STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BANKING AND ) FINANCE, DIVISION OF FINANCE, )

)

Petitioner, )

)

vs. ) CASE NO. 96-0290

) WHITE PINE RESOURCES, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, this matter was heard before the Division of Administrative Hearings by its assigned Hearing Officer, Donald R. Alexander, on May 22, 1996, in Pensacola, Florida.

APPEARANCES

For Petitioner: Clyde C. Caillouet, Jr., Esquire

4900 Bayou Boulevard, Suite 103

Pensacola, Florida 32503

For Respondent: John T. Reading, Jr., Esquire

358-C West Nine Mile Road Pensacola, Florida 32534-1818

STATEMENT OF THE ISSUE

The issue is whether respondent acted as a mortgage lender within the meaning of Section 494.001(3), Florida Statutes, and thus is subject to Division licensure requirements.

PRELIMINARY STATEMENT

This matter began on November 29, 1995, when petitioner, Department of Banking and Finance, Division of Finance, filed an administrative complaint for order to cease and desist, refund order, imposition of administrative penalties and notice of rights. The charging document alleged that respondent, White Pine Resources, Inc., was operating as a mortgage lender without a license. If the allegations are sustained, petitioner intends to suspend or revoke respondent's licenses and registrations, if any, impose an administrative fine, issue a cease and desist order, require refunds, if appropriate, and prohibit the association by a mortgage brokerage business, or the employment by a mortgage lender or correspondent mortgage lender. Respondent denied the allegation and requested a formal hearing under Section 120.57(1), Florida Statutes, to contest the proposed action.

The matter was referred by petitioner to the Division of Administrative Hearings on January 11, 1996, with a request that a Hearing Officer be assigned to conduct a formal hearing. By Notice of Hearing dated January 31, 1996, a final hearing was scheduled on March 22, 1996, in Pensacola, Florida.

Petitioner's unopposed motion for continuance was granted and the matter was rescheduled to May 22, 1996, at the same location. On May 20, 1996, the case was transferred from Hearing Officer P. Michael Ruff to the undersigned.

On May 20, 1996, respondent's motion for summary judgment was denied. In addition, petitioner's motion to take official recognition of various statutes and administrative rules was granted.

At final hearing, petitioner presented the testimony of John R. Grass, the sole shareholder of respondent; and Ronald A. Hoover, an examiner analyst II. Also, it offered petitioner's exhibits 1-15. Only exhibits 1-5 and 13-15 were received in evidence. Respondent presented the testimony of its sole shareholder, John R. Grass; Philip J. Fishler, Jr., an associate of First Florida Mortgage & Investment; and Paul M. Lukkar, a licensed mortgage broker with Gulf Coast Financial Corporation of the Florida Keys and accepted as an expert in banking and finance. Also, it offered respondent's exhibits 1-7. All exhibits were received in evidence.

Although the parties announced at the outset of the hearing that a transcript of hearing would be prepared, they later opted not to do so. Accordingly, this order has been prepared without the benefit of a transcript. Post-hearing filings in the nature of memoranda of law were made by petitioner and respondent on June 5 and 6, 1996, respectively.

FINDINGS OF FACT

Based upon all of the evidence, the following findings of fact are determined:

1. Petitioner, Department of Banking and Finance, Division of Finance (Division), is a state agency charged with the responsibility of administering and enforcing the Florida Mortgage Brokerage and Lending Act which is codified in Chapter 494, Florida Statutes. Among other things, the Division regulates mortgage lenders and requires such persons or entities to secure a license.

   
   

2. Respondent, White Pine Resouces, Inc. (WPR), is a Florida corporation formed in March 1986. Its sole shareholder is John R. Grass, a Pensacola attorney. Although the corporation was originally formed for a number of purposes, its primary activity is the real estate investment business. It holds no licenses issued by, or registrations with, the Division. WPR's current business address is 358-C West Nine Mile Road, Pensacola, Florida.

   
   

3. WPR's principal source of money is Grass, or his professional association, who loan money to the corporation. In some cases, the money is used to acquire parcels of property for resale, make necessary repairs or improvements, and then provide owner financing to the buyer. In other cases, WPR loans money to persons needing to make improvements to their homes or rental property and takes back a second mortgage from the borrower. These types of transactions, which occurred during the years 1992-95, are found in documents offered in evidence as petitioner's exhibits 1-5. Respondent has also stipulated that several other transactions of this nature occurred during that same period of time. In every case, WPR was investing its own money or that of its principal.

4. In 1992, a Division examiner analyst noted the following listing in the Yellow Pages section of the Pensacola telephone directory under the heading of "Mortgages":

   
   

   White Pine Resources

   
   

   Having Trouble With Financing Residential & Land

   Fast Service on 1st Mortgages

   
   

   The advertisement also contained respondent's street address and telephone number.

   
   

5. In the 1993-94 telephone directory, WPR carried the following advertisement under the "Mortgages" section of the Yellow Pages:

   White Pine Resources Specialists!

   Bad Credit - We Can Help Vacant Land Loans

   
   

6. In the 1995-96 telephone directory, WPR placed the following advertisement in the "Mortgages" section of the Yellow Pages:

   
   

   White Pines Resources

   
   

   A Private Investor Not a Mortgage Broker

   Specialists! We Can Help Vacant Land Loans

   
   

7. Although the Division first noted one of WPR's Yellow Page advertisements in 1992, for some reason it did not conduct a formal investigation of respondent's activities until February 28, 1994. On that day, an examiner analyst made an unannounced visit to respondent's office for the purpose of inspecting its records to determine if WPR was acting as a mortgage lender. However, WPR's principal, John R. Grass, was not in the office, and the analyst simply left his business card and a message for Grass to contact him.

   
   

8. The next morning, Grass telephoned the analyst's supervisor and advised him that since WPR was merely a private investor, and not a mortgage lender, it was not subject to the Division's regulation, and hence it would not provide copies of its records. A subpoena duces tecum was then issued by the Division, records were produced pursuant to the subpoena, and this controversy ensued.

   The parties agree, however, that this action was not prompted by complaints from consumers or other persons having dealings with WPR.

   
   

9. The record indicates that a mortgage lender differs from a private investor in several material respects. An important distinction is that a private investor uses its own funds rather than those of another party. Also, a private investor does not buy or sell paper, does not escrow taxes, does not split or broker commissions, and does not close its own loans. In all of these respects, WPR had the attributes of a private investor.

10. When mortgage brokerage firms are involved in transactions with private investors, they must supply the private investor with certain documents that are not provided to an institutional investor. Among others, they include a disclosure agreement, receipt of recorded instruments, an appraisal or waiver of the same, and title insurance. In addition, Division rules require that a mortgage brokerage firm record its transactions with private investors in a log journal known as DBF-MB-888. The evidence shows that for transactions between WPR and at least two mortgage brokerage firms during the years in question, the two firms recorded those transactions on DBF-MB-888. They also provided WPR with documents typically given to private investors.

    
    

11. The Division has adopted Rule 3D-40.290(2), Florida Administrative Code, which provides that a person is deemed to be holding himself out to the public as being in the mortgage lending business if he advertises in a manner "which would lead the reader to believe the person was in the business of buying, making or selling mortgage loans." The rule has not been challenged and, for purposes of resolving this controversy, is presumed to be valid. In view of the representations that WPR provided "Fast Service on 1st Mortgages" and "Vacant Land Loans," it is fair to infer that the Yellow Page advertisements made by WPR would reasonably lead the reader to believe that WPR was in the business of buying, making or selling mortgage loans. Therefore, by virtue of advertising in the Yellow Pages, WPR is deemed to be holding itself out to the public as being in the mortgage lending business.

    
    

12. During the years 1993-95, the Division routinely sent WPR questionnaires regarding various WPR transactions with licensed lenders. The transmittal letter accompanying the questionnaire noted that the Division was conducting "a routine examination" of the licensed lender (and not WPR), and WPR's comments would "be of material assistance to (the Division) in determining compliance with the Florida Mortgage Brokerage Act."

    
    

13. By way of an estoppel defense, WPR has essentially contended that the questionnaires constituted a representation by the Division that WPR was merely a private lender. It further contends that, to its detriment, it relied upon that representation. But there is nothing in the documents that states that the Division considered WPR to be a private lender. Nor is there any evidence that the Division made any other oral or written representations to WPR that it did not need to secure a license. Finally, assuming arguendo that such a representation occurred, there was no showing that WPR relied to its detriment on such an alleged "misstatement of fact."

    
    

14. WPR also raises the defense of laches arguing that it was severely prejudiced by the Division's delay in prosecuting this action. Except for testimony that respondent was forced to secure the services of an attorney to defend against this action, and its principal was required to attend a hearing, there was no showing of prejudice on the part of WPR.

    
    

    CONCLUSIONS OF LAW

    
    

15. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties hereto pursuant to Section 120.57(1), Florida Statutes.

    
    

16. Because petitioner seeks to impose sanctions which are penal in nature, it bears the burden of proving by clear and convincing evidence that the charges in the administrative complaint are correct. See, e.g., Dept. of

    Banking and Finance, Div. of Securities and Investor Protection v. Osborne Stern & Co., 670 So.2d 932, 935 (Fla. 1996).

    
    

17. In this case of first impression before the agency, the administrative complaint alleges that respondent "was a mortgage lender operating without a license." At least three statutory provisions are relevant to this charge. First, the term "act(ing) as a mortgage lender" is defined in Section 494.001(3), Florida Statutes (1995), as follows:

    
    

    (3) "Act as a mortgage lender" means to make a mortgage loan or to service a mortgage

    loan for others or, for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly, to sell or offer to sell a mortgage loan to a nonin- stitutional investor.

    
    

    In addition, the term "make a mortgage loan" is defined in Section 494.001(11), Florida Statutes (1995), as follows:

    
    

    (11) "Make a mortgage loan" means to close a mortgage loan in a person's name or to advance funds, offer to advance funds, or make a comm- itment to advance funds to an applicant for a mortgage loan.

    
    

    At the same time, various exemptions to the requirements of the law are set out in Section 494.006, Florida Statutes (1995). Paragraph (1)(j), which was formerly numbered as paragraph (1)(i) prior to 1995, and upon which WPR principally relies, exempts from Division licensure requirements

    
    

    Any person making or acquiring a mortgage loan with his own funds for his own invest- ment, and who does not hold himself out to the public, in any manner, as being in the mortgage lending business.

    
    

    To further clarify the foregoing statute, the Division has promulgated Rule 3D- 40.290(2), Florida Administrative Code, which reads as follows:

    
    

    1. The phrase "holds himself out to the public in any manner" in s. 494.006(1)(h) and

       1. means that any person who does any of the following, but not limited to, is not exempt from mortgage lender or correspondent mortgage lender requirements:

          1. Is a business entity which makes, sells, or offers to sell, mortgage loans to noninsti- tutional investors;

          2. Is employed or associated with a business where mortgage lending or mortgage brokering services may be received;

          3. Has placed himself in a position where he is likely to come into contact with borrowers or investors or buyers or sellers of mortgage loans;

          4. Advertises in newspapers, magazines, or

    the like in a manner which would lead the reader to believe the person was in the busi- ness of buying, making or selling mortgage loans. For example, placing an advertisement which states "I buy and sell mortgages" would lead the public to believe the person was in the mortgage lending business; or

    (f) Solicits in a manner which would lead the reader to believe the person was in the business of buying, making or selling mort- gage loans.

    
    

    Finally, it should be noted that Section 494.006(3), Florida Statutes (1995), provides in part that "(t)he burden of establishing the right to any exemption is upon the party claiming the benefit of the exemption."

    
    

18. Under the Division's theory, during the years 1992-95, respondent made a number of mortgage loans and otherwise acted as a mortgage lender within the meaning of subsections 494.001(3) and (11). It also contends that even if respondent used its own funds for its investments, and had other attributes of a private investor, it nonetheless does not qualify for an exemption from licensure because it "advertises in newspapers, magazines, or the like in a manner which would lead the reader to believe the person was in the business of buying, making or selling mortgage loans."

    
    

19. Besides a general denial that it is engaging in regulated activities, WPR has presented a number of other contentions, some of which were previously raised in its motion for summary judgment. First, it argues that the Division is equitably estopped from now asserting that WPR is a mortgage lender. Second, it contends that the doctrine of laches prevents petitioner from bringing this action. Third, it argues that its activities are protected by the United States Constitution and that the Division's action contravenes both the right of free speech as guaranteed by the First Amendment and the equal protection clause. It also characterizes the Division's action as an impermissible restraint on commerce. As to the constitutional claims, the undersigned has no authority to adjudicate the same, and they are simply preserved in the record for appellate review, if an appeal is taken. Finally, WPR suggests that the Division's rule is contrary to Section 4 of "Directive 95-256" issued by the Governor. Although the "Directive" itself was not offered into evidence, presumably WPR refers to Executive Order Number 95-256 issued by the Office of the Governor on July 12, 1995. These arguments will be addressed before reaching a decision on the merits.

    
    

20. On its estoppel claim, WPR relies principally on the cases of Dolphin Outdoor Advertising v. Dept. of Transporation, 582 So.2d 709 (Fla. 1st DCA 1991), and Chipley Motel v. Dept. of Transportation, 498 So.2d 1357 (Fla. 1st DCA 1986), which held generally that the Department of Transportation could be estopped from revoking an outdoor advertising permit where the evidence established all of the requisite elements of estoppel. In this case, WPR contends that all elements are present in that there was a representation by the Division as to a material fact, namely, that WPR was not subject to regulation, WPR relied upon that representation, and the Division later changed its position to WPR's detriment. But the evidence does not establish that the Division made a representation to WPR that no license was needed, or that WPR relied upon that "representation" to its detriment. Because both elements are necessary to invoke the doctrine of equitable estoppel, the contention is hereby rejected.

21. WPR next contends that the Division is barred by the doctrine of laches from pursuing this action. It reasons that because the Division waited for almost two years to initiate its investigation after first reading the Yellow Pages advertisement in 1992, it was prejudiced by the delay. While the doctrine of laches can be raised in an administrative proceeding, see, e. g., Ong v. Dept. of Professional Regulation, 565 So.2d 1384 (Fla. 5th DCA 1990), there is no record evidence that respondent was prejudiced in any material respect due to any delay in commencement of this proceeding. Id. at 1386. The argument is accordingly deemed to be without merit.

    
    

22. Finally, WPR argues that rule 3D-40.290(2) is violative of Section 4 of Executive Order 95-256. Since the validity of an existing rule can only be challenged in a proceeding brought under Section 120.56, Florida Statutes, the contention has been rejected. Parenthetically, however, it is noted that the Executive Order appears to apply only to executive agencies, and not the Department of Banking and Finance. Even if it did apply, Section 4 merely promotes "The Rule of Flexibility" and requires executive agencies to "make decisions in a manner that reasonably implements or interprets the policies established by the controlling legislation so that results reached shall be fair, objective, and defensible without achieving legalistic, ridiculous conclusions." There is nothing contained therein that would render invalid the Division's actions.

    
    

23. Under the statutory scheme in chapter 494, anyone acting as a mortgage lender, that is, making a mortgage loan to others for compensation or gain, is subject to Division regulation. Therefore, by making various mortgage loans for compensation or gain during the years 1992-95, respondent has acted as a mortgage lender within the meaning of the law. Even so, respondent argues that it is entitled to an exemption under section 494.006(1)(j), which exempts from Division licensure requirements "(a)ny person making or acquiring a mortgage loan with his own funds . . . and who does not hold himself out to the public, in any manner, as being in the mortgage lending business." The statute is abundantly clear, however, and prohibits a private investor from holding himself out to the public "in any manner" as being in the mortgage lending business. Given the fact that, beginning in 1992, WPR advertised itself as being a money lender in the Yellow Pages, WPR cannot qualify for an exemption, and it is thus subject to the Division's jurisdiction.

    
    

24. As evidenced by its rule 3D-40.290(2), which is presumed to be valid, the Division has also interpreted section 494.006(1)(j) to mean that advertising in the Yellow Pages is equivalent to holding oneself out as being in the mortgage lending business. This interpretation of the law, while not the most desirable choice in respondent's view, is clearly not erroneous and falls within the range of possible interpretations. See, e.g., Board of Medical Examiners v. Durrani, 455 So.2d 515, 517 (Fla. 1st DCA 1984).

    
    

25. Next, respondent has contended, albeit not as energetically, that its activities are exempt by virtue of the exemptions set forth in Section 494.006(1)(d) and (e), Florida Statutes (1995). Those exemptions pertain whenever one receives a mortgage in connection with the sale of one's "own real property," or when one receives a mortgage "as security for an obligation arising out of materials furnished or as services rendered by the person in the improvement of the real property." Since respondent sometimes engaged in transactions other than those described above, the contention is deemed to be unavailing.

26. Finally, although the charging document seeks a variety of relief, including the imposition of a $5,000.00 administrative fine for each transaction, only a cease and desist order is deemed to be appropriate. This is because there are no consumer complaints or other circumstances that would warrant a fine, and respondent acted in good faith in believing that it was a private investor. Therefore, a final order should be entered requiring respondent to cease and desist from engaging in the business of mortgage lending. Since respondent cannot qualify for an exemption simply because it advertises in the Yellow Pages, but in all other respects it has the attributes of a private investor, it would appear that once WPR ceases advertising in the Yellow Pages, it would no longer be subject to the cease and desist order. Alternatively, respondent can secure a license and continue its activities.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Banking and Finance enter a final order

requiring respondent to cease and desist from engaging in the mortgage lending

business without a license.

DONE AND ENTERED this 17th day of June, 1996, in Tallahassee, Florida.

DONALD R. ALEXANDER, 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 17th day of June, 1996.

APPENDIX TO RECOMMENDED ORDER CASE NO. 95-0290

Petitioner:

Because petitioner's post-hearing filing is more in the nature of a memorandum of law containing argument rather than proposed findings of fact, specific rulings have not been made.

Respondent:

Because respondent's post-hearing filing is more in the nature of a memorandum of law containing argument rather than proposed findings of fact, specific rulings have not been made.

COPIES FURNISHED:

Honorable Bob Milligan Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350

Harry L. Hooper, III, Esquire Department of Banking and Finance Room 1302, The Capitol Tallahassee, Florida 32399-0350

Clyde C. Caillouet, Jr., Esquire 4900 Bayou Boulevard, Suite 103

Pensacola, Florida 32503

John T. Reading, Jr., Esquire 358-C West Nine Mile Road Pensacola, Florida 32534-1818

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit to the agency written exceptions to this Recommended Order. All agencies allow each party at least ten days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the Department of Banking and Finance concerning its rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the Department of Banking and Finance.

Docket for Case No: 96-000290

Orders for Case No: 96-000290