STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF PROFESSIONAL )

REGULATION, DIVISION OF )

REAL ESTATE, )

)

Petitioner, )

)

vs. ) CASE NO. 92-3898

) FRANK E. SMITH, ELAINE M. SMITH, ) and SUNSHINE PROPERTIES OF )

TAMPA, INC., )

)

Respondents. )

)

RECOMMENDED ORDER

A hearing was held in this case in Tampa, Florida on January 14, 1993 before Arnold H. Pollock, a Hearing Officer with the Division of Administrative Hearings.

APPEARANCES

For the Petitioner: James H. Gillis, Esquire

DPR, Division of Real Estate Hurston Building, N-308

400 W. Robinson Street Orlando, Florida 32801-1772

For the Respondent: Sheldon L. Wind, Esquire

110 East Hillsborough Avenue Tampa, Florida 33504

STATEMENT OF THE ISSUES

The issue for consideration in this case is whether the Respondents' Florida licenses as real estate broker, salesperson and brokerage corporation, respectively, should be disciplined because of the matters alleged in the Administrative Complaint filed herein.

PRELIMINARY MATTERS

By Administrative Complaint dated May 20, 1992, the Secretary of the Department of Professional Regulation, (Department), on behalf of the Division of Real Estate, (Division), seeks to discipline the Respondents' real estate professional licenses because, it is alleged, they are guilty of culpable negligence or breach of trust in a business transaction in dealing with Carolyn Chaple, in violation of Section 475.25(1)(b), Florida Statutes; and of failing to properly maintain trust funds, failing to prepare the required monthly escrow reconciliations, failing to make proper disclosure, and, as to Elaine M. Smith, registering as an officer of a brokerage corporation while licensed as a sales

person, all in violation of various departmental rules and Section 475.25(1)(e), Florida Statutes.

On June 17, 1992, both Respondents Smith requested formal hearing and by letter dated June 24, 1992, the file was forwarded to the Division of Administrative Hearings for formal hearing. This hearing followed.

At the hearing, Petitioner presented the testimony of the allegedly aggrieved complainant and the Department's investigator and introduced Petitioner's Exhibits 1 through 7. Respondents Smith testified in their own behalf and presented one character witness. They also introduced Respondents' Exhibits A through E.

No transcript was furnished, However, both counsel submitted Proposed Findings Of Fact which have been ruled upon in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. At all times pertinent to the issues herein, the Petitioner, Division of Real Estate, was the state agency in Florida responsible for the regulation of the real estate profession and the licensing of real estate professionals. Respondents Frank E. Smith, Elaine M Smith, and Sunshine Properties of Tampa, Inc., were licensed real estate professionals, a broker, a sales person, and a brokerage corporation respectively. Respondent Frank E. Smith was the qualifying broker for Respondent, Sunshine Properties of Tampa, Inc..

   
   

2. On or about July 23, 1991, the Respondents and Carolyn Chaple entered into a management agreement whereby Respondent agreed to rent and manage Ms. Chaple's residence located in Tampa. The terms of the management agreement signed by Ms. Chaple and Ms. Smith called for the company to render a monthly statement of receipts, charges and disbursements, and to remit the net proceeds each month to Ms. Chaple whose address was listed in the agreement as P.O. Box 12003, Brooksville, Florida 34601. For performing this service, Respondents were to receive a commission of 8% of the monthly gross receipts.

   
   

3. The agreement also called for the Respondents to:

   
   

   ... hire, discharge and pay all engineers, janitors and other employees; to make or cause to be made all ordinary repairs and replacements necessary to preserve the premises in its present condition and for the operating efficiency thereof and all alterations required to comply with lease requirements, and to do decorating on the premises; to negotiate contracts for nonrecurring items not exceeding $100.00 and to enter into agreements for all necessary repairs, maintenance, minor alterations and utility services; and to purchase supplies and pay all bills.

   
   

   An amendment to the agreement, initialed by Ms. Chaple only, made the provision subject to a lease agreement purportedly attached but which was not offered into evidence. Ms. Chaple contends that lease provided she would be responsible only for those repairs costing in excess of $250.00 and which she had approved.

   This added provision was not, however, initialed by Respondents and, therefore, never became a binding part of the management agreement, regardless of what Ms. Chaple intended. Ms. Smith asserts that if Ms. Chaple had insisted on that change, she would not have entered into the agreement. It is found, therefore, that there was no agreement limiting Ms. Chaple's liability for repairs.

   
   

4. Pursuant to the management agreement, Respondents solicited and obtained tenants for Ms. Chaple's property. Respondent admittedly did not send a copy of the first lease to Ms. Chaple, but the tenancy was short lived and terminated when the tenant moved out owing rent. Ms. Chaple claims the Respondents did not advise her of this situation. Instead, she claims, she heard of it from neighbors. However, on December 30, 1991, Respondents obtained another lessee for the property at a rental of $600.00 per month for 12 months. Respondents' fee was %8 of that ($48.00) resulting in a net monthly rental to Ms. Chaple, exclusive of repair expenses if any, of $552.00 per month.

   
   

5. Ms. Chaple claims that though she repeatedly asked for a copy of the management agreement she had signed, she never got one. When she began to ask for accountings, she says she got some but not all. By the same token, she claims she did not get all the receipts relating to the repair work done on her property. Between December 4, 1991 and August 16, 1992, Ms. Chaple wrote several detailed letters to the Respondents requesting information on the status of the first tenancy and efforts being made to receive compensation, and detailed explanations for expenditures made and charged to her on the account statements that were sent. She also complained of the lateness of the statements, of the Respondents' notice of intended termination of the agreement, and an explanation of large expense charged almost every month.

   
   

6. Respondents claim they furnished Ms. Chaple a copy of the management agreement on at least 3 separate occasions by mailing a copy to her Brooksville address, that address listed for her in the agreement. Ms. Chaple, however, was living in Houston, Texas during all this period and requested the use of the Brooksville address, apparently her father's post office box. Respondents also claim they sent Ms. Chaple a monthly statement of account along with her net rent check each month. Every check sent was cashed by Ms. Chaple indicating she received them. There is no explanation as to why she did not also receive the account statements. In light of Ms. Chaple's moves, and the use of an intermediary to transmit mail, it cannot be said Respondents did not send the agreements. This is not to say Ms. Chaple did receive them all, merely that the Respondents dispatched them to her. Ms. Chaple also claimed she never got a copy of a lease from the Respondents. Respondent, Elaine Smith, admits this indicating she did not send copies of leases to owners as a matter of practice.

   
   

7. It is noted that Ms. Chaple repeatedly requested itemized explanations for the major expenditures deducted from the rent each month and characterized on the account statement solely as "maintenance." The management agreement obliging the owner to pay for such expenditures as a deduction from rent is silent on the need on the Respondents to explain such deductions. The agreement obliges the agent to "render a monthly statement of receipts, disbursements and charges and to remit each month the net proceeds to the [owner]." While it may be true the monthly statement of accounting showing "maintenance" might be acceptable evidence to the Internal Revenue Service, when, as here, such expenses are relatively large and frequent, it is not at all unusual or unreasonable for the owner to request and expect to receive an explanation of those deductions.

8. To be sure, Respondents did send some receipts as requested, but it is clear they did not do so in all cases. Clearly the mere use of the word, "maintenance" does not constitute a sufficient showing of "disbursements" or "charges" as are called for in the agreement. This is so especially in light of the fact Respondents also operated a maintenance company through which they contracted for almost all maintenance and repair work except air conditioning. The charge to the owners was cost plus 10%.

   
   

9. Ms. Chaple ultimately filed a complaint with the Division which, on March 18, 1992, sent its investigator, J.L. Graham, to the Respondents' office. As a part of her investigations, Ms. Graham did an audit of the Respondents' escrow accounts maintained at the Sun Bank in Tampa. She discovered that Respondents maintained a security escrow account which had a shortage of

   $5,780.00 and a rental escrow account which had a shortage of $4,261.31. Respondents admit a shortage had existed ever since the business was purchased in 1986 and claim that due to the shrinking inventory of properties they managed, the need to pay $500.00 a month on the purchase price, and $1,300.00 a month on obligated rent, they did not have sufficient income from operations to reimburse the accounts the amount of the shortages.

   
   

10. There is no evidence that Respondents misappropriated any of the funds represented by the shortages and it is accepted they did not cause or increase either shortage. However, it is equally true they did nothing to eradicate or reduce either, routinely drawing their lawful commissions which were placed in the company's operating account and used to pay routine expenses. In any event, within 2 days of Ms. Graham's inspection, Respondents borrowed the money to reimburse the escrow accounts for the amount of the shortages in full.

    
    

11. Ms. Graham also found that Respondents failed to prepare and sign written monthly reconciliations of the escrow accounts and had no supporting documentation for the accounts other than the check register, leases and the management agreements. Respondents' books were primarily kept in a computer and the information in support of the escrow accounts was not being kept in a manner readily accessible to the Division's representatives. Mr. Smith admits he did not do the required reconciliations, claiming that between the computer records and the bank statements, he knew what was going on. This is insufficient to satisfy the Division's requirements. Mr. Smith contends that immediately after the audit, he began doing the required reconciliations and would be willing to furnish them to the Division on a repeated basis if necessary.

    
    

12. Respondents also failed to prepare and furnish to the tenants of clients' properties the required disclosure of agency relationship, notifying the tenants in writing that they, Respondents, represented the respective landlords, not them. Respondents asserted they made it clear to each tenant that they did not own the units being rented, but this does not meet the rule or statutory requirement.

    
    

13. Review of the corporation records also revealed that Mrs. Smith, a licensed salesperson, was listed as an officer of the brokerage corporation. Respondents admit this but claim they did not know it was improper and that their accountant failed to so advise them.

    
    

14. Gennie Amick has known and been friends with Respondents for more than

    7 years. She has used their services in the past as managers of property she then owned and both her son and her daughter do so at the present time. They have had absolutely no complaints about the Respondents' management. Ms. Amick knows Mrs. Smith very well and considers her to be a very honorable person.

    Respondent's integrity has never been questioned, to the best of Amick's knowledge, and she goes out of her way to help her clients, doing more than her contract requires of her. Mr. Smith is also an honorable person. Because of Ms. Amick's trust in the Respondents, she loaned them $6,000.00 when she learned of their difficulties with the Division and this loan was repaid when Respondents thereafter mortgaged their home.

    
    

15. Respondents have owned Sunshine Properties of Tampa, Inc. since they bought it in 1986, paying $20,000.00 for the business. They put $1,500.00 down and agreed to pay the balance off at $500.00 per month. They also agreed with the seller to rent his office for $1,300.00 per month. It was these commitments, and the shrinking of the client list, which prevented them from making up the shortages in the escrow accounts.

    
    

16. Mr. Smith has been in the real estate business, both in Florida and elsewhere, since 1967. He has been licensed as a broker since 1988 and he and his wife have operated Sunshine, which does not handle sales, only property management, since 1986. It is their livelihood. He became the qualifying broker for the firm in 1988. Neither he nor Mrs. Smith has been the subject of a complaint before now. At no time did either Respondent intend to break any rules or to unlawfully profit by their improper actions. They claim any infractions are as a result of ignorance rather than design and so it would appear.

    
    

17. Their relationship with Ms. Chaple was less than an acceptable business relationship, yet Ms. Chaple did not make a good witness. It appeared she had her own agenda to follow and her memory of facts seemed selective. She appears to be difficult to deal with and it is reasonable to believe that much of the difficulty she had with the Respondents was as a result of her own attitude and approach.

    
    

    CONCLUSIONS OF LAW

    
    

18. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter in this case. Section 120.57(1), Florida Statutes.

    
    

19. In its Administrative Complaint the Division has charged the Respondents with several violations of Section 475.25(1), Florida Statutes, claiming they have been guilty of negligence or breach of trust in a business transaction; have violated the provisions of Chapter 425 or of rules of the Commission made under that chapter; and that Mr. Smith has, as a broker, failed to properly maintain required escrow accounts and keep records provided for by rules of the Commission.

    
    

20. With regard to the dealings with Ms. Chaple, which, it is claimed, constitute gross negligence or breach of trust, the evidence of record clearly shows a lack of communication and a failure on the part of the Respondents always to provide full explanations of the expenditures for repairs which Ms. Chaple desired. However, there has been no showing of either culpable negligence in the management of the instant property or any misconduct on the part of the Respondents which would constitute a breach of trust.

    
    

21. The evidence is clear and convincing, however, that Mr. Smith, as broker, and the company, failed to properly maintain the escrow accounts required by the statute. Admittedly, escrow accounts were kept both for rental funds and security funds. Both, however, were, at the time of the audit,

    experiencing serious shortages. Respondent does not deny that the shortages existed but claims that the accounts were short when he assumed responsibility for them from the previous owner of the brokerage, and he had not been able to raise sufficient funds out of routine operations to replenish them. His explanation of the reason that happened is understandable and credible but while it may explain, it does not justify or excuse his failure to bring the escrow accounts current and maintain them that way.

    
    

22. By the same token, Ms. Smith admits to being an officer in the brokerage firm without being licensed as a broker and now recognizes that it is improper for her to serve as such. She claims that neither she nor her husband knew of the impropriety and that their accountant, who was aware of the situation, failed to advise them it was an illegal situation. This does not excuse the misconduct, however, even though it was not premeditated misconduct nor was it committed to justify or generate improper benefit to the Respondents.

    
    

23. Respondents admit they did not advise the tenants of the properties they managed that their agency represented the property owners, not the tenants. Their notification to the tenants that they did not own the properties in question is insufficient disclosure of representation.

    
    

24. By the same token, the Respondent's failure to properly reconcile the escrow accounts as required is neither justified nor excused by Mr. Smith's contention that all the required information was in the computer. The rule requires a specific reconciliation of the broker's bank balances with his total liability in the trust accounts. This information is required to be formalized in writing and to contain certain specified information. Respondent's product does not comply with the rule requirements.

    
    

25. Taken together, then, the evidence clearly shows that the Respondents here are guilty of a number of violations of statute and rules which were promulgated to protect the public from abuses by real estate professionals. The statute provides for discipline for such infractions and Rule 21V-24.001(2) and (33), F.A.C. implements that authority and outlines the Division's suggested penalties. Having concluded the Respondents are guilty neither of gross negligence nor breach of trust, the penalty provided for a violation of Section 425.25(1)(b) is not relevant.

    
    

26. However, the evidence clearly demonstrates several violations of the rule and, therefore, Section 425.25(1)(e). In such a case, the rule authorizes up to 8 years suspension or revocation of the license for each violation, in addition to the other authorized penalties such as an administrative fine of

    $1,000.00 per violation. Inherent in the authority to revoke or suspend a license is the authority to place such license on probation for an equivalent period.

    
    

27. Clearly the penalties of revocation or suspension of the Respondents' licenses are not appropriate under the circumstances of this case. However, the Respondents' cavalier attitude in communicating with Ms. Chaple, notwithstanding the difficulties experienced in doing so, and their less than scrupulous compliance with and adherence to the Division's rules regarding escrow accounts, notice, and accounting taken together justify the imposition of a penalty.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore recommended that a Final Order be entered placing all Respondents'

licenses on probation for a period of 1 year under such terms and conditions as may be prescribed by the Division and imposing an administrative file of $500.00 upon each Respondent Smith for a total fine of $1,000.00.

RECOMMENDED this 18th day of February, 1993, in Tallahassee, Florida.

ARNOLD H. POLLOCK

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 18th day of February, 1993.

APPENDIX TO RECOMMENDED ORDER IN CASE NO. 92-3898

The following constitutes my specific rulings pursuant to

Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case.

FOR THE PETITIONER:

1. - 5. Accepted and incorporated herein.

1. Accepted and incorporated herein except for the word, solicited.

2. & 8. Accepted and incorporated herein,

1. Rejected as not established by clear and convincing evidence.

2. Accepted and incorporated herein.

3. Accepted and incorporated herein.

FOR THE RESPONDENT:

11. - 14. Accepted.

1. Rejected as implying the disclosures made satisfied the rule requirements.

2. Accepted.

3. & 18. Accepted as to what Respondent's did and that no harm to the public or any client resulted, but rejected to the extent public benefit is asserted.

19. & 20. Accepted but relevant only to the quantum of

punishment to be imposed.

21. - 23. Accepted.

24. - 26. Accepted and incorporated herein.

COPIES FURNISHED:

James H. Gillis, Esquire DPR, Division of Real Estate Hurston Building - N308

400 West Robinson Street Orlando, Florida 32801-1772

Sheldon L. Wind, Esquire

110 E. Hillsborough Avenue Tampa, Florida 33504

Jack McRay General Counsel DPR

1940 North Monroe Street Tallahassee, Florida 32399-0792

Darlene F. Keller Division Director Division of Real Estate

400 W. Robinson Street

P.O. Box 1900

Orlando, Florida 32802-1900

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should consult with the agency which will issue the Final Order in this case concerning its rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency which will issue the Final Order in this case.

Docket for Case No: 92-003898

Orders for Case No: 92-003898