STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND ) PROFESSIONAL REGULATION, )

)

Petitioner, )

)

vs. ) CASE NO. 95-4240

)

GARY A. BERLEUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Final hearing was held on November 8, 1995, before Robert E. Meale, Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

The parties were represented at the hearing as follows: For Petitioner: Steven W. Johnson, Senior Attorney

Department of Business and

Professional Regulation Division of Real Estate Post Office Box 1900 Orlando, Florida 32802

For Respondent: Gary A. Berleue, pro se

13604 Wainwright Avenue

Port Charlotte, Florida 33953 STATEMENT OF THE ISSUE

The issue in this case is whether Respondent prepared a letter of opinion in violation of the standards of the Uniform Standards of Professional Appraisal Practice and thus Section 475.624(14), Florida Statutes; whether Respondent prepared an appraisal report without using reasonable diligence in violation of Section 475.624(15), Florida Statutes; and, if so, what penalty should be imposed.

PRELIMINARY STATEMENT

The Administrative Complaint dated August 26, 1994, alleges that Respondent prepared a letter of opinion of value on October 4, 1993 for First Sarasota Mortgage Company. The Administrative Complaint alleges that the letter of opinion is an appraisal that does not comply with the Uniform Standards of Professional Appraisal Practice. The Administrative Complaint alleges that Respondent thus violated Section 475.624(14), Florida Statutes, in the development or communication of a real estate appraisal, and Section

475.624(15), Florida Statutes, for the failure to exercise reasonable diligence in developing an appraisal or preparing an appraisal report.

The hearing officer granted Petitioner's oral motion at hearing to amend the Administrative Complaint to correct a typographical error in the citation to Section 475.624(15).

By Election of Rights dated September 12, 1994 Respondent disputed the allegations and demanded a formal hearing.

At the hearing Petitioner called one witness and offered into evidence ten exhibits. Respondent called one witness and offered into evidence one exhibit. All exhibits were admitted.

Neither party ordered a transcript. Respondent did not file a proposed recommended order. All of Petitioner's proposed findings are adopted or adopted in substance except for paragraph 10, which is rejected as unsupported by the appropriate weight of the evidence.

FINDINGS OF FACT

1. Respondent is a state certified general appraiser, holding license number RI 0000912.

   
   

2. In late 1993 First Sarasota Mortgage Company hired the appraisal company for which Respondent worked to prepare a "small income property report." This was a short form appraisal report used for multifamily housing, up to seven attached units.

   
   

3. Respondent visited the subject duplex to meet the borrower and inspect the property. He found the duplex in bad disrepair. The building was constructed in 1928. Forty or fifty years ago a prior owner removed a second story from the building, leaving it a single-story building. The interior walls are the original walls of the building, which is a legal nonconforming use in an area without other duplexes or similar properties. The building also suffered from a serious termite inspection.

   
   

4. Respondent reported what he had seen to the loan officer at First Sarasota. He told her that the property had considerable deferred maintenance and was not as represented by the borrower to the bank. Contrary to the borrower's assurances, the building was infested with termites, either uninsured or underinsured, and not owner-occupied.

   
   

5. The loan officer instructed Respondent to continue the appraisal and try to find comparables. After about two and one- half days of research over a five day period, during which time he kept the loan officer informed of his lack of progress, Respondent contacted the loan officer and told her what he had found. After searching in a 15 mile-radius Respondent had still been unable to find properties that did not require large adjustments due to the age or condition of the property. The loan officer agreed that the comparables were useless. Respondent asked her whether he should continue the project or stop. She said that she would talk to the borrower and get back to Respondent.

   
   

6. The loan officer called Respondent the next day and said stop working on the project. The loan officer denied the loan application, evidently due to the inadequacy of the property to be mortgaged. Although the lender ordered the appraisal, the borrower had paid the lender in advance for the appraisal.

7. Respondent went to his supervisor and explained that the borrower had already paid $450, and Respondent felt uncomfortable not giving him anything. Respondent suggested that they provide the lender with a letter of opinion based on their opinion of the worth of the property using a cost approach, omitting the market and income approaches due to the absence of comparables. The supervisor approved the issuance of a letter of opinion. A copy of the letter went to the borrower.

   
   

8. Respondent did not hear from the borrower for some time after issuing the letter of opinion. Then the borrower asked for a formal appraisal report. Respondent offered a partial refund or the letter of opinion, but the borrower insisted on a formal appraisal report. which Respondent could not provide.

   
   

9. The letter of opinion is on the letterhead of Respondent's employer and is dated October 4, 1993. Addressed to First Sarasota, the letter, which is signed by Respondent, describes the property and states:

   
   

   After a thorough inspection of the property, an intensive search of the Lee County Property

   appraisers tax records, the last three years of recorded sales taken from the Lee County REDI records, sales from the past two years taken from the Ft. Myers MLS and telephone interviews with local realtors and appraisers, it is our opinion that if an appraisal were to be per- formed on this property, the estimated fair market value of the subject property as of

   the date of inspection, 09/02/93, would be

   $65,000 to $75,000.

   
   

10. The one-page letter explains in detail the calculations under the cost approach for the property, leading to a total value of $92,000 for land and building. A note adds that the cost approach was given little weight due to the magnitude of needed repairs, including repairs for termite damage. The final sentence of the letter states: "This is a letter of opinion only and is not meant to be misinterpreted or utilized as an appraisal."

    
    

11. Twice, the letter disclaims being an appraisal report. The letter is accurate, reasonably detailed, and carefully conditioned. The main issue in the case is whether the letter of opinion is a permissible alternative to a formal appraisal report under the Uniform Standards of Professional Appraisal Practice (USPAP) that are incorporated into the disciplinary statutes.

    
    

12. Statement of Appraisal Standards No. 7 was adopted on March 22, 1994, and is included in the 1995 USPAP. Statement No. 7 addresses the situations under which an appraiser may perform an assignment that calls for something less than, or different from, a formal appraisal, as required by USPAP standards.

    The commentary identifies the issue as follows:

    
    

    Throughout the history of real property appraisal practice, a perception has existed that certain types of transactions in the real estate market require something less than or different from a Complete Appraisal. The phrase something less than or different from in this context has meant a Limited Appraisal

    and a condensed report. To distinguish this type of assignment from a Complete Appraisal, different names have been created for this activity, including Letter Opinion of Value, Update of an Appraisal, Recertification of Value, and, more recently, Evaluation of Real Property Collateral.

    1995 USPAP, page 73.

    
    

13. Statement No. 7 proceeds to describe a "complete appraisal" and "limited appraisal" and a "self-contained appraisal report," "summary appraisal report," and "restricted appraisal report." Mentioning a provision that permits an appraiser to enter into an agreement that "calls for something less than, or different from, the work that would otherwise be required by the specific guidelines," Statement No. 7 explains:

    
    

    This provision goes on to permit limited departures from specific guidelines provided the appraiser determines the appraisal process is not so limited as to mislead the client and intended users of the report, the appraiser advises the client of the limitations and discloses the limitations in the report, and the client agrees that the limited service would be appropriate.

    1995 USPAP, page 73.

    
    

14. After an extended discussion of the types of appraisal reports and appraisals, Statement No. 7 concludes in part:

    
    

    Clarification of Nomenclature

    
    

    Various nomenclature has been developed by clients and client groups for certain appraisal assignments. The development of this Statement on Appraisal Standards is a response to inquiries about several types of appraisal assignments, and it is appropriate to clarify the meaning of these terms for future reference.

    The term Letter Opinion of Value has been used to describe a one-page letter sent to a client that stated a value estimate and

    referenced the file information and experience of the appraiser as the basis for the estimate. This type of service does not comply with USPAP, and should be eliminated from appraisal practice. . . . The Restricted Report is the minimum report format and replaces the concept of the Letter Opinion of Value.

    1995 USPAP, page 75.

    
    

15. The 1993 Uniform Standards of Professional Appraisal Practice, which was in effect at the time of the subject transaction, does not contain Statement No. 7 because the statement was not in effect at the time, nor at the time of the subject transaction.

16. Appraisers have historically used letters of opinion and not been disciplined. Statement No. 7 represents an attempt, in 1994, to provide and clarification "for future reference." Nothing in Statement No. 7 nor the 1993 USPAP supplies Petitioner with any basis for disciplining Respondent for the use of the letter of opinion in 1993.

    
    

17. The client in this case was First Sarasota, to which the borrower paid the appraisal fee. Respondent's letter is directed to the client, not the borrower. Nothing in the letter could possibly mislead the client or the borrower. The limitations of the letter are largely apparent in the letter itself. Perhaps most important, Respondent consistently kept the client informed about the project and disclosed for his client the abject condition of the property and misrepresentations of the borrower. Respondent's diligence in fact engendered the complaint from the borrower that resulted in this case.

    
    

18. After the subject transaction the restricted appraisal report replaced the letter of opinion. Respondent discontinued use of letters of opinion since the October 4, 1993 letter.

    
    

19. In October 1993, however, Petitioner could not discipline an appraiser for the use of a letter of opinion, at least under the facts of this case. The October 4, 1993 letter was not an appraisal report under either then-existing USPAP standards, but was a widely recognized alternative to a formal appraisal report. In October 1993, as is clear from the language of Statement No. 7, USPAP had not created the alternative of the restricted appraisal report and had not limited all communications from appraisers to one of three types of reports.

    
    

20. There is absolutely no evidence that Respondent failed to use reasonable diligence in the preparation of an appraisal report.

    
    

    CONCLUSIONS OF LAW

    
    

21. The Division of Administrative Hearings has jurisdiction over the subject matter. Section 120.57(1), Florida Statutes. (All references to Sections are to Florida Statutes.)

    
    

22. Section 475.624 provides that the Florida Real Estate Appraisal Board may "reprimand, fine, revoke, or suspend, for a period not to exceed 10 years," the license of any appraiser who:

    
    

    1. Has violated any standard for the development or communication of a real estate appraisal or other provision of the Uniform Standards of Professional Appraisal Practice.

    2. Has failed or refused to exercise reasonable diligence in developing an appraisal or preparing an appraisal report.

       
       

23. Petitioner must prove the material allegations against Respondent by clear and convincing evidence. Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).

    
    

24. There is no evidence that Respondent failed to use reasonable diligence in developing an appraisal or preparing an appraisal report.

    
    

25. Petitioner has failed to prove that Respondent violated any standard of 1993 USPAP based on the issuance of the October 4, 1993 letter. Statement

    No. 7 is a laudable attempt to provide guidance "for future reference" to end the confusion that has surrounded letters of opinion. But the confusion that existed in October 1993 precludes discipline, especially for a letter as accurate, detailed, and conditioned as the October 4 letter and given Respondent's diligence in ensuring that his client received all the information necessary to make what was obviously the correct lending decision.

    
    

26. Petitioner relies in its proposed recommended order on Section 475.611(1)(a)2.C, which broadly defines an appraisal report to include the October 4, 1993 letter. The statutory definition plays a role in interpreting Section 475.624(15), which requires that an appraiser use reasonable diligence in preparing an "appraisal report." For the purpose of this section the October

    4 letter is an appraisal report, and, as noted above, Respondent used due diligence in its preparation.

    
    

27. It is another matter entirely to borrow the statutory definition of "appraisal report" and try to lend clarity to provisions of the USPAP that are incorporated by Section 475.624(14). If the alleged violation is of the USPAP, then the liability must be based on the provisions of the USPAP, barring statutory additions or deletions that expressly refer to the USPAP requirements.

    
    

28. Petitioner has stretched the notice requirements of due process by omitting citation to specific provisions of the USPAP in the Administrative Complaint. Due process precludes the addition of another alleged basis for liability at this late stage. Petitioner alleged only that Respondent prepared an appraisal report that violated unspecified standards of the USPAP and that Respondent did not use due diligence in preparing the report. Petitioner failed to prove these allegations.

RECOMMENDATION

It is

RECOMMENDED that the Florida Real Estate Appraisal Board enter a final order dismissing the Administrative Complaint against Respondent.

ENTERED on December 21, 1995, in Tallahassee, Florida.

ROBERT E. MEALE, 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 21st day of December, 1995.

COPIES FURNISHED:

Linda Goodgame, General Counsel Department of Business and

Professional Regulation 1940 North Monroe Street Tallahassee, FL 32399-0792

Steven W. Johnson, Senior Attorney Department of Business and

Professional Regulation Division of Real Estate

P.O. Box 1900 Orlando, FL 32802

Gary A. Berleue, pro se 13604 Wainwright Ave.

Port Charlotte, FL 33953

Darlene F. Keller, Division Director Division of Real Estate

400 West Robinson Street Post Office Box 1900 Orlando, FL 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 contact the agency that will issue the final order in this case concerning agency 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: 95-004240

Orders for Case No: 95-004240