STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

In re: Th revocation or Suspension ) of the License of Income )

Development Corporation and Edward ) CASE NO. 75-1587

1. Mathews, President, Mortgage ) Broker License Number 1630 )

   )

   
   

   RECOMMENDED ORDER

   
   

   Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above styled cause on October 29, 1975 at Tampa, Florida.

   
   

   APPEARANCES

   
   

   For Petitioner: Richard M. Goldstein, Esquire Division of Assistant Attorney General Finance The Capitol

   Tallahassee, Florida, 32304

   
   

   For Respondent: Edward K. Matthews

   Tarpon Springs, Florida

   Testified on behalf of the Respondent Income Development Corporation.

   
   

   1. By Administrative Charges and Complaint filed August 15, 1975, the Division of Finance, Department of Banking and Finance, seeks to revoke or suspend the license of Income Development Corporation and Edward K. Matthews as President for violation of Chapter 494, Florida Statutes and Rule 3-3.06(5) FAC. Specifically, Respondent was charged with failure to preserve all books, records, and documents of licensee including a closing statement signed by borrower as required by Section 494.06(3), Florida Statutes, and Rule 3-3.06(5) FAC; charging and accepting fees or commissions in excess of the maximum allowable fees or commissions on various transactions in violation of Section 494.08(4), Florida Statutes, and Rule 3-3.08(3) and (4) FAC; and failure to maintain monies received from investors with an escrow agent until disbursement off said funds is properly authorized, in violation of Section 494.05(1)(f), Florida Statutes.

      
      

   2. The evidence was uncontradicted that in 1974 and early 1975 Respondent entered into some twenty transactions involving investors depositing varying sums ranging from from $2,000 to $12,000 with him for loans to be secured by mortgages on land in Okeechobee County owned by Viking Development Corporation, the ultimate borrower in these cases. Each investor was provided an Offering Circular dated December 15, 1973 of which he acknowledged receipt on his Application To Purchase a Mortgage. The Offering Circular stated that each mortgage would be in the amount of $12,000 and secured by one and one quarter acres of land in Okeechobee County owned by the borrower. These various loans paid interest at rates varying from 10 1/2% to 14%. Upon receipt of an Application To Purchase Mortgage, the Respondent herein would take the investor's money and deposit it in an escrow account in a bank in Tarpon

      Springs. Two or three days later he would transfer this money by check to Viking General Corporation in Miami, Florida, less his commission on the transaction. In computing his commission, the Respondent used the rate approved by the borrower for a $2,000 investments and multiplied that rate by the number of $2,000 increments contained in the loan. For a mortgage and note as shown in Exhibits 5 and 6, which were not and mortgage for $10,000, the commission was computed as five times the approved commission for a $2,000 mortgage although only one mortgage deed and one note was involved. This exceeded the maximum commission allowed by Section 494.08(4), F.S.

      
      

   3. The Respondent stipulated that all or the transactions shown on Exhibit

      8 were identical with the one that testified to, namely the mortgage and note contained in Exhibits 5 and 6, and that there were no closing statements in any or those files. With regard to failure to have a closing statement in his file, the Respondent offered into evidence a letter from Viking General Corporation which was introduced as Exhibit 3. Therein he was advised that Viking General Corporation does not require a closing statement, and did not plan to use such a document in its program. The letter further proffered the legal advice that the Mortgage Brokerage Act was effected for the protection of borrowers, and not to regulate the type of transaction that Viking engages in.

      
      

   4. Exhibit 7, a copy of a letter Respond.ent received from Viking General Corporation with an enclosed agreement between Viking General Corporation and Miami National Bank, the escrow agent on behalf of all mortgage brokers dealing in mortgage securities created by the borrowers, was admitted into evidence. Based upon this information, the Respondent concluded that the transfer of funds from his escrow account to Viking General constituted a continuation of the escrow account, and that the money would remain in escrow until Viking General issued the note and mortgage. This agreement, coupled with the information from Viking General that they did not need or desire a closing statement, led Respondent to believe he was adhering to the Mortgage Brokerage Act although he acknowledged that the statute did require someone to have a closing statement in their files.

      
      

      CONCLUSIONS OF LAW

      
      

   5. The evidence is clear that the Respondent did not maintain closing statements in its files, charged fees in excess of those authorized for the mortgages of more than $2,000, and failed to maintain monies in the escrow account until the receipt of the note and mortgage from the borrower. Section 494.06(3) F.S. is clear and unequivocal that all accounts shall include a closing statement signed by the borrower, and shall be preserved and available for examination for at least five years from the date of original entry. Advice from the attorney for the borrower to the contrary notwithstanding, the statute requires the maintenance of a closing statement in the file of the mortgage broker. Failure to have such a closing statement in his file constitutes a violation of the statute above cited:

      
      

   6. Although the Offering Circular provided that each investment would be broken down into $2,000 mortgages, such mortgages were not executed. As noted on Exhibits 5 and 6, the investment of $10,000 was secured by one note and one mortgage. The maximum brokerage fee authorized for such an investment is that for a $10,000 investment, not five $2,000 investments.

      
      

   7. Although Respondent herein initially placed the money in escrow as required by the statute he thereafter, and prior to receipt of the mortgage and note, transferred the investment, less his commission, to the borrower. His

reliance upon the agreement between Viking General Corporation and the Miami National Bank is not well placed. The mortgage broker is not a party thereto and would have no rights toward enforcing this agreement. Also, this appears to be an escrow account in name only since there are no bonding restrictions with the bank to hold the money until the investor has received his note and mortgage. Although the agreement states that funds shall be released by the escrow agent to the borrowers upon delivery to the escrow agent of a title insurance policy showing that a mortgage relating to the funds deposited from time to time has been recorded amongst the public records, there appears to be no bond to insure that such procedure is followed prior to any funds being released; nor is there any assurance that all funds received by the borrower from the broker go into this account. Under these circumstances, forwarding this money to the borrower does not constitute maintenance of the funds in an escrow account. Accordingly, the respondent mortgage broker disbursed the funds from his escrow account prior to receipt of the note and mortgage evidencing security for the investment.

From the foregoing it is concluded that Income Development Corporation and Edward K. Matthews, as President, violated the provisions of Chapter 4941 Florida Statutes and the rules of the department of Finance as alleged It is, therefore

RECOMMENDED that the license of Income Development Corporation and Edward

K. Matthews, President, Mortgage Broker's License Number 1630, be suspended for a period of two years.

ENTERED this 12th day of November, 1975, in Tallahassee, Florida.

K. N. AYERS, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301

(904) 488-9675

Docket for Case No: 75-001587

Orders for Case No: 75-001587