STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BANKING AND )

FINANCE, )

)

Petitioner, )

)

vs. ) CASE NO. 94-1352

)

DEAN A. DANNER, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the above-styled matter was heard before the Division of Administrative Hearings by its duly designated Hearing Officer, Daniel M. Kilbride, on September 7, 1994 in Orlando, Florida. The following appearances were entered:

APPEARANCES

For Petitioner: Josephine A. Schultz, Esquire

Office of the Comptroller Hurston South Tower

400 West Robinson Street, Suite S225 Orlando, Florida 32801

For Respondent: No appearance

STATEMENT OF THE ISSUES

Whether Respondent's license as a mortgage broker in Florida should be disciplined because the Respondent had acted as a mortgage brokerage business without being licensed to do so in that Respondent solicited mortgage loan applications in his own name and directed his clients to make their checks in payment of application, credit report, and appraisal fees payable to Respondent individually; accepted those fees without a written brokerage agreement and without adequate disclosures; failed to place the fees received into a segregated account; failed to refund fees; and converted the funds obtained to his own uses; all in violation of various sections of Chapter 494, Florida Statutes.

PRELIMINARY STATEMENT

By an Administrative Complaint, dated March 15, 1993, the Department of Banking and Finance ("Department") alleged that Respondent violated various sections of Chapter 494, Florida Statutes. On June 2, 1993, through counsel, Respondent denied the allegations of the Complaint and requested a hearing.

Respondent's counsel subsequently moved to withdraw and the motion was granted by the Department. An Amended Administrative Complaint was issued March 11, 1994 realleging the above violations and further alleging Respondent's failure

to make brokerage records available for the Department's examination as an additional violation to Chapter 494, Florida Statutes. The matter was referred to the Division of Administrative Hearings that same day. Respondent answered the Amended Administrative Complaint with an unsigned, undated written statement admitting some allegations, denying others, and offering mitigation in response to still others. The matter was noticed and set for hearing on July 14, 1994.

At Respondent's request, the July 14, 1994 hearing was continued and renoticed for September 7, 1994. The matter was heard as then scheduled.

Respondent did not appear at the hearing although the record reflects that a Notice of Hearing was mailed to him and Respondent was aware of the date, time and place of the hearing.

At the hearing, Petitioner called four witnesses and introduced seven exhibits. All seven exhibits were accepted into evidence. In addition, on June 3, 1994, Petitioner served upon the Respondent a Request for Production and Petitioner's First Set of Interrogatories. On June 7, 1994, Petitioner served upon Respondent Petitioner's Request for Admissions. Respondent failed to respond to any of Petitioner's discovery requests. By Order dated August 31, 1994 the Request for Admissions were deemed admitted and Respondent was directed to show cause why sanctions should not be imposed. Respondent failed to provide Petitioner with any of the requested discovery materials and by oral motion at the hearing Petitioner moved for an order disallowing any evidence from Respondent regarding the disposition of the deposit monies obtained from Respondent's clients. The motion was granted.

The hearing was recorded but not transcribed. Petitioner filed its proposed findings of facts on September 19, 1994. Respondent has not filed proposed findings as of the date of this order.

FINDINGS OF FACT

1. Petitioner, the Department of Banking and Finance, is the state agency in Florida responsible for the regulation and licensing of mortgage brokers and the regulation of mortgage brokerage activities in this State. Its responsibilities include the duty to sanction those licensed under the Act for violations of the Act.

   
   

2. At all times relevant, Respondent was a licensed mortgage broker and possessed license #HA 264194420 issued by the Department on May 31, 1990. Except for two brief periods of time in 1991, Respondent's mortgage broker license was active from May 31, 1990 until September 1, 1993. Respondent's license became inactive on September 1, 1993 for failure to timely renew the license. Respondent's license is presently inactive and will remain in an inactive status unless renewed on or before August 31, 1995 when the license will expire.

   
   

3. Respondent's license can be reactivated at any time before its expiration date by filing an application for reactivation and payment of reactivation and renewal fees to the Department.

   
   

4. Respondent has never been licensed by the Department as a mortgage brokerage business.

   
   

5. In January and February 1992, Respondent was not associated with any mortgage brokerage business, nor was he an employee or an independent contractor for any mortgage brokerage business.

6. In January and February 1992, Respondent was not an employee of American Fidelity Mortgage Corporation, a licensed mortgage lender. American Fidelity never provided Respondent with any indicia of employment such as a written employment agreement, nor employee IRS withholding forms, nor an office, nor business cards. At Respondent's request and as an accommodation to a lender with which American Fidelity did a volume business, John Combs, President of American Fidelity agreed to act as a conduit for submitting Respondent's loans to the lender while Respondent established his own mortgage brokerage business and establish a history with the lender. As a mortgage lender involved in a lending transaction, American Fidelity was obligated under Chapter 494 to provide loan applicants with lender disclosure forms.

   
   

7. Respondent claims that he had an oral understanding with John Combs, the President of American Fidelity Mortgage Corporation and that Respondent understood he was employed by that company to solicit mortgage loans. Respondent's claim is based on having received several copies of American Fidelity's standard loan application packages and having provided John Combs with a copy of his mortgage broker license. Respondent's claim is not credible.

   
   

8. In January and February 1992, Respondent solicited and accepted mortgage loan applicants from ten to fourteen individuals for the purpose of refinancing their residential properties.

   
   

9. Not all of the loan applications Respondent obtained were delivered to American Fidelity Mortgage Corporation. Of the ten to fourteen mortgage loan applications Respondent admits having solicited, four were delivered to American Fidelity Mortgage Corporation. Those four applications were identified as the Biron, Schauman, Tapscott and Phillips loan applications. Two of those mortgage loan applicants were Thomas Hall and Caroline Marks. The Hall and Marks loan applications were never delivered to American Fidelity Mortgage Corporation.

   The remaining loan applications are unaccounted for.

   
   

10. Respondent claims to have delivered all the loan applications he solicited to American Fidelity Mortgage Corporation, and that Combs must have lost or destroyed the remaining applications. This claim is not credible. American Fidelity Mortgage Corporation as a lender keeps a log of those applications it receives and the date on which they are received in compliance with Chapter 494, Florida Statutes. The Hall and Marks loans are not listed among the loan applications received by American Fidelity Mortgage Corporation.

    
    

11. Respondent did not provide his clients with a mortgage broker agreement.

    
    

12. Respondent claims the reason he did not provide a mortgage broker agreement was due to American Fidelity Mortgage Corporation's policy of not providing a mortgage brokerage agreement until some time later in the transaction. This claim is not credible in that American Fidelity Mortgage Corporation is a licensed lender. Mortgage lenders, as distinguished from mortgage brokers, are not required under the provisions of Chapter 494 to provide borrowers with a mortgage brokerage agreement.

    
    

13. Respondent did not provide any of clients with a good faith estimate of the costs for their mortgage financing transaction.

14. Respondent solicited and accepted mortgage loan fees in his own name. Respondent claims to have collected these fees in his name based on American Fidelity Mortgage Corporation's instructions to him. This claim is not credible.

    
    

15. Respondent directed both Hall and Marks to make their checks in payment of their loan application fees, credit report and appraisal fees in the amount of three hundred fifty dollars ($350.00) payable to himself personally. He indicated to them he would use these funds to pay for various costs and services when and as necessary.

    
    

16. Mr. & Mrs. Phillips also paid loan application fees and deposits to Respondent in the approximate amount of three hundred fifty dollars ($350.00).

    
    

17. Respondent obtained application fees and deposits from each of his clients but never provided a mortgage brokerage agreement nor good faith estimate.

    
    

18. No portion of the three hundred fifty dollars ($350.00) for fees and deposits obtained by Respondent from his clients was used for payment of credit report or appraisal costs.

    
    

19. Respondent collected an additional fee of fifty dollars ($50.00) from each of his clients. Pursuant to Respondent's alleged agreement with American Fidelity, Combs required a fifty dollar ($50.00) deposit for credit report costs with each application. Respondent told his clients this was the lender's lock- in fee. Respondent directed some clients to make the check payable to American Fidelity Mortgage Corporation. Some of those checks were delivered with the loan applications to American Fidelity Mortgage Corporation. Others, such as the check from Hall, were not. Hall's check was never cashed. The Marks' check was made payable to Respondent.

    
    

20. American Fidelity Mortgage Corporation was unable to process the four loans Respondent submitted due to Respondent's failure to provide for an appraisal. The Tapscott loan did close some months later after American Fidelity Mortgage Corporation made arrangements for an appraisal. Tapscott was obligated to pay the appraiser at the time the appraisal was done in accordance with American Fidelity Mortgage Corporation's standard procedure. In effect, Tapscott paid twice for an appraisal.

    
    

21. No portion of the deposit monies accepted by Respondent from his clients were ever placed in a segregated account.

    
    

22. The fees and deposits Respondent obtained from his clients were not continuously held in any account.

    
    

23. Respondent admits that he did not refund the monies obtained from his clients despite their demands for the return of those deposits.

    
    

24. Respondent converted the funds he obtained from his clients to his own

    use.

    
    

25. On or about August 31, 1994, two and a half years after obtaining

    these deposits and after the initiation of the instant action by the Department, Respondent did refund substantially all of the funds he took from his clients.

26. The only address in the licensing files was Respondent's home address, located at 1038 Green Road, Rockledge, Florida 32955.

    
    

27. Respondent moved from the license address on file with the Department and failed to provide the Department with any notice of his change of address.

    
    

28. Respondent refused to make his mortgage broker's records available to the Department for examination by making himself and consequently his records unavailable.

    
    

29. Various liens had been filed against Respondent including federal liens. Respondent also filed a petition for bankruptcy under Chapter 13 of the Bankruptcy Code some time in late 1991. That petition for bankruptcy was dismissed on January 10, 1992 for failure to make payments to creditors under the payment plan. The order dismissing Respondent's petition for bankruptcy also lifted the automatic stay against creditors. The creditor matrix in this matter number thirty-four (34) creditors.

    
    

30. Respondent at no time notified the Department of his bankruptcy filing.

    
    

    CONCLUSIONS OF LAW

    
    

31. The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of these proceedings.

    
    

32. Section 494.0011, Florida Statutes, provides that the Department of Banking and Finance has the responsibility to administer and enforce the provisions of Chapter 494, Florida Statutes, including the duty to sanction those licensed under the Act for violations of the Act.

    
    

33. The Department has jurisdiction to sanction Respondents license. Respondent held an active mortgage broker license at the time the alleged violations occurred. Respondent still holds a mortgage broker license although it is presently in an inactive status. So long as Respondent holds a mortgage broker license, whether active or inactive, the Department maintains jurisdiction to sanction that license pursuant to Section 494.0041. To hold otherwise would allow a licensee to escape liability for violations of the Act merely by allowing him to place his license in an inactive status.

    
    

34. Respondent failed to answer the Request for Admissions served on Respondent on June 7, 1994. Rule 1.370(a), Florida Rules of Civil Procedure, provides that each matter is admitted unless the party to whom the request is directed serves upon the party requesting the admission a written answer or objection within thirty (30) days after service of the request or such shorter or longer time as the Court may allow. As Respondent failed to answer the Request for Admissions, all matters set out in the Petitioner's Request for Admissions are admitted. Those matters in the Request were deemed admitted by order, dated August 31, 1994. Under Rule 1.370(b), Florida Rules of Civil Procedure, any matter admitted is conclusively established unless the Court on motion permits withdrawal or amendment of the admission. Since no motion was ever filed to allow the withdrawal or amendment of the admissions, the admissions are conclusively established.

35. Section 494.0041(1), Florida Statutes, provides that when the Department finds that any person is in violation of the grounds set forth in Section 494.0041(2), Florida Statutes, it may enter an order imposing one or more the following penalties:

    
    

    1. Revocation of a license or registration.

       
       

    2. Suspension of a license or registration subject to reinstatement upon all reasonable conditions as the Department may specify.

       
       

    3. Placement of the licensee, registrant or applicant on probation for a period of time and subject to all reasonable conditions that the Department specifies.

       
       

    4. Issuance of a reprimand.

       
       

    5. Imposition of a fine in an amount not exceeding $5,000.00 for each count or separate offense.

       
       

    6. Denial of a license or registration.

    
    

36. Section 494.0041(2), Florida Statutes, sets out the grounds for disciplinary action and outlines those acts which constitute grounds for disciplinary action against individuals and companies who are registered or licensed with the Department.

    
    

37. Section 494.0041(2)(b), Florida Statutes, defines fraud, misrepresentation, and deceit in a mortgage financing transaction as grounds for disciplining a license.

    
    

38. Respondent's course of conduct in these mortgage financing transactions with his clients constitutes fraud. Respondent misrepresented to his clients that he would assist them in refinancing their properties, that the fees and deposits he requested of them would be used to pay for the costs of financing their loans. Instead, the Respondent converted those deposits and fees to his own benefit. This is outright misrepresentation and fraud. The Respondent has therefore violated Section 494.0041(2)(b), Florida Statutes.

    
    

39. Section 494.0041(2)(e) defines failure to place immediately upon receipt any funds entrusted to a mortgage broker into a segregated account as a ground for disciplining a mortgage broker license. Respondent failed to place the fees and deposits he received from his clients into a segregated account and therefore has violated Section 494.0041(2)(e), Florida Statutes.

    
    

40. Under Section 494.0041(2)(f) a mortgage broker's license may be sanctioned for failure to account or deliver to any person any property entrusted to the mortgage broker that does not belong to the mortgage broker. Respondent's failure to refund his clients those fees and deposits to which he was not entitled within the 60 day time allowed is a violation of Section 494.0041(2)(f), Florida Statutes.

    
    

41. Section 494.0041(2)(h) defines misappropriation of property entrusted to the mortgage broker as a ground for disciplining a mortgage broker's license. Respondent converted his clients' monies to his own benefit and has therefore violated Section 494.0041(2)(h), Florida Statutes.

42. Under Section 494.0025(4)(a), (b) and (c), it is unlawful for any person in a mortgage transaction to knowingly employ any device, scheme or artifice to defraud, to engage in a course of business which operates as a fraud on any person in a mortgage financing transaction or to obtain property by fraud or willful misrepresentation of a future act or promise. Respondent's offer to assist his clients in mortgaging their properties constituted a scheme to defraud in that Respondent required his clients to pay fees and deposits for services which he did not provide. Rather he took the money for his own use and benefit. This course of business operated as a fraud upon his clients in that they thought they were paying for services in connection with refinancing their properties when in fact Respondent misappropriated their funds. This scheme or course of conduct allowed Respondent to obtain his clients' funds by fraud. Respondent's conduct in each transaction with each client constitutes a violation of Section 494.0025(4)(a), (b) and (c), Florida Statutes.

    
    

43. Section 494.0043 prohibits making any false or fraudulent statement or representation. Respondent misrepresented to each of his clients that the fees he collected would be spent for credit reports and appraisals when in fact they were not. Respondent represented to at least one client that an additional fifty dollars ($50.00) was needed to pay a lender's lock-in fee when in fact it was not. The client's check in payment of that additional fifty dollars ($50.00) was made payable to Respondent who then misappropriated the funds. These misrepresentations violate Section 494.0025(5), Florida Statutes.

    
    

44. Respondent, a licensed mortgage broker, acted as a mortgage brokerage business without benefit of license in that he solicited mortgage loan applications and accepted borrower deposits in is own name. Section 494.001(13) defines a mortgage brokerage business as a person acting as a mortgage broker. To act as a mortgage broker is defined in Section 494.001(2) to mean for compensation or gain or in the expectation of compensation or gain, either directly or indirectly, accepting or offering to accept an application for a mortgage loan, soliciting or offering to solicit a mortgage loan on behalf of a borrower, or negotiating or offering to negotiate the terms or conditions of a mortgage loan on behalf of a lender. Pursuant to Section 494.0038(1)(a), only a mortgage brokerage business may collect fees from a borrower, and then only pursuant to a written agreement. Respondent accepted client fees in his name and provided deposit receipts in his name. Section 494.0041(k) provides that a licensee's license may be sanctioned for acting as a mortgage brokerage business without a current, active license issued under Subsection 494.003 - 494.0043. Respondent did not possess an active mortgage brokerage business license at the time he solicited loan applications in January and February, 1992. Respondent has therefore violated the provisions of Section 494.0041(k), Florida Statutes, by acting as a mortgage brokerage business without a license to do so.

    
    

45. Section 494.0038(1)(a), Florida Statutes, provides that:

    
    

    A person may not receive a fee for acting as a mortgage brokerage business except pursuant to a written agreement between the

    mortgage brokerage business and the borrower.

    The agreement must describe the services to

    be provided by the mortgage brokerage business and specify the amount and terms of the mortgage brokerage fee that the mortgage brokerage business is to receive.

46. Respondent did not provide any of his clients with a mortgage brokerage agreement nor any other document complying with the disclosure requirements of Section 494.0038(1)(a), yet he collected client fees. Respondent has therefore violated Section 494.0038(1)(a), Florida Statutes.

    
    

47. Under the provisions of Section 494.0038(2)(a), (b), and (c), a mortgage broker business must disclose that it may not make mortgage loans or commitments, that it cannot guarantee acceptance into any particular loan program, and must provide the borrower with a good faith estimate of the credit report fee, property appraisal fee, or any other third party fee and terms and conditions for obtaining a refund of such fees. Section 494.0038(2)(c) further provides that any amount collected in excess of actual cost is to be returned to the borrower within sixty (60) days of the loan being rejected, withdrawn, or the closing. Respondent failed to provide his borrowers with the disclosures required by Section 494.0038(2)(a), (b) and (c), and he failed to make any refunds within the sixty (60) days allowed by this section. Respondent has therefore violated Sections 494.0038(2)(a), (b) and (c), Florida Statutes.

    
    

48. Section 494.0033(1) provides that each natural person who acts as a mortgage broker must be an associate of a mortgage brokerage business. Further, a mortgage broker is prohibited from being associated with more than one mortgage brokerage business. Respondent, during January and February 1992, was not associated with any mortgage brokerage business. He was not an employee of American Fidelity Mortgage Corporation, a mortgage lender. However, Respondent was engaging in mortgage brokerage activities. Respondent has therefore violated Section 494.0033(1), Florida Statutes, in that he was engaging in mortgage brokerage activities without being associated with a mortgage brokerage business.

    
    

49. Under the terms of Section 494.004(2) each licensee must report any action in bankruptcy to the Department not later than seven (7) days after the action is instituted. Respondent failed to notify the Department of the bankruptcy petition he filed in late 1991 which was subsequently dismissed in January 1992, and is therefore in violation of this section.

    
    

50. The amount of money Respondent misappropriated and converted to his own use from each client is not great. The total amount he took from each of the individuals known to the Department is only three hundred fifty to four hundred dollars ($350.00-$400.00). Furthermore, shortly before this hearing, Respondent has refunded substantially all of the funds he stole from his clients. However, these refunds were made only after the Department initiated the instant action against Respondent. There is no evidence of his giving any consideration to refunds prior to the Department's institution of this action. In fact, the evidence is just the opposite. In late 1991, Respondent hid from his clients by refusing to respond to phone calls or simply refused those who did contact him. The mortgage industry cannot tolerate mortgage brokers within its ranks who by fraud obtain funds from clients who trust them as licensed professionals and convert those client funds to their own use and benefit. Consequently the sanction recommended below reflect the egregiousness of the violations rather than the dollar value of the violations.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that Dean A. Danner's mortgage broker license be revoked. It

is also

RECOMMENDED that a fine be imposed against Dean A. Danner in the amount of eight thousand dollars ($8,000.00).

DONE and ENTERED this 27th day of September, 1994, in Tallahassee, Florida.

DANIEL M. KILBRIDE

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 27th day of September, 1994.

APPENDIX

Petitioners Proposed findings of fact

Accepted in substance: paragraphs 1-9, 10 (in part), 11-20, 21 (in part),

22, 23, 24 (in part), 25 (in part), 26 (in part), 28, 29.

Rejected as subsumed, irrelevant or immaterial: paragraphs 10 (in part),

21 (in part) 24 (in part), 25 (in part), 26 (in part), 27.

Respondent did not submit proposed findings of fact.

COPIES FURNISHED:

Dean A. Danner

986 Kings Post Road Rockledge, Florida 32955

Josephine A. Schultz, Esquire Office of the Comptroller

400 West Robinson Street, Suite S225 Orlando, Florida 32801

Honorable Gerald E. Lewis Comptroller, State of Florida Department of Banking & Finance The Capitol, Plaza Level Tallahassee, Florida 32399-0350

William G. Reeves, General Counsel Department of Banking & Finance The Capitol, Room 1302 Tallahassee, Florida 32399-0350

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to the 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 that will issue the final order in this case concerning their rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 94-001352

Orders for Case No: 94-001352