STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND PROFESSIONAL REGULATION, DIVISION OF REAL ESTATE,

Petitioner,

vs.

ANDRE CARLOS SMITH,

Respondent.

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) Case No. 00-2014

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RECOMMENDED ORDER

This cause came on for formal hearing in accordance with duly-promulgated notice in Panama City, Florida, on July 12, 2001, before P. Michael Ruff, Administrative Law Judge of the Division of Administrative Hearings. The appearances were as follows:

APPEARANCES

For Petitioner: Sunia Y. Marsh, Esquire

Department of Business and Professional Regulation

400 West Robinson Street Suite N-308A

Orlando, Florida 32801-1772

For Respondent: Andre Carlos Smith, pro se

212-B Sudduth Place Parker, Florida 32404

STATEMENT OF THE ISSUE

The issue to be resolved in this proceeding concerns whether the Respondent's Florida Real Estate Broker's License should be the subject of sanctions, based upon the charges alleged in the Administrative Complaint, wherein it is contended that the Respondent has violated Section 475.25(1)(k), Florida Statutes, and Rules 61J2-14.012(2) and (3), Florida Administrative Code, and derivatively, Section 475.25(1)(e), Florida Statutes (1998 and 1999).

PRELIMINARY STATEMENT

This cause arose upon the filing of an Administrative Complaint by the Petitioner/Agency against the Respondent, alleging the statutory and regulatory violations referenced in the paragraph next above. The Respondent chose to dispute those allegations of fact and law set forth in the Complaint with a formal proceeding. The cause was submitted to the Division of Administrative Hearings and assigned to the undersigned Administrative Law Judge.

The cause came on for formal hearing, as noticed, on

July 12, 2001, before the undersigned. During the course of the hearing the Petitioner called one witness, John Hentz, the investigator for the Petitioner and offered Petitioner's Exhibits two through six and eight through twelve, which were admitted into evidence. The Respondent did not submit any

exhibits to be admitted into evidence. He testified on his own behalf and called one witness at the hearing, George H. Smith. The parties stipulated to the admissibility of Petitioner's Exhibits five and eight. There is no dispute that the Petitioner had jurisdiction over the Respondent's licensure status at all times material to these proceedings.

Additionally, official recognition of Chapters 20, 120, 455 and 475, Florida Statutes, and Chapter 61J2-14, Florida Administrative Code, was taken. Upon concluding the proceedings a transcript thereof was filed and the parties requested an extended schedule to submit Proposed Recommended Orders.

Additionally, the Respondent requested an extension of the time period for filing the Proposed Recommended Order, which was granted without objection. The Proposed Recommended Orders have been considered in the rendition of this Recommended Order.

FINDINGS OF FACT

1. The Petitioner is an agency of the State of Florida charged with regulating and enforcing the statutory provisions pertaining to real estate licensure and practice in the State of Florida. It is charged with the duty to prosecute Administrative Complaints against perceived violations and violators of the Florida Real Estate Practice Act, Chapter 475, Florida Statutes, and the rules promulgated pursuant thereto, as

   well as in the manner envisioned in Chapter 455, Florida Statutes, and Chapter 120, Florida Statutes.

2. The Respondent, at all times pertinent hereto, has been a licensed Florida real estate broker, holding License 0596898. The Respondent was last licensed as an inactive broker due to non-renewal. He has not been charged or found guilty of any violations of the statutes and rules pertaining to real estate licensure and practice in the past. His last known address is 212-B Sudduth Place, Parker, Florida 32404.

3. The Petitioner's investigator John Hentz conducted an office inspection and an audit of the Respondent's escrow accounts and broker's trust accounts on April 2, 1999. The audit was conducted at the office of the Respondent, trading as George H. Smith Real Estate.

4. The Respondent maintained an account with Bay Bank of Panama City entitled "Rental escrow account." This was actually the "owners' distribution escrow account." The account number is 2603100501. An audit of that escrow account revealed a total trust account liability of $16,861.51, meaning the total amounts of escrows the Respondent and his firm were liable to pay out if the account was entirely paid-out to those for whom it was held in trust. The reconciled bank balance, however, was for

   $4,001.82. This resulted in an apparent shortage of $12,858.69.

5. The Respondent and his company also maintained an account entitled "escrow rental deposit account." This account was maintained at Regions Bank of Panama City. The account will be described as the "security deposit escrow account." The security deposit escrow account bears account number 55-022- 9270. An audit of that account revealed that the total trust liability for that account was $22,525.00. The reconciled bank balance for that account was $21,277.50. This resulted in an apparent shortage in the amount of $1,247.50.

6. Mr. Hentz established that the audit disclosed that the Respondent failed to prepare written monthly reconciliation statements for both of the accounts from at least May of 1998 forward. The Respondent, however, asserted that he had prepared a written reconciliation for the February 1999 time period, but admitted that he had not provided the required explanation on the reconciliation form. The evidence also shows that the Respondent began operating as the managing or operating broker of George H. Smith Real Estate sometime in the period March through May of 1999. The records maintained by the Petitioner show that the qualifying broker was George H. Smith, the Respondent's father. George H. Smith and the Respondent provided the Petitioner with the corrective documentation registering the Respondent as the operating broker, however.

7. Mr. Hentz obtained the broker's records from the Respondent during the course of his audit, including, but not limited to, bank statements, lists of balances for the owners' accounts, and the security deposit accounts, as well as a list of clients and a record of outstanding checks.

8. Mr. Hentz reviewed the Respondent's "owner balance" list and the "checks pending" list for the owner's distribution account for the period up to February 28, 1999. Through this procedure he was able to determine the broker's trust liability for the account. Mr. Hentz calculated the broker's trust liability of $16,861.51, by adding the positive balance as identified on the Respondent's owner balance sheet as the amount of money that should be held on behalf of the property owners for the properties the Respondent managed. He then added the list of any outstanding checks or deposits. Mr. Hentz then compared the broker trust liability to the actual bank balance of $4,001.82 for the owners distribution account in order to determine whether the account was in balance and concluded that it was not.

9. The difference between the broker liability and the bank balance reflected a shortage of at least $12,858.69. this indicated the amount of funds the Respondent did not properly maintain in the owners' distribution escrow account.

10. Mr. Hentz also admitted that he should not have subtracted one particular negative balance and that the shortage should have actually been $532.00 greater than what was stated on the audit form. Mr. Hentz stated that the properties listed on the owners' sheet for John Green and Avalon Real Estate should only have been added in the calculations as a positive balance, and not any negative balance, since the same client owned the properties for both accounts with George H. Smith Real Estate.

11. Mr. Hentz was not of the opinion, and found no evidence, that the Respondent had taken and used any of the funds for his personal use. Rather, the shortage reflected, in essence, a situation where the brokerage had used certain owners' funds to cover other owners' expenses, when the owners with the expenses had accounts which did not contain sufficient funds to cover their own rental property management expenses. Typically these situations occurred where the owners who had expenses, such as repair work for their properties, were slow in issuing checks to the Respondent's brokerage to cover such repairs or other expenses or, in infrequent instances, where the checks issued by the owners to the Respondent's brokerage did not clear because of insufficient funds. This situation occasioned more delay in rectifying shortages caused in the brokerage-maintained account because of the necessity of

    obtaining reimbursement from the owners issuing insufficient checks for their expense assessments. There was no intentional conversion of funds in the owners' distribution escrow account or in the security deposit escrow account for the Respondent's own use or for any improper use or use detrimental to any client's interest.

12. Mr. Hentz followed the same steps in auditing the security deposit escrow account. The audit revealed that the Respondent's tenant list balanced and therefore, the broker trust liability for the account as of February 28, 1999, to be

    $22,525.00. There were no outstanding checks or deposits. The bank statement indicated that the security deposit escrow account balance as of that date was actually $21,277.50, resulting in a shortage of $1,247.50.

13. Mr. Hentz was unable to recall if the Respondent provided an explanation for that shortage in the security deposit account, however, he testified that the former broker and owner, George H. Smith, immediately took corrective action the same day by depositing funds in the escrow account to cover the shortage.

14. Mr. Hentz also established that during the audit the Respondent told him that the shortage in the owners distribution account resulted from owners' failure to reimburse George H. Smith Real Estate for expense payments made on behalf of the

    properties owned by those property owners, or for payments an owner or tenant may have made to George H. Smith Real Estate that were returned for insufficient funds.

15. George H. Smith admitted in his testimony that a broker should not use funds from an escrow account to "loan money" to another owner but rather should use the a brokerage's own funds and that a monthly reconciliation statement review should identify any shortages for correction. The Respondent admitted in his testimony that the audit revealed that the escrow accounts were not in accordance with properly maintaining trust and liability. The Respondent also asserted that the information provided to Mr. Hentz at the time of the audit may not have accurately provided the status of each account, as to the owner balance sheet, but he did not provide any documentation to dispute the allegations. The Respondent admitted that he was unable to provide an explanation on the reconciliation statements when the trust liability did not actually match the balance on the bank statement.

    CONCLUSIONS OF LAW

    
    

16. The Division of Administrative Hearings has jurisdiction of the parties to and the subject matter of this proceeding. Sections 120.57(1) and 120.569, Florida Statutes.

17. The Petitioner has the burden of proof in this proceeding to prove that the violations were committed by the

    Respondent. The Petitioner is required to meet that burden of proof by clear and convincing evidence. See Ferris v.

    Turlington, 510 So. 2d 292 (Fla. 1987); Evans Packing Co. v. Department of Agriculture and Consumer Services, 550 So. 2d 112 (Fla. 1st DCA 1989).

18. Section 475.25, Florida Statutes, authorizes the Florida Real Estate Commission to take disciplinary action against the license of any real estate broker or real estate sales person if the licensee commits certain specified acts. The specified acts contained in Section 475.25, Florida Statutes, include those with which the Respondent is charged. The Respondent was charged with the following acts:

    Section 475.25(1)(k), Florida Statutes:

    
    

    Has failed, if a broker, to immediately place, upon receipt, any money, fund, deposit, check, or draft entrusted to her or him, by a person dealing with her or him as a broker in escrow . . . wherein the funds shall be kept until disbursement thereof is properly authorized . . . . The Commission shall establish rules to provide for records to be maintained by the broker and the manner in which such deposits shall be made. . . .

    
    

19. Rule 61J2-14.012(2) and (3), Florida Administrative Code, provides that:

    1. Once monthly, a broker shall cause to be made a written statement comparing the broker's trust liability with the reconciled bank balance(s) of all trust accounts. The broker's trust liability is defined as the

       sum total of all deposits received, pending and being held by the broker at any point in time. The minimum information to be included in the monthly statement- reconciliation shall be the date the reconciliation was undertaken, the date used to reconcile the balances, the name of the bank(s), the name(s) of the account(s), the account balances(s) and date(s), deposits in transit, outstanding checks identified by date and check number, and itemized list of the broker's trust liability, and any other items necessary to reconcile the bank account balance(s) with the balance per the broker's checkbook(s) and other trust account books and records disclosing the date of receipt and the source of the funds. The broker shall review, sign and date the monthly statement-reconciliation.

       
       

    2. Whenever the trust liability and the bank balances do not agree, the reconciliation shall contain a description or explanation for the difference(s) and any corrective action taken in reference to shortages or overages of funds in the accounts(s). Whenever a trust bank account record reflects a service charge or fee for a non-sufficient check being returned or whenever an account has a negative balance, the reconciliation shall disclose the cause(s) of the returned check or negative balance and the corrective action taken.

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20. Section 475.25(1)(e), Florida Statutes, states that:

    
    

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    Has violated any provisions of this chapter or any lawful order or rule made or issued under the provisions of this chapter or Chapter 455.

    
    

21. The evidence has established that the Respondent was the responsible broker for George H. Smith Real Estate at times

    material to the allegations in the Administrative Complaint. The Petitioner established by clear and convincing evidence that the escrow accounts maintained by the Respondent, the owners' distribution escrow account number 2603100501 held with Bay Bank of Panama City, and the security deposit escrow account number 55-022-9270, held with Regions Bank of Panama City, contained shortages at the time of the audit.

22. The Petitioner established that the Respondent failed to maintain trust funds until disbursement was properly authorized in violation of Section 475.25(1)(k), Florida Statutes. The Respondent did not have authorization to disburse funds maintained by the Respondent in the owners' distribution account for any particular owner's account to cover another owner's expenses.

23. If the shortage resulted from a tenant or owner's check being returned for insufficient funds, as asserted by the Respondent, the Respondent failed to take immediate corrective action, which constituted a violation or failure to maintain funds until disbursement is properly authorized, as the disbursed funds still did not belong to the proper owner during the time of the violation.

24. The Respondent and George H. Smith testified that they paid expenses on behalf of John Green and Avalon Real Estate due to their losses, which resulted in a negative balance in the

    owners' distribution account. It is the responsibility of the broker to maintain escrowed funds in trust, and if a broker seeks to assist a client, a broker should not use other parties' funds without consent to "loan" to a client.

25. The Respondent was unable to provide an explanation as to the shortage in the security deposit escrow account; therefore, the Respondent is guilty of failure to maintain trust funds until disbursement was properly authorized in violation of Section 475.25(1)(k), Florida Statutes. The shortage resulted in unidentified owners' funds being used or disbursed without proper authorization, as all owners' funds would be accounted for if the account were in balance.

26. The evidence established that the Respondent failed to properly reconcile two escrow accounts, as the Respondent failed to identify the shortages and provide an explanation on the monthly reconciliation statement forms and to immediately take corrective action in violation of Rule 61J2-14.012(2)and(3), Florida Administrative Code.

27. Had the Respondent properly prepared monthly reconciliation statement forms, he would have been able to identify problems during the February 1999 period and correct them prior to audit on April 2, 1999.

28. Section 475.25(1), Florida Statutes, provides in pertinent part that the Florida Real Estate Commission may

    impose discipline against a real estate licensee, including: revocation, suspension for a period not exceeding ten years, imposition of an administrative fine not to exceed $1,000.00 for each count or separate offense, a reprimand, probation, and any or all of the foregoing. The ranges of suggested discipline for each of the different violations as alleged in the Administrative Complaint are set forth in Rule 61J2-24.001(3) of the Florida Administrative Code.

29. Disciplinary statutes are penal in nature and must be strictly interpreted against the authorization of discipline and in favor of the person sought to be penalized. Munch v. Department of Business and Professional Regulations, 592 So. 2d 1136, 1143 (Fla. 1st DCA 1992); Fleischman v. Department of Business and Professional Regulations, 441 So. 2d 1121, 1133 (Fla. 3rd DCA 1983).

30. The Petitioner, within that frame of reference and statutory charge, has shown clearly and convincingly that the Respondent committed the violations charged in the Administrative Complaint. The Respondent has not provided sufficient evidence to overcome the inference drawn from the Petitioner's documentary evidence and testimony in favor of culpability; thus, the Petitioner's evidence has not been refuted.

31. The Respondent has shown, and indeed it is not disputed, that the violations were not intentional, and were not fraudulent; that no client of the Respondent or the brokerage was harmed; that the Respondent did not use the funds represented by the shortages for personal use, and that the Respondent and the brokerage immediately took corrective action to restore the proper balances in the subject accounts. The Respondent has been a licensee since 1993, without any prior involvement in any disciplinary matter or proceeding.

RECOMMENDATION

Having considered the foregoing Findings of Fact and Conclusions of Law, the evidence of record and the candor and demeanor of the witnesses, it is, therefore,

RECOMMENDED that a final order be entered by the Florida Real Estate Commission finding the Respondent guilty of violating Section 475.25(1)(k), Florida Statutes; Rules

61J2-14.012(2) and (3), Florida Administrative Code; and, derivatively, Section 475.25(1)(e), Florida Statutes. In light of the facts found and conclusions reached hereinabove concerning the Respondent's candor in admitting responsibility for the shortages, that the brokerage took immediate corrective action, that no client was harmed and that the Respondent did not use any funds involved in the shortages for personal use or fraudulent purposes, it is recommended that a one-year

suspension, with a co-extensive year of probation, be imposed, together with a $1,000.00 fine. It is further recommended that the suspension be abated and, if during the one-year of probation the Respondent successfully completes a 30-hour broker management course, that the suspension be cancelled.

DONE AND ENTERED this 6th day of November, 2001, in Tallahassee, Leon County, Florida.

P. MICHAEL RUFF Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with Clerk of the

Division of Administrative Hearings this 6th day of November, 2001.

COPIES FURNISHED:

Sunia Y. Marsh, Esquire Department of Business and

Professional Regulation

400 West Robinson Street Suite N-308A

Orlando, Florida 32801-1772

Andre Carlos Smith 212-B Sudduth Place Parker, Florida 32404

Buddy Johnson, Division Director Division of Real Estate Department of Business and

Professional Regulation

400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802-1900

Hardy L. Roberts, III, General Counsel Department of Business

and Professional Regulation Northwood Centre

1940 North Monroe street Tallahassee, Florida 32399-2202

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of 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: 00-002014

Orders for Case No: 00-002014