STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
STATE OF FLORIDA, DEPARTMENT OF ) BANKING AND FINANCE, DIVISION ) OF FINANCE, )
)
Petitioner, )
)
vs. ) CASE NO. 75-1407
) PLANNED FINANCIAL SERVICES, INC.,) A FLORIDA CORPORATION, A )
LICENSED MORTGAGE BROKER, )
)
Respondent. )
)
RECOMMENDED ORDER
THIS CAUSE came on to be heard after due notice to the parties, at Room 200, 941 West Morse Boulevard, Winter Park, Florida, at 1:00 P.M., on September 15, 1975, before the undersigned Hearing Officer.
APPEARANCES
For Petitioner: Richard M. Goldstein, Esquire
Department of Legal Affairs The Capitol
Tallahassee, Florida
For Respondent: Jack B. Nichols, Esquire
NICHOLS & TATICH, P.A.
Suite 1110 Hartford Building
200 East Robinson Street Orlando, Florida 32802
STATEMENT OF ISSUES
Whether Mortgage Broker License No. 3534 should be suspended or revoked under Section 494.05, F.S.
At the hearing, the Respondent filed an answer to the charges in the Petitioner's Administrative Complaint, incorporating therein affirmative defenses. Rule 28-5.25(2), Florida Administrative Code, provides that the party may file an Answer which may contain affirmative defenses within 20 days of service of the Petition. Respondent's basis for late filing was inadvertence and neglect of its counsel. The Answer contained a general denial of the allegations and set forth affirmative defenses asserting lack of jurisdiction of the Petitioner to pursue its claims for alleged actions which took place on or before October 19, 1974, which was prior to the issuance of the mortgage broker license to Respondent. Further defenses included the claim that the Administrative Charges and Complaint are vague and ambiguous, that Petitioner had taken written action against Respondent without a hearing and denied it due
process of law prior to the filing of the Administrative Charges and Complaint, thereby constituting double jeopardy, that Petitioner has unilaterally and without hearing denied Respondent renewal of its license, therefore denying it due process of law and claiming that petitioner is estopped from proceeding on the ground that it violated Section 494.06(5), in not keeping confidential the examination and investigation of the Respondent by giving press releases designed to influence the outcome of the hearing. The Hearing Officer permitted the late filing of the Answer and Affirmative Defenses at the hearing, over the objection of the Petitioner who claimed lack of notice as to the affirmative defenses.
Respondent made a motion at the hearing to quash or abate the charges on the grounds of lack of jurisdiction on the basis set forth in its aforesaid pleading and on the grounds that Section 494.05(1) permits the petitioner only to investigate actions of licensees and not to suspend or revoke such licenses. The motion was denied by the Hearing Officer under the authority granted to deny, suspend or revoke licenses pursuant to Section 494.05, F.S.
From statements of counsel at the hearing, it appears that Respondent's application for yearly renewal of its license was denied by Petitioner on September 3, 1975. However premature such a denial might have been, the question is not in issue in the instant proceeding. Nor is any purported violation by Petitioner of Section 494.06(5), concerning confidentiality of its investigations of Respondent.
Both parties made opening statements and closing arguments. The Petitioner presented its case through two witnesses and submitted documentary evidence.
The Respondent did not call, any witnesses. Petitioner also called Frank H. Roark, Jr. President of Respondent Corporation as a witness. Mr. Roark, after being sworn, declined to testify on the grounds of possible self-incrimination. The Hearing Officer thereupon excused the witness. Upon a showing by the Petitioner that the books and records of Respondent Corporation had been requested by Subpoena Duces Tecum and its request that Mr. Roark be required to identify the corporate books and records in his capacity as an officer of the corporation, over objection of Respondent's counsel, the Hearing Officer permitted Mr. Roark to testify for this limited purpose.
FINDINGS OF FACT
The Department of Banking and Finance of the State of Florida issued Mortgage Broker License Number 3534 to Respondent on October 10, 1974 (Petition and Answer).
The transactions of the Respondent which are the subject of the Administrative Charges and Complaint, concern the purchase by investors/lenders of corporate promissory notes issued by a land development company which are secured by mortgages on its land. The purpose of selling the note is for the land development company to raise funds for the development of real property. The sales of the notes were made by Respondent to individual investors. Usually these transactions were handled through what was termed a "Master Broker" who was a middle man between the land developer and the Respondent mortgage broker which actually made the individual sales of the notes. Typical of the manner in which Respondent conducted these transactions was to enter into an agreement with an investor termed an "Application To Purchase a Mortgage" for a certain face amount at a specified interest rate with interest payable monthly and with concurrent delivery by the investor to Respondent of the stated sum under the conditions that the note would be executed, the mortgage recorded, and the note
and recorded mortgage delivered to the investor-purchaser. In due course, a promissory note issued by the land development corporation (the borrower), was delivered to the investor, along with a mortgage deed to specified real property to secure the note. Some notes were payable on an interest only basis and some on a principal and interest basis. Some involved the issuance of title insurance policies and others did not. In some cases, Respondent remitted funds involved in the transaction to the "Master Broker" and in some cases directly to the land developer, less an amount retained by Respondent, ostensibly for its fees, commissions, and/or other charges. The funds were placed into escrow bank accounts when they were received from the investors by Respondent and then sometimes on the same day or in most cases several days or weeks later, the funds less the amount retained by Respondent, were forwarded on to the "Master Broker" or directly to the developer (testimony of Mr. Hunt, Petitioner's Exhibits 1, 3 & 4).
Acting upon a request of the State Comptroller to have all mortgage companies examined, in the latter part of July, 1975, Mr. Lawrence W. Hunt, a Financial Examiner Supervisor of Petitioner's Division of Finance along with three assistants went to the Respondent's office to examine its records and determine from the examination whether or not violations of the Mortgage Brokerage Act had been committed. Utilizing source documents from the company records, Mr. Hunt and his associates prepared a worksheet and listed thereon various items of information gleaned from these records (Petitioner's Exhibit 1). After preparation of the worksheet, overcharges as to the 402 transactions identified in the worksheet were computed by Mr. Joseph Ehrlich, Deputy Director of the Division of Finance, solely from the worksheet obtained by the examiners (Petitioner's Exhibit No. 2). Such overcharges were computed with respect to maximum fees or commissions which a broker could charge in accordance with the provisions of Rule 3-3.08, Florida Administrative Code, in consideration of the amount of funds retained by Respondent, Mr. Hunt is not a state auditor and his examination of records did not go into the depth of an audit such a compilation of financial statements. His work consists basically of an examination which involves obtaining information from corporate records and placing it on worksheets so it can be analyzed. During Mr. Hunt's visit to Respondent's place of business, he received full cooperation of its officers and employees and found the records to be in good order. He also had no reason to question any of the entries in any of the records that he observed. Neither he nor Mr. Ehrlich had received complaints from any individual or organization about Respondent's operations prior to his visit. He did not at any time contact any of the lenders or borrowers involved in Respondent's transactions (Testimony of Mr. Hunt, Mr. Ehrlich, Petitioner's Exhibits 1 and 2).
On October 11, 1974, the Division of Finance issued a "Memorandum to all Mortgage Brokers" in which it was stated that it had been brought to the Division's attention that a number of mortgage brokers in transactions (such as those under consideration here), were remitting investors' funds to the land developer rather than placing the funds in an escrow account, and that such funds were being remitted in anticipation of receiving a recorded mortgage and note. The Memorandum warned that this practice could result in substantial losses to the broker in repaying investors should the land developer fail and was also in violation of the Mortgage Brokerage Act and could lead to the suspension or revocation of a license under Section 494.05, (1)(f), Florida Statutes. This section concerns placement of funds received in escrow accounts where they shall be kept until disbursement thereof is properly authorized (Respondent's Exhibit A). The Memorandum was sent to Respondent among others Mr. Hunt, during his examination of Respondent's records, found that Respondent
,had changed its escrow procedures approximately the date that the bulletin was
issued and that there were no discrepancies after that date concerning escrow monies. By further correspondence in December, 1974, and May and June of 1975, Respondent's President posed various questions to Mr. Ehrlich to clarify certain aspects of escrow account requirements and received replies thereto (Respondent Composite B - Respondent's Exhibit C, D, F and G. (Note: There is no Exhibit E)
In 402 separate transactions conducted by Respondent during the years 1973, 1974, and 1975, the mortgages which were purchased by the investors were delivered to the investor within varying periods from one day from the sale date until almost two months from the sale date. Forwarding of funds by the Respondent to the "Master Broker" or to the land development company was also accomplished in these transactions within varying periods of time from the sale date. These ranged from the same date as the sale to periods of a month or so thereafter, but usually on the date of delivery of the mortgage to the investor. The amounts forwarded by Respondent consisted of the face amount of the note and mortgage, less a certain amount which was retained by the Respondent (Petitioner's Exhibit 1). No effort was made by Petitioner's examiner to determine either the basis for the amount retained by Respondent or its composition. For example, he did not determine whether there were any "points" for service charges or discounts of any sort included in the retained sum. The examination was made solely on the basis of examining the business records of Respondent which did not reflect a breakdown of the retained amount. However, it could be deduced from various documents in individual investor files that certain amounts had been paid by someone unknown for title insurance premiums, recording fees and intangible taxes. The dates of mortgage delivery shown by Mr. Hunt in his worksheet were dates which he assumed were correct but he had not verified by any person the exact dates the mortgage was delivered to the investors. Neither could he ascertain from the records whether or not an investor had authorized Respondent to disburse funds at a particular time. The overcharges were determined in accordance with the formula set forth in Rule 3- 3.08, F.A.C., which is on a "gross proceeds" loan in which the borrower indicates that he wished to borrow a specified amount with all fees and charges to come out of the gross amount, thereby resulting in a reduced amount being provided to the borrower. The overcharges were computed without knowledge of whether the amount retained by the Respondent, as shown in Petitioner's Exhibit 1, included payment for state intangible tax, documentary stamps, and recording fees (Testimony of Mr. Hunt, Mr. Ehrlich, Petitioner's Exhibit 1 and 2). The overcharges set forth in Petitioner's Exhibit 2 were unrebutted by Respondent and are deemed correct.
In a transaction between Respondent and Cary G. Anderson, who applied for purchase of a mortgage on May 7, 1974, in the face amount of $3,500.00, the file relating to the transaction did not reflect the amount of any costs to be paid by Respondent in the matter, nor did it reveal a specific figure for brokerage fee or commission charged by Respondent. The file did reflect a bill for title insurance premium in the amount of $45.00 and recording fees in the amount off $22.25, $5.25 documentary stamps, and $7.00 for intangible tax. The amount of overcharge was $175.46. In another $2,500 transaction with Mr. Anderson, the amount remitted to the land developer was $2,075.00. The amount retained by Respondent was $425.00. Petitioner's Exhibit number 2 establishes an overcharge from this transaction of $61.37. There was no copy of the mortgage in the file and therefore no information upon which to determine the payment of intangible taxes, documentary stamps and recording fees (Petitioner's Exhibit 3).
In a $5,000 transaction between Walter L. and Thelma T. Beach and Respondent with application for purchase mortgage dated July 30, 1974, a check
was written on Respondent's escrow account to Kingsland Development in the amount of $4,100. The maximum allowable brokerage fee or commission under the law would have been $590.90. The amount retained by Respondent was $900.00.
The mortgage indicated that documentary stamps in the amount of $7.50 and intangible tax of $10.00 were paid. Assuming that Respondent paid the intangible taxes, and documentary stamps, the excess fee charged according to calculation under Rule 3-3.08, was $281.60 (Testimony of Mr. Hunt, Petitioner's Exhibits 1, 2 and 4).
In respect to the above three transactions Petitioner's examiner did not find closing statements in the file, nor did he go to the Florida title ledger or Attorney's ledger of Respondent's records. However, he had, at the outset of his investigation, asked Respondent to make available all records concerning the transactions (Testimony of Mr. Hunt).
CONCLUSIONS OF LAW
Petitioner's first allegation is that Respondent took and received deposits of money from investors in the regular course of business but failed to maintain such funds in an escrow account until properly authorized for disbursement in violation of Section 494.05(1)(f), F.S. The provision states 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 this 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 his 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.
It was conceded at the hearing by Petitioner's witnesses that Respondent did not fail to immediately deposit funds received from investors in escrow bank accounts. The sole question involving this charge is whether or not the funds were kept in escrow until disbursement was properly authorized. Chapter 494 does not state or otherwise disclose the meaning of the term "properly authorized." Testimony of Petitioner's witnesses was that the statute was unclear in this respect, while maintaining that a written authorization should have been obtained by Respondent from the investor which indicated the point at which disbursement could be made. However, no proof was adduced in this regard and, therefore, even assuming that Petition's contention is correct, there has been no showing that Respondent disbursed funds of investors without proper
authorization. This view is buttressed by the apparent fact that a great deal of confusion existed amoung mortgage brokers in the state of Florida concerning the proper disbursement of escrowed funds as evidenced by the Memorandum dispatched to the mortgage brokers by the Division of Finance in October, 1974 and its correspondence with the Respondent concerning this question. Although, in his letter of May 20, 1975, Mr. Ehrlich informed Mr. Roark that funds could be released from the escrow account when the recorded mortgage and title insurance policy was in Respondent's possession, this opinion came somewhat late in the game and cannot be construed, even for transactions occuring after the date of the letter, to constitute a binding interpretation of the statute. In view of the absence of evidence in support of the charge, it is concluded that Respondent cannot be found to have violated Section 494.05(1)(f).
The other charge of Petitioner is that Respondent charged and received fees and commissions in excess of the maximum allowable fees or commissions on the transactions which were listed in Petitioner's Exhibits 1 and 2 and which were allegedly in violation of Section 494.08(4), F.S., and the rules and regulations of the Petitioner.
Section 494.08(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 for 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 per cent 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."
Although not specified in the Administrative Complaint, the Rules and Regulations of the Department relied on by Petitioner in computing the overcharges was Rule 3-3.08, F.A.C., which reads in 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 be 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."
Therefore, any violation as to overcharges which would warrant adverse action as to respondent's license would properly, fall under the subsection just quoted under the theory that any overcharges constituted a failure to comply with the provisions of the statute and the rule quoted heretofore concerning maximum fees or commissions. 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 commissions 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."
The failure to specifically delineate the provision of the Act which warranted adverse action was not raised by the Respondent other than his general
affirmative defense that the charges and complaint were vague and ambiguous. Pleadings in an administrative adjudicatory proceeding need not be set forth with the degree of technical nicety as required in a criminal prosecution. (Thorn v. Florida Real Estate Commission, 146 So.2d 909 (2d district, 1962). It is considered that the administrative complaint was sufficiently clear to afford notice of the charge and to enable the Respondent reasonably to present his defense and rebut the allegations.
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 appears to offer an alternative method of determining maximum fees or commissions on a gross proceeds basis utilizing a different formula than that stated in the applicable 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 expense 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. Respondent implied by cross- examination of petitioner's witnesses that there could well be charges and costs consisting of discounts or "points" which were authorized under Rule 3-3.09 in the form of closing costs; however, no evidence of such charges were discovered in the Respondent's records and, in any event, such would appear required to be included in the fee or commission as a "direct or indirect cost or expense incidental to the processing and closing of the mortgage loan transaction." Section 494.08(6) provides that applications for a mortgage loan involving a principal sum of less than $25,000.00 shall not be accepted without delivering to the borrower a statement in writing setting forth the total maximum costs to be charged, incurred or disbused in connection with processing and closing the mortgage loan. Rule 3-3.09 also requires that the borrower be fully informed in writing of all charges and costs, including discounts, if any, that he will be required to pay in connection with securing the loan. In the absence of such closing statements from the corporate records as testified to by Petitioner's witnesses, it must be assumed that none were extant and, if they were in existence, should have been made available to Petitioner's financial examiner at the time of his investigation of Respondent's records or produced at the hearing. It is concluded that Petitioner has presented substantial evidence of a clear and convincing nature that Respondent charged fees or commissions in excess of the maximum amount allowable under chapter 494 and implementing departmental regulations with respect to the transactions set forth in Petitioner's Exhibits 1 and 2, in violation of Section 494.05(g).
RECOMMENDED ORDER
It is recommended that the Department of Banking and Finance, Division of Finance, State of Florida, suspend mortgage Broker License No. 3534 issued to Planned Financial Services, Inc., a Florida Corporation, for a period of two years to become effective 30 days after a copy of such order has been served upon Respondent, as provided in Section 494.05(4), Florida Statutes.
DONE and ORDERED this 3rd day of October, 1975.
THOMAS C. OLDHAM
Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304
(904) 488-9675
COPIES FURNISHED:
Richard M. Goldstein, Esquire Department of Legal Affairs The Capitol
Tallahassee, Florida
Jack B. Nichols, Esquire NICHOLS & TATICH, P.A.
Suite 1110 Hartford Building
200 East Robinson Street Orlando, Florida 32802
| Issue Date | Proceedings |
|---|---|
| Feb. 07, 1977 | Final Order filed. |
| Oct. 03, 1975 | Recommended Order sent out. CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Nov. 24, 1975 | Agency Final Order | |
| Oct. 03, 1975 | Recommended Order | Suspend mortgage broker's license for two years for charging excess fees. |
