STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF BANKING AND ) FINANCE DIVISION OF FINANCE, ) STATE OF FLORIDA, )
)
Petitioner, )
)
vs. ) CASE NO. 75-1313
) PROGRAMMED MORTGAGE INCOME, INC., ) A FLORIDA CORPORATION, A LICENSED ) MORTGAGE BROKER, )
)
Respondent. )
)
RECOMMENDED ORDER
THIS CAUSE came on to be heard upon due notice to the parties at West Palm Beach, Florida, on September 26, 1975, before the undersigned Hearing Officer.
APPEARANCES
For Petitioner: Richard M. Goldstein, Esquire
Assistant Attorney General Office of the Comptroller The Capitol
Tallahassee, Florida 32304
For Respondent: Charles W. Musgrove, Esquire
810 Comeau Building
West Palm Beach, Florida 33401 STATEMENT OF ISSUES PRESENTED
Whether Mortgage Broker License No. 3082 issued to Respondent should be suspended or revoked under the provisions of Section 494.05, F.S..
Prior to the hearing Respondent had filed a motion for continuance of the hearing which had been scheduled for September 11, 1975. Good cause having been shown, the hearing was continued until September 26, 1975.
FINDINGS OF FACT
Respondent was issued Mortgage Broker License No. 3082 on September 3, 1974 by Petitioner.
Respondent conducted certain transactions under its Mortgage Broker License during the period from September, 1973 until April, 1974. Respondent found client investors who had funds which they wished to invest in mortgages which would pay a greater return in interest than the average land mortgage. The transactions involved the purchase of a promissory note from a land
development corporation secured by a mortgage deed on land ostensibly owned by the developer, in which the latter reserved the right and was authorized to convey the premises to a purchaser under an installment land contract subject to the lien of the mortgage. The deed further provided that the developer would deliver to a bank as an escrow agent a copy of any such agreement for deed and a quitclaim deed which would be held in escrow unless a default was established under the mortgage deed. What the investor would receive in such cases would be the developer's assignment of an agreement for deed collateralized by the mortgage deed. The issuance of these high interest notes were for the purpose of enabling the development company to make certain improvements on the land which they were obligated to do under sales contracts.
In the transactions in question, Respondent dealt through Financial Resources Corporation of Ft. Lauderdale, Florida to which he remitted the investors funds, less an amount retained for fees or commissions. The land developer/borrower would then issue the note and mortgage in the face amount of the total investment made by the investor. The detailed procedure was that when an investor inquired concerning such mortgages, Respondent would determine from Financial Resources Corporation if any were available. It was the practice of Respondent's President then to look at the land development, determine if, in fact, the land was in development and had streets and the like, and to read pertinent documents concerning the development. He would then proceed to accept the full sum of the investment from the investor pursuant to an agreement by which the investor, in consideration of the stated sum, would authorize Respondent to use its best efforts to secure collateralized promissory notes at a minimum percentage of interest on the declining balance with principal and interest payable monthly if held to maturity. Respondent would then deposit the investor's check, usually on the same day as received, and then in several days send a notice to Financial Resources Corporation authorizing it to prepare and execute a self-amortizing monthly principal and interest promissory note with quitclaim deed in the amount of the investment, together with a check representing the proceeds of the Investment less the Respondent's fee or commission, and a sum for intangible tax on the transaction. Financial would thereafter return to Respondent a copy of the note and mortgage in exchange for the funds remitted. The recorded mortgages would be sent to Respondent within a month or so thereafter. Respondent had no agreements in writing with the land developer, nor with Financial Resources Corporation. Respondent claimed that its fees for services were set by Financial Resources Corporation which usually amounted to about 12 percent of the face amount of the investment, but which was sometimes more and frequently less than that authorized under the applicable statutes and regulations. Respondent did not maintain an escrow bank account and all funds received from investors were deposited into the corporate bank account of the firm. Respondent's agreements with investors set no specific term or period of time in which the secured promissory notes were to be obtained although its president would customarily tell investors that it would take some time for the transaction to be consummated, and that they could not expect to receive the recorded mortgages right away (testimony of Mr. Montague, Petitioner's Exhibits 2-10).
Respondent discontinued transactions as described above in April, 1974 because he was dissatisfied with the business. He had been informed that certain lands under some of the mortgages had not been sold until after the mortgage had been executed and that this was in violation of State law. In the fall of that year, he received a memorandum from the State Comptroller on the subject of escrow accounts, dated October 11, 1974, which warned mortgage brokers in the state concerning the practice of remitting investors' funds to
land developers in anticipation of receiving a recorded mortgage and note (testimony of Mr. Montague, Respondent's Exhibit 9).
In 1975,a financial examiner from Petitioner's office was sent to the office of Respondent to examine his books and records. Pursuant to that examination, it was determined that Respondent had committed various violations of Chapter 494, F.S. on certain transactions. The following findings of fact are made with respect to the transactions in question:
Allegation: That Respondent took and received deposits of money from Robert E. Creighton, Hazel R. Hardesty, J. Wilfred Caron, Rose A. Hoadley, Margaret A. Gregory and Willard A. Kotthaus, in the regular course of business, and failed to immediately place such said funds in an escrow or trust account as required by Section 494.05(1) , F.S.
As heretofore stated, the Respondent did not maintain an escrow trust account with respect to any of the above-stated transactions. The above- mentioned individuals had authorized Respondent to disburse the funds immediately upon receipt (testimony of Mr. Montague, Supplemented by Exhibits 3- 8).
Allegation: Respondent failed to maintain adequate records in violation of Section 494.06(3), F.S., in that its files contained
no written agreements on transactions with Della
W. Shaw, Lantana Sheet Metal and A.C. Inc.,
and another transaction with Lantana Sheet Metal.
The agreement between Della Shaw and Respondent, although not present in Respondent's file at the time of examination of its records by Petitioner's representative, had been executed on October 15, 1975, and presently is contained in the records of the Respondent. It had been taken out temporarily by one of Respondent's associates who also had Della Shaw as a client. Respondent had entered into two transactions with the trustee of the pension fund and profit sharing plan of Lantana Sheet Metal, one for ten thousand dollars from the pension fund and one for three thousand dollars from the profit sharing plan. At the time of these investments there were written contracts which were executed by the parties. The books and records of both the pension fund and the profit sharing fund were maintained at Respondent's office by a firm which administered both plans. The agreements pertaining to the Lantana transactions were requested and withdrawn from Respondent's files by the trustee of the Lantana funds. Consequently, they did not appear in the records of the corporation at the time of examination by Petitioner's representative (Petitioner's Exhibits 2 and 4; Respondent's Exhibit 10).
Allegation: Respondent failed on numerous loan purchase agreements to establish the term for which the agreement was to remain in force before the return of the deposit for nonper- formance could be required by the investor, in violation of Chapter 3-3.06, F.A.C.
The transactions in question did not involve applications for mortgage loan, but agreements to purchase secured promissory notes. Respondent's clients
were investors/purchasers, not borrowers (testimony of Mr. Montague; Petitioner's Exh. 2-10).
Allegation: Respondent charged and accepted fees or commissions in excess of the maximum allowable in violation of Section 494.08(4), F.S., and Chapter 3-3.08(3) and (4), F.A.C., on trans- actions involving Rosa Eichelberger, overcharge of $10.90, Lantana Sheet Metal, overcharge of
$62.60; Lantana Sheet Metal, overcharge of $10.91; Rose A. Hoadley, overcharge of $9.10; and Margaret
A. Gregory, overcharge of $9.10.
FINDINGS OF FACT
Rosa Eichelberger: This was a $5,000.00 investment on November 19, 1973. Respondent remitted $4,410.00 to Financial Resources Corporation and retained $590.00. The sum remitted included $10.00 for state intangible tax. Petitioner had calculated the overcharge originally as $10.90, however, this was determined to be in error and the amount of $9.10 was established as the overcharge. This figure obviously did not take into consideration the $10.00 forwarded to Financial Resources Corporation for intangible tax and Accordingly there was no overcharge by the Respondent. Another transaction with this client was shown in Petitioner's Exhibit 11 (worksheet) which reflected that on a
$2,000.00 investment, the commission withheld was $240.00 and the correct fee was $319.18, an undercharge of $78.18 by Petitioner's own calculations (Petitioner's Exhibits 1,10 and 11, testimony of Mr. Montague).
Lantana Sheet Metal: The allegation is that on a transaction occuring September 19, 1973, Lantana was overcharged $62.60 and, in another transaction on the same date, there was an overcharge of $10.91. In support of alleged overcharges, Petitioner's worksheet (Petitioner's Exhibit 11) shows two transactions with Lantana, one for $4,034.76 with commission withheld in the amount of $565.76 and the correct fee being $503.16, resulting in an overcharge of $62.60. The other transaction is in the amount of $3,000.00 with a commission allegedly withheld of $420.00, and the correct fee being $409.09, resulting in an overcharge of $10.91. Respondent's records reflect that there were indeed two transactions but one was in the amount of $10,000, and the other in the amount of $3,000, as evidenced by checks issued to Respondent on August 21, 1973 and September 18, 1973 in the amounts of $3,000.00 and $10,000.00 respectively. The smaller transaction was secured by a promissory note in the amount of $3,000.00, plus a mortgage deed and a quitclaim deed. The larger transaction was evidenced by four promissory notes in the total amount of
$9,888.12 each with supporting security documents. With regard to the $3,000.00 transaction, the Respondent testified that his commission was in the amount of
$420.00 which included intangible tax paid of $6.00 thereby reducing the commission to $414.00. Computation under rule 3-3.08(4), F.A.C. results in a maximum allowable commission of $409.09, thus showing that under that method Respondent overcharged in the sum of $4.91. Computation under the statutory method would result in a slightly higher overcharge. As to the $10,000.00 investment, although Respondent claimed to have considered this as one transaction and to have computed one commissions for $1,083.19, its records reveal that Financial Resources Corporation indeed processed one $4,034.76 investment with a discount withheld of $565.76. Computing maximum commission under the Rules of the department results in a maximum authorized commission of
$503.16 or an overcharge of $62.60. According to the testimony of Respondent's president, he paid $50.00 of his own money to have three assignments of an
agreement for deed transferred to Lantana which reduced the actual profit which he had received for the transaction. However, there was no evidence in the file to establish this payment.
Rose A. Hoadley: Records reflect that Rose A. and Edward Hoadley made a $5,000.00 investment with Respondent on December 11, 1973 and received in return a secured promissory note in that amount. Respondent's records reflect that it withheld $600.00 on this transaction including $10.00 paid for intangible tax making a total commission of $590.00. There was no overcharge (Petitioner's Exhibit 7 and 11, testimony of Mr. Montague).
Margaret A. Gregory: This was a $5,000.00 investment on December 11, 1973. The evidence establishes that Respondent received a fee of $590.00 and forwarded $10.00 for intangible tax to Financial Resources Corporation. Petitioner's worksheet establishes that the correct fee was $590.90 and, accordingly, there is no overcharge on this transaction (Petitioner's Exhibit 8 and 11, testimony of Mr. Montague).
CONCLUSIONS OF LAW
Allegation: Failure to place investors' funds in an escrow trust account as required by Section 494.05(1), F.S.
Section 494.05(1)(f) provides as follows:
"(1) The department may, upon its motion, or upon the verified complaint in writing of any person, investigate the actions of any person
engaged in the business or acting in the capacity of a licensee under this act, within the state.
The license of a licensee may be suspended for a period not exceeding two years, or until compliance with a lawful order imposed in the
final order of suspension, or both, upon a finding of facts showing that the licensee has been guilty of any of the following:
(f) Failure to place, immediately upon receipt, any money, fund, deposit, check or draft, entrusted to him by any person dealing with him as a broker, in escrow with an escrow agent located and doing
business in Florida, pursuant to a written agreement, or, to deposit said funds in a trust or escrow
bank account maintained by him with some bank located and doing business in Florida, wherein said funds shall be kept until disbursement
thereof is properly authorized (emphasis supplied)."
Respondent's president testified that he did not maintain a trust or escrow account with regard to any of the transactions in question, but simply deposited funds received from investors in the corporate bank account. The statute provides that any funds received by a licensee shall be placed either with an escrow agent in Florida or in a trust or escrow bank account, to be kept there until disbursement is properly authorized. The statutory provision obviously is designed to keep funds in safekeeping with a disinterested party until a transaction is concluded. However, nowhere in Chapter 494 is there a definition of the term "properly authorized". The unusual transactions in question were so structured that the secured promissory notes purchased would not be forthcoming until the full cost of the investment had been paid to
Financial Resources Corporation. Additionally, it was normal practice for interest to be paid to the investor commencing a short time after funds had been remitted to Financial Resources Corporation. Accordingly, the only apparent reason for depositing the funds in any bank account was for Respondent to ensure that he could deduct his commission and thereupon write a check for the proceeds to Financial Resources Corporation. This was generally done within a short period of time after the funds had been paid to Respondent by the investor.
Affidavits from the investors in question show that they did not regard their investment as a deposit, but as payment in full for the notes and that Respondent was authorized by them to disburse the funds immediately upon receipt. This being so, a fair reading of the statute leads to the conclusion that escrow accounts were not required in these transactions because disbursement of the funds had been properly authorized at the time they were paid over to the Respondent. Accordingly, Respondent did not violate the cited statutory provision in the transactions set forth in the allegation.
Allegation: Failure to maintain adequate records in that there were no written agreements with Della W. Shaw, Lantana Sheet Metal and A.C., Inc., and Lantana Sheet Metal in violation of Section 494.06(3), F.S.
The cited statutory provision reads as follows: "494.06 Investigations and complaints; books, accounts, records, etc.
(3) All books, accounts, records and documents of licensees, including a closing-statement signed by the borrower shall be preserved and available for examination by the department for
at least five years from date of original entry."
The evidence adequately established that the transactions between Respondent and Della W. Shaw, and between Respondent and Lantana Sheet Metal involved written agreements between the parties. Although the agreement with Della W. Shaw was not in the file at the time Petitioner examined the Respondent's records, an adequate explanation for its absence was presented and it is new in the transaction file. As to agreements with Lantana, the evidence reflects that the trustee of Lantana's pension fund and profit sharing plan requested and received these agreements from the firm which administered the funds and which was located at Respondent's office. The failure of Respondent to retain the two agreements with Lantana constitute a technical violation of the statute in that all records of the licensee were not preserved and available for examination by the department for at least five years from the date of the original entry. Such violation also constitutes a violation of Section 494.05(1)(g) , which provides as a ground for suspension of a license, the failure to comply with any of the provisions of the Mortgage Brokerage Act or with any lawful order, rule or regulation made or issued under the provisions of the Act.
Allegation - Respondent on numerous loan purchase agreements failed to establish the term for which the agreement was to remain in force before the return of the deposit for nonperformance could be required by the investor, in violation of Rule 3-3.06, F.A.C.
The provision under consideration is as follows:
"3-3.06 Mortgage Broker; requirements and limitations generally
(6) In the event a mortgage broker requires a deposit in connection with an application for
a mortgage loan, there must be an agreement
in writing, signed by the parties thereto, with each party retaining a copy, setting forth
the disposition of the deposit, whether the loan if finally consummated or not, and the term for which the agreement is to remain in force before return of the deposit for nonperformance can be required."
Although the Respondent conceded that it had not complied with the terms of this rule in its transactions, it contended that the rule did not apply for two reasons.
That it was not dealing with applications to obtain mortgage loans but rather applications to purchase secured promissory notes.
That the transactions were of a cash nature and that deposits were not contemplated by the parties. Although the term "deposit" in the context of the rule would imply a partial payment, it is
not considered necessary to discuss this facet of the alleged violations because by its terms, the rule does not apply to Respondent's transactions, its clients being lenders, not borrowers.
Accordingly, it is concluded that there has been no violation of Rule 3-3.06.
Allegation - Respondent charged and accepted fees or commissions in excess of the maximum allowable fee or commission in violation of Section 494.08(4), F.S. and Chapter 3-3.08(3)
Section 49 .08(4), reads as follows:
"(4) The maximum fees or commissions which may be charged for-any mortgage loans shall be
as follows:
On mortgage loans of one thousand dollars or less: two hundred and fifty dollars.
On mortgage loans in excess of one thousand dollars and not more than two thousand dollars: two hundred and fifty dollars of the first
one thousand dollars of the mortgage loan, plus
ten dollars for each additional one hundred dollars of the mortgage loan.
On mortgage loans in excess of two thousand dollars and not more than five thousand dollars: three hundred and fifty dollars of the first
two thousand dollars of the mortgage loan,
ten dollars for each additional one hundred dollars of the mortgage loan.
On mortgage loans in excess of five thousand dollars: two hundred and fifty dollars plus
ten percent of the entire mortgage loan.
For the purpose of determining maximum fees or commissions, the amount of the mortgage loan shall be based on the proceeds of said mortgage loan
exclusive of the authorized maximum fees or commissions."
Petitioner, in computing the overcharges, however, used Rule 3-3.08, F.A.C., which reads in pertinent part as follows:
"(1) The charges of the broker as specified in section 494.08(3), F.S., shall include all forms of compensation paid or to be paid to the lender. Prepaid items, such as hazard insurance premiums,
tax escrow deposits, and life insurance premiums, are not costs or expenses incidental to the closing
of a mortgage loan transaction, and need not be included as part of the brokers' fee. A borrower may properly be required, at his own expense, to furnish to the broker or lender an abstract
of title covering the property to be mortgaged for
a period from the beginning to the date of application and the cost thereof shall not be construed as a direct or indirect cost or expense incidental to the processing and closing of the mortgage loan transaction.
The maximum fees or commissions as provided in section 494.08(4), F.S., must be based on
the net proceeds of the loan.
In determining the maximum fees or commissions on the gross proceeds of a loan, the following method may be used: On loans in excess of
$1,000 and not over $5,650, add $1,500 to the gross proceeds of the loan and divide that sum by
11; and, on loans of $5,750 and over, divide the gross proceeds by 11 and add $227.27. On loans that are over $5,650 but less than $5,750, the maximum fee is the amount in excess of $5,000.
Any fee paid under Chapter 494, F.S., must be paid directly to the employing mortgage broker.
The basis for any adverse action against Respondent for charging excess fees and commissions would apparently lie under Section 494.05(1)(g), F.S., which states as follows:
"(g) Failure to comply with any of the provisions of this act, or with any lawful order, rule
or regulation made or issued under the provisions of this act."
This would be under the theory that any overcharge constituted a failure to comply with the provisions of the statute and the rule quoted heretofore concerning maximum fees or commission. Additionally, section 494.08(3) specifically prohibits such overcharges. This provision is as follows:
"(3) No person shall charge or exact directly or indirectly from the mortgagor a fee or commission in excess of the maximum fees or com-
missions as set forth herein. The fee or commission shall include all direct or indirect costs or expenses incidental to the processing and closing
of the mortgage loan transaction, including but
not limited to appraisal fees, abstracting charges, title insurance premiums, and attorneys' fees, but shall not include the cost of state intangible taxes, documentary stamps and recording fees actually paid to a public official."
Rule 3-3.08(3), F.A.C., provides that the maximum fees or commissions as provided in Section 494.08(4) , F.S., must be based on the net proceeds of the loan. On the other hand, subsection (4) of the cited rule offers an alternative method of determining maximum fees or commissions on a gross proceeds basis utilizing a different formula than that stated in the statutory provision. By either method of computation, the net result is approximately the same. Although there appears to be no statutory definition of "fee or commission", Section 494.08(3) provides that the fee or commission shall include all direct or indirect costs or expenses incidental to the processing and closing of the mortgage loan transaction, including but not limited to appraisal fees, abstracting charges, title insurance premiums and attorneys' fees, but shall not include the cost of state intangible taxes, documentary stamps, and recording fees actually paid to a public official.
In considering the above law and regulation, it is obvious that the computation of a fee or a commission by a mortgage broker is no easy task. The rule varies the statute and apparently optional methods exist for such computations. Additionally, there is a difference of opinion as to whether one investment which was used to purchase four separate secured promissory notes should be considered as one or four transactions for the purpose of computing commissions. Although the hearing officer has found that in the light of Respondent's records, one promissory note for $4,034.76 issued with respect to the Lantana investment of $10,0 00.00 should be treated separately for computation of overcharges, it also could have been reasonable for the Respondent to believe that he was justified in lumping the four promissory notes together and computing his commission on the basis of one transaction. However, the records of the firm do not bear this out. Accordingly, it has been found that there was an overcharge in the Lantana Sheet Metal transactions in the amounts of $62.60 and $4.91 for total overcharges of $67.51, which constitute technical violations of the law and regulation cited above and which therefore could justify suspension under Section 494.05(1)(g) for failure to comply with the provisions of the Act or with any lawful order, rule or regulation made or issued under the provisions of the Act. In all fairness, however, it must be stated that, as to the eleven transactions listed on Petitioner's worksheet (Petitioner's Exhibit 11) , in all of the other transactions shown, the Petitioner actually undercharged with respect to the maximum allowable fee or commission.
Although not set forth with any specificity, Petitioner has alleged that Respondent also was in violation of Section 494.05(2) which provides for revocation of a license, as follows:
"(2) The license of a licensee may be revoked, if the application for the license is found to contain a material misstatement, or the licensee demonstrates by a course of conduct negligence or incompetence in performing any act for which he is required to hold license under this act, or if the licensee, for a second time, shall be
guilty of any misconduct which warrants his suspension under subsection (1)."
The only possible application of this revocation provision would be if the Respondent had pursued a negligent or incompetent course of conduct in performing acts pursuant to his license. It is not considered that the evidence establishes such a course of conduct by the minimal and technical violations shown in the above findings of fact and conclusions of law. Accordingly, there is no basis for revocation of the license under the cited authority.
23. In view of the lack of evidence to show derelictions of a serious and substantial nature, it is concluded that, although some action should be taken against Respondent fur failure to adhere strictly to the requirements of Chapter
494 and implementing regulations, suspension of its license is unwarranted under the circumstances.
RECOMMENDED ORDER
It is recommended that the Department of Banking and Finance, Division of Finance, issue a private written reprimand to Programmed Mortgage Income, Inc., a Florida Corporation, through its president Robert F. Montague, for failure to maintain strict adherence to Chapter 494 F.S., and implementing regulations, specifically Section 494.06(3) , requiring the preservation and availability for examination by the Department of all records of licensees for at least five years from the date of original entry, and Section 494.08(3), which provides that no person shall charge or exact directly or indirectly from the mortgagor a fee or commission in excess of the maximum fees or commissions as set forth in that statutory provision, and Rule 3-3.08, F.A.C.
DONE and ORDERED this 27th day of October, 1975, in Tallahassee, Florida 32304.
THOMAS C. OLDHAM
Hearing Officer
Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301
(904) 488-9675
COPIES FURNISHED:
Richard M. Goldstein, Esquire Assistant Attorney General Office of the Comptroller The Capitol
Tallahassee, Florida 32304
Charles W. Musgrove, Esquire 810 Comeau Building
West Palm Beach, Florida 33401
| Issue Date | Proceedings |
|---|---|
| Feb. 07, 1977 | Final Order filed. |
| Oct. 27, 1975 | Recommended Order sent out. CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Mar. 04, 1976 | Agency Final Order | |
| Oct. 27, 1975 | Recommended Order | Private reprimand for failing to keep adequate records and other minor violations. |
