformity endorsement for Iowa were higher, the WUGI definition of covered services was more inclusive for the price than that of RISC. There were a large number of licensees in the Omaha area who had an Iowa license, so there was a slight increase for those licensees. Many commercial deals would go through the minimum coverage quickly, so the ability to increase the minimums at guaranteed coverage with the WUGI policy was of great value.Commissioner Strand asked how often the Commission went through the RFP process. Deputy Director Hoffman said the last full RFP was in 2001. Last year, the Commission =s provider lost their underwriter, so the Commission did a sole provider RFP. The Commission used to do an RFP every two years, then the Risk Manager said go to 5 years. During the first 5 year contract, insurance prices went down, so the Commission went out for another RFP, then did another contract for 5 years. Commissioner Strand asked if RISC=s bailing the Commission out of that problem had been discussed by the Budget and Planning Subcommittee. Commissioner Moline said it had, and that stability of the market was also part of the discussion. Both companies had served Nebraska licensees well, both represented reliable carriers, and both had experience surviving the pressures of the insurance industry. The choice had been difficult, and boiled down to very specific aspects of coverage.Commissioner Moline said the Budget and Planning Subcommittee had also discussed the advantage of being able to choose a real estate attorney, rather than an insurance attorney, under the WUGI policy. Commissioner Moline again noted that WUGI =s covered services appeared to be more inclusive. He further noted the inclusion of the services of an escrow agent when engaged in the services of selling, listing, managing, and appraising real estate, and included the handling of funds. He confirmed with Deputy Director Hoffman that this language varied from RISC=s proposal on the coverage of trust funds. Deputy Director Hoffman referred the Commission to RISC=s proposed policy language.Commissioner Moline added that both companies had proven to be fine administrators of the program. RISC was planning to implement acceptance of credit cards and online registration prior to our renewal period, but WUGI had provided these options for some time now and had more experience in this operation. He asked if Commission staff felt this was significant. Deputy Director Hoffman confirmed that this capability had allowed many to acquire E & O Insurance virtually immediately, avoiding additional fees when backed up to a deadline. Commissioner Moline asked the other members of the subcommittee and Deputy Director Hoffman if he had left anything out, or if they had anything to add. There was consensus among them that his report accurately and thoroughly reflected the discussion of the subcommittee. A motion was made by Moline and seconded by Wiebusch to award the 2005 errors and omissions insurance contract to Williams Underwriting Group Inc. Commissioner Poskochil asked if either policy covered selling real estate in which a licensee had a personal interest. This was affirmed, and it was pointed out that both defined the limit of personal interest as 25% or more. It was noted that WUGI limited coverage to Aselling primary residence@ while RISC appeared to limit to Aresidential property owned for at least 180 days.@ Therefore, it appeared that more properties would be covered by RISC, but the Subcommittee felt that the condition of having to buy a home warranty policy compromised that benefit.Commissioner Poskochil asked if the subcommittee had considered the difference in assessing deductibles. Commissioner Moline said that the subcommittee had discussed it, and determined that assessing a single deductible per claim per firm was not an uncommon accommodation. He felt it was up to the individuals involved to negotiate such a consideration for themselves, which he felt would likely be accommodated. He did not feel this should amount to a significant difference between the proposals. Commissioner Poskochil asked if the policy would give licensees the option of choosing a higher deductible for a lower premium. Commissioner Moline said the rule allowing higher deductibles would be effective later this summer, so the Subcommittee wanted to leave the deductible at $1000, and look at it for the renewal in 2006. Commissioner Poskochil noted that there were also a lot of Colorado licensees in Nebraska, and asked why only the Iowa endorsement was $40 extra. Commissioner Moline said there was a zero deductible on the Iowa Commission-offered policy. Commissioner Johnson expressed concern over WUGI =s $40 endorsement for those with an Iowa license. Commission staff indicated that they had no reason to doubt the numbers that RISC had suggested were affected by this fee. The resulting discussion centered on the balance of such fees between the two proposals. On one hand, with the RISC policy, all licensees seeking multiple state E & O coverage would pay $15. On the other hand, somewhat fewer of those licensees would pay $40, for Iowa coverage alone. It was determined that the real difference in cost for a very small percentage of licensees was $25 (the difference between a $15 fee and a $40 fee).A vote was taken on the pending motion. Motion carried with Moline, Poskochil, Strand, Wiebusch, and Gale voting aye, with Johnson voting nay, and with Shepard not participating or voting, being absent and excused. Personnel Matters - Closed Session At 2:30 p.m., a motion was made by Moline and seconded by Wiebusch to go into closed session for discussion of personnel matters. Motion carried with Johnson, Moline, Poskochil, Strand, Wiebusch, and Gale voting aye, and with Shepard not participating or voting, being absent and excused. At 4:21 p.m., a motion was made by Moline and seconded by Johnson to go back into public session. Motion carried with Johnson, Moline, Poskochil, Strand, Wiebusch, and Gale voting aye, and with Shepard not participating or voting, being absent and excused. A motion was made by Strand and seconded by Wiebusch to increase Director Tyrrell =s salary by 2%, effective July 1, 2004, through June 30, 2005. Motion carried with Johnson, Moline, Poskochil, Strand, Wiebusch, and Gale voting aye, and with Shepard not participating or voting, being absent and excused.Consider Establishing Executive Committee Chairperson Gale noted that executive committees were becoming more common for the other boards and commissions on which Chairperson Gale served. The world and the information age were becoming more complex, and that was a way to process and channel discussion for making policy. It did duplicate the work for the executive committee, to process the information through the committee and the entire body. Another way to approach issues was to form ad hoc committees as needed. The Commission should continue to think about whether an executive committee was necessary. Chairperson Gale =s experience on the Budget and Planning Subcommittee for the errors and omissions insurance RFP was that the subcommittee had excellent discussion and debate, and developed a recommendation that helped the whole Commission process the information. There were some benefits to the executive committee, but ad hoc committees were a useful interim step. The Commission could do an executive committee later if the Commission wanted to do so.Chairperson Gale said the Commission needed more information about how complaints were initiated, reviewed, and investigated, and the consistency of stipulation and consent orders and the penalties imposed. It might be useful to have an ad hoc committee to study the situation. With the Commission =s consensus, Chairperson Gale would like to appoint Commissioners Strand, Poskochil, and Moline to work with staff to develop meaningful insight into the process that would benefit all Commissioners. It was the consensus of the Commission that those Commissioners be appointed. After discussion, Chairperson Gale appointed Commissioner Strand as chair of the subcommittee.Information Matters Amendments to Title 299, Chapter 8, Errors and Omissions
Insurance, Director Tyrrell reported that the amendments to Title 299, Chapter 8, Errors and Omissions Insurance, were approved by the Attorney General =s office on June 18, 2004, and have been submitted to the Governor=s office for approval.No action was necessary on this report. Future Meeting Dates August 17-18, 2004 - Staybridge Suites, Lincoln September 15-16, 2004 - Days Hotel Carlisle, Omaha Recesses and Adjournment At 10:08 a.m., Chairperson Gale declared a brief recess, and reconvened the meeting at 10:20 a.m. At 11:31 a.m., Chairperson Gale declared a brief recess, and reconvened the meeting at 11:41 a.m. At 1:12 p.m., Chairperson Gale declared a recess for lunch, and reconvened the meeting at 2:25 p.m. At 4:35 p.m., there being no further business to come before the Commission, Chairperson Gale adjourned the meeting. I, Les Tyrrell, Director of the Nebraska Real Estate Commission, do hereby certify that the foregoing minutes of the June 14, 2004, meeting of the Nebraska Real Estate Commission were available for inspection on June 23, 2004, in compliance with Section 84-1413(5) R.R.S. 1943, of Nebraska. Respectfully submitted, Guests Signing the Guest List Perre Neilan, Nebraska REALTORS7
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