vs. ) CASE NO. 89-6378
JERRY C. URSOLEO and JEWELL )
Respondents. )
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Veronica E. Donnelly, held a formal hearing in the above-styled case on April 6, 1990, in Fort Myers, Florida, and April 10, 1990, in Tallahassee, Florida, by telephone conference.
For Petitioner: Steven W. Johnson, Esquire
For Respondents: Leslie T. Arenholz, Esquire
Whether the Respondents' real estate licenses should be disciplined based upon the alleged multiple violations of Chapter 475, Florida Statutes, as set forth in the Administrative Complaint.
In an Administrative Complaint dated October 18, 1989, the Petitioner, Department of Professional Regulation (the Department), charged the Respondents, Jerry C. Ursoleo (Ursoleo) and Jewell Real Estate Brokers, Inc. (Jewell), with a series of violations of Chapter 475, Florida Statutes. Essentially, the Respondents are charged with failing to properly maintain a rental escrow account and a shopping center escrow account. It is alleged that these accounts were kept by Respondents in a fiduciary capacity. Due to the shortages allegedly discovered in the two accounts, the Respondents were also charged with culpable negligence and breach of trust in their business transactions related
to the accounts, and failure to keep accurate records of each separate bank transaction.
The Respondents contested the factual allegations contained in the Administrative Complaint, and requested a formal administrative hearing to resolve the factual disputes.
During the hearing, the Department presented the testimony of one witness and submitted six exhibits. The Respondents called four witnesses, and the Respondent Ursoleo testified in his own behalf and in behalf of the Respondent Jewell. Nine exhibits and the deposition of Marie Hayes were filed by the Respondents. Respondents' Exhibit No. 9 was rejected by the Hearing Officer, and has been placed in the record as a proffer from the Respondents. All other exhibits submitted by the parties were accepted into evidence.
A transcript of the proceedings was not filed with the Hearing Officer. Pursuant to stipulation, the proposed recommended orders were timely filed by the parties on April 30, 1990. Rulings on the proposed findings of fact are in the Appendix of the Recommended Order.
The Department is the agency charged with the responsibility to prosecute violations of Chapter 475, Florida Statutes, allegedly committed by real estate brokers and brokerages who are licensed in Florida.
At all times material to these proceedings, Respondent Ursoleo was a licensed real estate broker, having been issued license number 0090870 through the Division of Real Estate. Respondent Jewell was a corporation registered as a real estate broker, having been issued license number 0258744. Both licenses were issued to the following address: 1154 Estero Boulevard, Fort Myers Beach, Florida 33931. Respondent Ursoleo was the active broker for Respondent Jewell, and held the office of president within the corporation.
On July 10 and 11, 1989, the Respondents' accounting records were reviewed in a random, routine audit conducted by the Division of Real Estate as part of its regulatory functions. During the review, the investigator reported that financial shortages existed in two accounts kept by the corporate broker in a fiduciary capacity. A deficiency of $4,569.81 was allegedly located in the rental escrow account, and a deficiency of $1,218.83, was allegedly located in the Bigelow Shopping Center management account.
The Rental Escrow Account
The rental escrow account is an account that contains monies held in a fiduciary capacity by the real estate broker on behalf of a number of separate clients who own rental property in Lee County, Florida. Respondent Jewell, through its qualifying broker and corporate officer Respondent Ursoleo, manages these properties for a commission or management fee. As part of the management duties, the Respondents collect rents, maintain the property, and render periodic accountings to the clients regarding the rents collected, property repair and maintenance expenses, and other financial matters involving the properties. Each client has an independent agreement with Respondent Jewell regarding how his property is handled and how his escrow account funds are to be managed. However, the primary purpose of each account is to deduct expenses from the rents deposited prior to disbursing the balance of the rents to the property owners.
Mr. James Alexander owns twenty-eight rental units which he co-manages with the Respondents. Between $8,000.00 to $9,000.00 from these properties are deposited into Respondents' rental escrow account each month. Due to a twenty- year business relationship regarding these properties, Mr. Alexander allows the Respondents to use his escrowed funds for whatever personal or business use is desired by the Respondents.
Mr. Alexander is aware that some of his escrowed funds have been used for Respondent Ursoleo's personal business, real estate brokerage bills, and to advance other rental property owners the necessary funds for property maintenance and repairs. The only conditions placed upon the Respondents' use of the money for purposes beyond the needs of Mr. Alexander's properties are as follows: 1) Monthly accountings to Mr. Alexander of the amount of money due to him must be correct; and 2) The money used for the other purposes must be replaced in one month's time in order to be available for disbursement to Mr. Alexander.
During the time period between June and July 1989, $13,145.26 of Mr. Alexander's funds were in the escrow account and were available for use by the Respondents.
Mr. James Hall, an attorney in Indiana, is president of San Carlos Lodge, Inc., the owner of a mobile home park in Lee County, Florida. This park has been managed by the Respondents for thirteen years. Because the lot rents within the park are due at various times, and because some renters pay in advance, the Respondents' rental escrow account always contains funds belonging to San Carlos Lodge, Inc. In June and July 1989, $4,675.53 remained in the rental escrow account on behalf of the corporation after the monthly accountings and rental disbursements were made by the Respondents to Mr. Hall.
Pursuant to its escrow agrement, San Carlos, Inc. allowed the Respondents to use the money as Respondent Ursoleo saw fit, without reservation. The only restrictions placed upon the use of the funds were: 1) Monies received on behalf of the corporation must be acknowledged as corporate funds; and 2) Funds removed must be returned to the rental escrow account within a one-month period for disbursement purposes.
Between April and July 1989, Frank Helmerich owed the rental escrow account $5,756.28 for advances made from the account in order to manage and maintain his rental properties. All of these funds were not repaid within the one-month period required by the Respondents' clients, Mr. Alexander and San Carlos Lodge, Inc. Some repayment was made with rents collected on behalf of Mr. Helmerich, but the exact amount of timely reimbursement was not presented at hearing.
The Respondents' rental escrow account records do not reflect that the funds advanced to Mr. Helmerich for rental property management expenses were removed from the funds earmarked for Mr. Alexander's escrow or San Carlos Lodge, Inc.'s escrow. In addition, the account records do not show that the funds specifically removed from either account were replaced with Respondent's Ursoleo's personal funds in the amount of $5,000.00, or with rental funds received on behalf of Mr. Helmerich. Under the escrow agreement between Mr. Helmerich and the Respondents, rental income could be used to repay any and all rental property expenses.
Bigelow Shopping Center Management Account
The account maintained by Respondents Jewell and Ursoleo, as agent for Bigelow Shopping Center, is an operating account for the business of managing, renting, maintaining and preserving the shopping center on behalf of its owner, the Huntingburg Corporation. Mr. Olinger, an officer and shareholder of the corporation who is a banker by profession, testified that the "deficiency" in the checking account occurred because two checks from the same shopping center tenant bounced. As the funds were never received by the corporation, they were never escrowed.
A review of the mathematical calculations on page 4 of Petitioner's Exhibit No. 1 and Petitioner's Exhibit No. 5 reveal that the investigator for the Division of Real Estate consistently made the same mathematical errors when she calculated the sum of the funds held in escrow in the Bigelow Shopping Center account. The entries on line 3 and line 13 in the "Total in Escrow" column in Petitioner's Exhibit No. 1, are negative numbers because the two checks bounced. If the investigator insisted upon adding these two numbers, which totaled $1,444.50, into the "Total in Escrow" column, she should have also subtracted them out because they were negative numbers. Instead of $11,311.50, the total escrow on the front page of the Management Account Inspection relating to the Bigelow Shopping Center bank account for July 11, 1989, should have been
$9,867.00.
The actual bank balance for the Bigelow Shopping Center reported by the bank to the investigator on July 11, 1989, was $10,886.37. The total of outstanding checks was $793.70. When the outstanding checks are subtracted from the reported bank balance, the difference is $10,092.67. As the escrowed amount of funds was $9,867.00, and the actual bank balance after the deduction of outstanding checks was $10,092.67, there was no deficiency in this account.
Mitigation
Once the deficiency was located in the rental escrow account maintained by Respondent Jewell, the Respondent Ursoleo immediately transferred
$5,000.00 of his personal funds into the account on July 11, 1989.
The Respondents have revamped the bookkeeping procedures within the brokerage offices. The individual escrow agreements with Mr. Alexander and San Carlos Lodge, Inc. are no longer used by the Respondents to make short term loans to other clients who also own rental property in Lee County, such as Mr. Helmerich.
The Respondents have reviewed the Department's rules relating to the maintenance of escrow accounts, and are prepared to comply with the law in the narrowest, strictest sense.
Mr. Alexander and San Carlos Lodge, Inc., did not incur any actual monetary harm as a result of the temporary deficiency of funds in the rental escrow account. The clients were never in fear that the funds would not be returned to them upon demand. The Respondents' accountings to these clients have always been accurate.
The Respondents have a long-standing reputation for honesty and reliability in their business dealings that involve financial entrustments.
The Respondent Ursoleo has been an active Florida realtor for thirty- seven years. There was no evidence presented of a prior disciplinary history.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter pursuant to Section 120.57(1), Florida Statutes.
Section 475.25, Florida Statutes, empowers the Florida Real Estate Commission to suspend, revoke, or otherwise discipline the licenses of the Respondents if they are found guilty of any of the acts enumerated in Section 475.25, Florida Statutes.
A proceeding to discipline a license is penal in nature. State ex rel. Vining v. Florida Real Estate Commission, 281 So.2d 487 (Fla. 1973). The Department has the burden of proof and must prove by clear and convincing evidence that the Respondents committed the violations set forth in the Administrative Complaint. Ferris v. Turlington, 510 So.2d 292 (Fla. 1987).
In this case, a real estate broker and a corporation registered as a real estate broker have been charged with ten violations of Florida law. Five of the violations relate to the conduct of Respondent Ursoleo while the remaining five relate the conduct of the corporation. Count I of the Administrative Complaint charges Respondent Ursoleo with having committed culpable negligence and breach of trust in a business transaction, in violation of Section 475.25(1)(b), Florida Statutes. Count II charges Respondent Jewell with the same violation.
Specifically, the first two counts of the complaint allege that on July 10, 1989, the Respondents were supposed to be holding $16,602.06 in security deposits from tenants in rental escrow account number 2-403-632 at the First Independence Bank. On July 11, 1989, the actual balance of the account was $12,032.25, leaving a deficiency of $4,569.81.
The evidence adduced at hearing did not demonstrate that the
$16,602.06 in the account was earmarked as security deposit money. Instead, the evidence submitted by both parties shows that the primary purpose of the escrow account was to collect rents from tenants and to manage the properties on behalf of the absentee owners or landlords. The Respondents deduct expenses from the rents deposited in this account prior to disbursing the balance of the rents to the property owners. Accordingly, Counts I and II should be dismissed as they fail to conform to the evidence presented.
Count III of the complaint charges Respondent Ursoleo with having failed to maintain trust funds in the previously described rental escrow account until disbursement was authorized, in violation of Section 475.25(1)(k), Florida Statutes. Respondent Jewell is subsequently charged with the same violation in Count IV.
Section 475.25(1)(k), Florida Statutes, requires a broker to keep escrowed funds in the escrow account until disbursement is properly authorized. In this case, pursuant to the terms of the escrow agreements of Mr. Alexander and San Carlos Lodge, Inc., the disbursements made from their escrowed funds which were not related to their properties, were authorized at the time the funds were removed. The breach of the escrow agreements occurred one month and one day later when the borrowed funds were not returned to the escrow account. Because the charging document addresses the issue of disbursement as opposed to
the Respondents' failure to honor the terms of these two escrow agreements, Counts III and IV should also be dismissed for failure to conform to the evidence presented at hearing.
Count V alleges that Respondent Ursoleo had a shortage of $1,218.83 in the bank account managed by the corporate broker for Respondent Ursoleo, agent for Bigelow Shopping Center. Based upon the alleged deficiency, Respondent Ursoleo is alleged to have committed culpable negligence and breach of trust in a business transaction, in violation of Section 475.25(1)(b), Florida Statutes. Respondent Jewell is charged with the same violation of Count VI.
It was explained in the Findings of Fact that the Department's investigator made calculation errors when she determined that this particular account contained a shortage. As there was no shortage in the Bigelow Shopping Center Account, Counts V and VI should be dismissed. The allegations are contrary to the facts established at hearing.
Counts VII and VIII are also founded on the allegation of fact that a shortage existed in the Bigelow Shopping Center Account. These charges should also be dismissed due to the calculation errors.
Count IX alleges that Respondent Ursoleo violated state law when he failed to keep and maintain accurate accounts in the books of each deposit transaction as well as an account in the books of each separate bank transaction, in violation of Rule 21V-14.012, Florida Administrative Code, and in violation of Section 475.25(1)(k), Florida Statutes. Respondent Ursoleo is charged with the same violations in Count X of the Administrative Complaint.
Rule 21V-14.012, Florida Administrative Code, requires brokers to keep strict account of all trust deposits, statements of account from the bank regarding the funds, and a record of all withdrawals. The Respondents' failure to reflect in the rental escrow account records that the funds advanced to Mr. Helmerich for property management expenses were removed from funds earmarked for Mr. Alexander and San Carlos Lodge, Inc., is clear and convincing evidence that the Rule was violated. Rule 21V-14.012, Florida Administrative Code, provides as follows in pertinent part:
A broker ... shall keep an accurate account in his books of each deposit transaction, as well as an account in his books of each
separate bank account wherein such trust funds have been deposited, together with a record of all withdrawals therefrom, and shall support such accounts by such additional data as good accounting practice requires...
Good accounting practices were not followed by the Respondents in the maintenance of the rental escrow account. Account records should have clearly demonstrated what funds had been advanced to Mr. Helmerich and removed from the escrow accounts of Mr. Alexander or San Carlos Lodge, Inc. In addition, when Respondent Ursoleo replaced the funds belonging to these two clients with his own personal funds, entries should have been placed on the account records showing the money was returned and that Mr. Helmerich was now obligated to repay Respondent Ursoleo. Based upon the foregoing, the Respondent Ursoleo and Respondent Jewell have failed to properly maintain escrow deposit records. They should each be found guilty of having violated Count IX and Count X of the Administrative Complaint, respectively.
Rule 21V-24.001(3)(q), Florida Administrative Code, provides the disciplinary guidelines for violations of Section 475.25(1)(k), Florida Statutes. The rule provides:
... The minimum penalty for all below listed sections is a reprimand and/or fine up to
$1,000.00 per count... The maximum penalties are listed;
* * * 475.25(1)(k) - Up to 2 years suspension.
As mitigating evidence was presented to the Hearing Officer, the following mitigating circumstances were considered in the recommended penalty set forth in this Order:
The lack of actual harm to Mr. Alexander and San Carlos Lodge, Inc., when the temporary deficiency was found in the rental escrow account.
The disciplinary history of the licensee.
The prompt correction of the offense by Respondent Ursoleo on his own initiative.
The Respondents' willingness to revamp office bookkeeping procedures in order to establish safeguards to assure that the offense committed by Respondents will not occur in the future.
RECOMMENDED this 30th day of May, 1990, in Tallahassee, Florida.
VERONICA E. DONNELLY
Filed with the Clerk of the Division of Administrative Hearings this 30th day of May, 1990.
APPENDIX TO RECOMMENDED ORDER, CASE NO. 89-6378
Steven W. Johnson, Esquire DPR - Division of Real Estate
Leslie T. Arenholz, Esquire 19110 San Carlos Boulevard Post Office Box 2656
Darlene F. Keller, Executive Director, Division of Real Estate
Kenneth E. Easley, Esquire General Counsel
