vs. ) CASE NO. 88-2858
HOWARD E. SAMPLE, )
Respondent. )
A hearing was held in this case in Tampa, Florida, on August 12, 1988, before Arnold H. Pollock, Hearing Officer. The issue for consideration was whether Respondent's license as a mortgage broker in Florida should be disciplined because of the misconduct alleged in the Administrative Complaint filed herein.
Petitioner: Elise M. Greenbaum, Esquire
400 West Robinson St. Suite 501
Respondent: Howard E. Sample, pro se
On April 27, 1988, Petitioner, Florida Department of Banking and Finance, Division of Finance, (Department), filed a Notice of Intention to Suspend or Revoke and Administrative Charges and Complaint in this case alleging Respondent's guilt of numerous violations of Chapter 494, Florida Statutes.
Respondent, on May 16, 1988, denied the allegations and requested a formal hearing. Thereafter, the matter was forwarded to the Division of Administrative Hearings for appointment of a Hearing Officer and on July 21, 1988, the undersigned set the case for hearing on August 12, 1988 at which time it was held as scheduled.
At the hearing, Petitioner presented the testimony of Mark D. Snyder, a homeowner who had dealings with the Respondent; Andrew R. Grosmalre, a compliance officer with the Department; and Kevin J. C. Gonzalez, a financial examiner for the Department. Petitioner also introduced Petitioner's Exhibits A, B, and D through H. Respondent testified in his own behalf and introduced Respondent's Exhibit 1.
No transcript of the hearing was provided. Subsequent to the hearing, Petitioner submitted Proposed Findings of Fact which have been ruled upon in the Appendix to this Recommended Order. Respondent submitted a late filed exhibit but no Proposed Findings of Fact.
At all times pertinent to the allegations contained herein, Respondent was a licensed Mortgage Broker and the principal broker for Mortgage Associates of Countryside, located at 2623 Enterprise Rd., Clearwater, Florida. The Department was and is the state agency charged with regulating the activities of mortgage brokers in this state.
In September, 1987, Andrew Grosmaire and Kevin Gonzalez, compliance officer and financial examiner, respectively, for the Department, pursuant to a complaint from Mark Snyder, conducted an examination of Respondent's affairs as they pertained to his operation as a mortgage broker. During the survey, which covered the period from August, 1986 through August, 1987, Mr. Grosmaire and Mr. Gonzalez examined between 50 and 60 loan files which had culminated in loan closings. In addition, they examined loan files which did not result in closings, bank account records, and other of Respondent's miscellaneous records.
In order for an appropriate audit of a closed loan file to be conducted, it is imperative that the loan closing statement be included.
Without it, the examiner cannot accurately determine what, if any, closing costs the borrower actually paid and if closing costs paid were consistent with those disclosed by the broker on the Good Faith Estimate Form at the initial interview. Of the closed loan files reviewed, these closing statements were missing from seven files. Respondent admits that several closed loan files did not have the required
closing costs statement form enclosed. He attributes this, however, to the failure of his processor, an assistant, to place the closing statement in the file. They were not presented at hearing or thereafter.
The investigators examined the Good Faith Estimate Forms in those files which culminated in loans and found that the form utilized by the Respondent failed to contain language, required by statute, which summarized the limits and conditions of recovery from the Mortgage Brokerage Guaranty Fund. Respondent contends that the pertinent statutory section was not in existence at the time he was engaged in mortgage brokerage activities. This was found to be not true. The Act became effective July 1, 1986 and the files surveyed were from the period August, 1986 through August, 1987.
Examination of the Good Faith Estimate Forms used by the Respondent in each of the cases which culminated in loan closing revealed that Respondent consistently underestimated closing costs. This resulted in the borrowers generally paying higher closing costs than was initially disclosed to them. On
-loans applied for by Mr. and Mrs. Snyder, Mr. Iyer, and Mr. Toland. Respondent redistributed loan points to himself in an amount higher than that which was agreed to by the parties.
In the Toland case, Mr. Toland agreed to pay a 1% loan origination fee in the amount of $996.00. The settlement statement dated approximately 2 months later reflected that Toland paid Respondent a loan origination fee of $1,128.00 in addition to a 1% ($664.00) loan discount fee to the lender. This latter mentioned discount fee was not disclosed in advance to Mr. Toland on the
estimate form nor was the excess loan origination fee charged. It should be noted here that a second Good Faith Estimate Form, dated nine days after the original, reflecting a 3% loan origination fee, was found in the file. Though signed by Respondent, this second form was not signed by the borrower as required. It cannot, therefore, serve to support Respondent's claim that he advised the Tolands of the higher cost by this second form. There is no showing that the Tolands were aware of it.
In the Iyer case, the estimate form dated September 19, 1986 reflected a points and origination charge of $1,332.50 which is 1% of the mortgage loan amount of $133,250.00. The Iyers were subsequently approved for a mortgage in the amount of $145,600.00. The closing statement dated March 6, 1987, almost six months later, reflects that the Iyers paid a 2% loan origination fee of
$2,740.00 to Mortgage Associates and a load discount fee of $685.00 to the lender. Here again the Respondent claims that a second cost estimate form reflecting a 2% point and origination fee of $2,912.00 was subsequently executed by the Iyers. However, this second form, found in Respondent's files, is undated and fails to reflect the signature of either Respondent or the Iyers.
It cannot, therefore, serve as proof that the Iyers were made aware of the change. It does appear, as Respondent claims, that the bottom of the second form, (here, a copy) , was excluded from the copy when made, but there is no evidence either in the form of a signed copy or through the testimony of the Iyers, that they were aware of the change. Consequently, it is found that the Iyers had not been made aware of the second estimate and had not agreed to pay as much as they did, in advance.
As to the Snyder closing, both Mr. Snyder and Respondent agree that it was their understanding at the time the loan was applied for, that Respondent would attempt to obtain a lower interest rate for them than that which was agreed upon in the application and in the event a lower rate was obtained, Respondent's commission points would remain the same as agreed upon in the brokerage agreement. In that case, as Respondent points out, his commission is based on the mortgage amount, not the interest rate, and he would be entitled to the agreed upon percentage of the loan face amount regardless of the interest rate charged by the lender on the loan. The Snyders had agreed to a 1% commission to Respondent plus a 1% loan origination fee to the lender. When the lender agreed to lend at par, without an origination fee, Respondent appropriated that 1% to himself, thereby collecting the entire 2% called for in the application. This was improper. Respondent's claim that it is an accepted practice in the trade is rejected.
The Snyders initially made demand upon the Respondent for reimbursement of that additional 1% and ultimately had to hire an attorney to pursue their interests. Respondent subsequently made a $400 partial reimbursement payment of the amount owed but nothing further notwithstanding the fact that the Snyders ultimately secured a Judgement in Pinellas County Court against him for
$1,082.52 plus interest, attorney's fees and costs. As a result, the Florida Mortgage Brokerage Guarantee Fund will reimburse the Snyders for their loss.
According to the investigators, the Snyders Toland, and Iyer files, in addition to the problems described, also reflected that Respondent received payments for other items which should have gone into an escrow account. These included such things as credit reports and appraisal fees. The Department requires that any money received by a broker other than as commission, be placed in the broker's escrow account pending proper disbursement. Respondent did not have an escrow account.
Mr. Gonzalez looked at Respondent's overall operation, including closed files, in an attempt to correlate between income and outgo to insure that Respondent's operation was in compliance with the statute. In addition to his search for an escrow account, Mr. Gonzalez also examined Respondent's "Loan Journal" which by statute is required to contain an entry for each transaction in each loan. The purpose of this journal is to provide a continuing record to show when each item in the loan processing was accomplished. In Mr. Gonzalez' opinion, the Respondent's journal was inadequate. It contained repeat and conflicting entries for specific items which hindered the investigators' ability to determine an audit trail. In addition, all required information was not put in the journal in complete form in each account.
In the opinion of the investigators, the Respondent's violations were significant in that they made it impossible for the Department to determine compliance with statutes and Department rules and inhibited the compliance examination. All in all, Respondent's way of handling his accounts, his failure to maintain an escrow account, and his unauthorized increase in commission income, all indicated his actions were not in the best interest of his clients. The investigators concluded that clients funds were not being handled properly and that the purpose of Chapter 494, Florida Statutes, to protect the consumer, was not being met. In Mr. Gonzalez' opinion, Respondent's method of business constituted incompetence as a mortgage broker and "possibly" fraudulent practice. It is so found.
Both Mr. Gonzalez and Mr. Grosmaire indicated they had extreme difficulty in attempting to locate Respondent after the complaint was filed by Mr. Snyder, in order to conduct their examination. They finally located him at a site different from that which appeared in the records of the Department. Respondent contends that the Department had been notified in writing within the required time, of his change of location when he filed a notice of fictitious name. He contends that after filing his notice of name change, he received no response from the state but took no action to inquire whether the change had been made. In any case, his current address was in the phone book and had the agents chose to look there, they would have found him.
Respondent contends that the good faith estimates required by the statute are just that, an estimate, and that actual figures may vary from and exceed these estimates. This is true, but there is a procedure provided whereby the broker is to notify the client of a change in advance and if the change exceeds a certain amount, it may constitute grounds for voiding the contract.
In paragraph 7 of the complaint, Petitioner alleges that Respondent used a form for the estimates which failed to contain a statement defining the maximum estimated closing costs. Review of the statement offered herein reflect this to be a fair analysis. However, Respondent claims that certain items cannot be predicted accurately in that some companies charge more than others for the same item and it was his practice to insert in the estimate portion of the form a "worst case scenario." However, at no time did he address in his form what could be the maximum a prospective purchaser might be expected to pay.
Respondent "doesn't like" the total picture painted by the investigators concerning his operation. He claims it is cot a fair and accurate representation. In many cases, he claims, he expended funds on behalf of clients in excess of that he received in either commission or reimbursement and even though he may have received more than entitled in some cases, it "evens out over a period of time." Though this may be so, it is no way to do business. The state requires the keeping of accurate records and, just as the broker should
not be required to assume responsibility for other than his own misconduct, neither should the client be required to pay more than is his legal obligation.
Respondent professes to know the mortgage business and he resents having his qualifications as a mortgage broker questioned. In his opinion, he has trained himself well and has acted in good faith on the basis of the information available to him at the time. He ignores the impact of the Judgement of the court in the Snyder matter because he feels it was "unilateral." He believes the law is designed to protect the client and he wants to know who protects the broker. It is for that very reason, he contends, that fees paid in advance are not refundable.
Mr. Sample feels the Department should be more informative to the brokers and get the governing regulations updated more quickly. Respondent cherishes his license and claims he needs it to make a living. He went out of business once before, several years ago, because of bad business conditions, (the reason he uses for not complying with the court order), but did not declare bankruptcy because he wanted to go back into business and pay off the judgements against him. Though he has been back in business for several years, he has failed to make any effort to pay off any of his former creditors even though in his former operation, he improperly tapped his escrow account for other business expenses.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and subject matter in this case. Section 120.57(1), Florida Statutes.
In its Administrative Charges and Complaint, Petitioner indicates its intention to discipline the Respondent's license as a mortgage broker because of several alleged violations of Chapter 494, Florida Statutes, (Supp. 1986). When an agency attempts to discipline a professional license, it has the burden of establishing the misconduct upon which it relies by clear and convincing evidence. Ferris v. Turlington, 510 So.2d 292, (Fla. 1987)
Petitioner alleges that Respondent failed to notify the Department of a change of address of his principal place of business within 15 business days in violation of Section 494.0393(2). The evidence introduced by the Petitioner reflects that the Department's investigators were unable to locate Respondent's place of business which appeared on the Department's records. Respondent testified that he advised the state of his new address as a part of a Notification of Change of Name. He did not indicate to which state agency he directed this communication and offered nothing to contradict the testimony of the investigators that the Department's records failed to show any change. Petitioner's evidence, indicating that current records show an outdated address, is sufficient to meet its burden which Respondent did not, thereafter, successfully rebut.
Petitioner also contends that Respondent failed to keep adequate records for examination by the Department as required by Section 494.06(1) and (3). This provision provides:
Every principal mortgage broker shall maintain at the principal place of
business designated on the license or registration certificate, all books, accounts, records and documents as the
Department deems necessary to determine compliance with this chapter.
(3) All books, accounts, records and documents of registrants and licensees, including the statement signed by every borrower, shall be preserved and kept available for examination by the Department for not less than five years from the date of original entry.
The testimony of Mr. Grosmaire and Mr. Gonzalez, clearly indicated that they, as investigators and auditors, were unable to fully complete their compliance investigation due to the inadequate nature of Respondent's case files and records. Respondent's late filed exhibit was, for the most part, irrelevant and was, for the most part, recovered from the files of a lender, not from his own files. Respondent's testimony that he kept records to the best of his ability is self-serving and inadequate to overcome the testimony of two investigators to the effect that they were inadequate. Consequently, it is concluded that the offense alleged here has been established.
In Paragraph 6 of the Complaint, Petitioner alleges that the good faith estimate form used by the Respondent failed to include a summary of the limits and conditions of recovery from the Mortgage Brokerage Guaranty Fund in violation of Section 494.08(10). This provision states:
(10) Each deposit agreement entered into by a licensee or registrant shall include
a summary of the limits and conditions of recovery from the Mortgage Brokerage Guaranty Fund. The department may prescribe by rule the form of each summary.
A blank copy of the appropriate mortgage loan brokerage contract, which contains not only estimated closing costs but also the required limit provision was introduced as Petitioner's Exhibit G. A review of the documents utilized by Respondent in the cases involved in this action, including those submitted by him as a late filed exhibit, fails to reflect any reference to the Mortgage Brokerage Guaranty Fund and the limits of recover thereunder, and, therefore, Respondent is guilty of this allegation.
Petitioner further alleges that the Good Faith Estimate Form used by Respondent failed to contain a statement defining the maximum estimated closing costs in violation of Section 494.08(5), Florida Statutes, and Rule 3D-40.091(1) and (2), F.A.C. The statutory provision provides:
(5) No person shall enter into a contract for mortgage brokerage services without delivering to the borrower a statement in writing, setting forth the total maximum costs to be charged, incurred, or disbursed in connection with processing and closing the mortgage loan. The contract for mortgage brokerage services shall indicate the financing terms, interest rate, and loan origination fees which are acceptable to
the borrower. The maximum estimated costs may be expressed as a range of possible costs....
Review of the documentation submitted by both Petitioner and Respondent reveals that of the forms utilized by the Respondent, neither that consisting of a reproduced typed form or those printed by his company, included the required maximum costs to be charged. Admittedly, the estimate of settlement costs form contained a figure for a loan origination fee and, in some cases, a discount fee, but even there, several of the files contained multiple estimate cost forms on which the figures differed with later forms having higher figures. Taken together, the evidence is clear that Respondent is guilty of this allegation. It also supports the allegation contained in Paragraph 8 of the Complaint, that numerous borrowers were required to pay higher closing costs than those disclosed on the Good Faith Estimate Form in violation of Sections 494.055(1) (g) and (p). As to the latter, the evidence establishes that Respondent consistently underestimated maximum closing costs (494.055.(1)(p) and in at least one case, (Snyder), failed to disburse funds in accordance with the original broker agreement, (494.055(1) (g)
The evidence also establishes, and Respondent readily admits, that he failed to maintain an escrow account for customer deposits in violation of Sections 494.055(1) (e) and (h) Subparagraph (e), authorizes the Department to discipline a licensee for:
(e) failure to place, immediately upon receipt, any money, fund, deposit, check:
or draft entrusted to him by a person dealing with him as a broker, in escrow with an escrow agent located and doing business within this state wherein
such funds shall be kept until disbursement thereof is properly authorized; . . .
Respondent's reliance on a practice of not returning any deposits does not excuse his failure to comply with the terms of the law. His determination of whether or not an escrow account is required in irrelevant. The statute under which mortgage brokers operate requires the establishment and use of an escrow account and authorizes discipline of a licensee who fails to comply. Here, Respondent has clearly failed to comply.
Petitioner also alleged that Respondent failed to maintain a record of the advertisements placed in local publications in violation of Section 494.055(1) (n) and 494.06(1). Petitioner failed to present any evidence relative to this allegation and it is concluded that Respondent is not guilty of it.
In Paragraph 11 of the Complaint, Petitioner contends that the account ledger maintained by the Respondent failed to contain pertinent account information as is required by Section 494.055(1)(n) and 494.06(1). The latter has been quoted above. Section 494.055(1) (n) authorizes the Department to discipline a licensee for:
Failure to maintain, preserve, and keep available for examination all books, accounts, or other document required by
the provisions of this chapter and the rules of the Division.
Petitioner's investigators clearly established that the Respondent's bookkeeping practices were unsatisfactory, grossly inadequate and incomplete. His attempt to lay the blame for this on his processors and other clerical help is to no avail. As the licensee, Respondent is responsible for the status and completeness or his records and his established failure in this regard is sufficient to support a conclusion that he is guilty as alleged in this particular.
Finally, as pertains to the Snyder loan, Petitioner contends that the establishment of a need for disbursement from the Mortgage Broker Guaranty Funds to the Snyders, as a result of Respondent's relationship with them constitutes a violation of Section 494.055(1) (d), which authorizes discipline for:
(d) An act which has caused, or will cause a disbursement to any person in any amount from the Mortgage Brokerage Guaranty Fund..., regardless of any repayment or restitution to the disbursed fund by the licensee or registrant or any person acting on behalf of the licensee or registrant.
The evidence establishes that, if not already paid, the amount lost by the Snyders will be reimbursed to them. This constitutes a clear violation of this statutory provision.
Having established that the Respondent is, in most particulars alleged, guilty of the allegations in the Administrative Complaint, the question remaining pertains to appropriate disciplinary action. Under the provisions of Sections 494.052 and 494.055, the Department may enter an order taking disciplinary action against Respondent which may include any action from a reprimand through an administrative fine up to suspension or revocation of the license. Here the evidence clearly indicates, and Respondent's testimony at the hearing does nothing to refute it, that Respondent is unfit to serve as a mortgage broker in Florida. A mortgage broker is a fiduciary and as such, must be held to the highest standards of conduct in his fiduciary relationship with his clients. The evidence here has clearly shown that Respondent has failed to do this. His misconduct was described by one investigator as tantamount to incompetence and this is an apt description.
Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore:
RECOMMENDED that the Respondent, Howard E. Sample's license as a mortgage broker in Florida be revoked.
RECOMMENDED this 15th day of September, 1988 at Tallahassee, Florida.
ARNOLD H. POLLOCK
Filed with the Clerk of the Division of Administrative Hearings this day of September, 1988.
The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. Insofar as Petitioner's submission refers to testimony of a witness, that is considered as a proposed finding of fact.
4. & 5. Accepted and incorporated herein
19. - 21. Accepted and incorporated herein
25. & 26. Accepted and incorporated herein
30. - 34. Accepted and incorporated herein
Elise M. Greenbaum, Esquire Office of the Comptroller
400 West Robinson St. Suite 501
Howard E. Sample 2465 Northside Drive
Charles L. Stutts, Esquire General Counsel
Department of Banking and Finance Plaza Level, The Capitol Tallahassee, FL 3 2399-0350
