STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

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

)

Petitioner, )

)

vs. ) CASE NO. 90-0743

)

FREDERICK R. ZAUN, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a final hearing in the above-styled matter was held on April 10, 1990, in West Palm Beach, Florida, before Joyous D. Parrish, a designated Hearing Officer of the Division of Administrative Hearings. The parties were represented at the hearing as follows:

APPEARANCES

For Petitioner: Eric Mendelsohn

Assistant General Counsel Office of the Comptroller

111 Georgia Avenue, Suite 211

West Palm Beach, Florida 33401-5293

For Respondent: Jerald A. Goldstein

JERALD A. GOLDSTEIN, P.A.

3200 North Military Trail Suite 300

Boca Raton, Florida 33431 STATEMENT OF THE ISSUES

The central issue in this case is whether Respondent is guilty of the violations alleged in the administrative complaint; and, if so, what penalty should be imposed.

PRELIMINARY STATEMENT

This case began when the Department of Banking and Finance, Division of Finance (Department) filed an administrative complaint against the Respondent and others regarding specific acts or omissions attributed to individuals associated with American Funding Mortgage Co., Inc. (AFM). Specifically, the administrative complaint alleged that Respondent, Frederick R. Zaun, had acted as the principal mortgage broker for AFM and, as such, was responsible for violations of Chapter 494, Florida Statutes. These alleged violations had been discovered during the course of an audit of that company's business records. It was alleged such violations included: paying a brokerage commission to a non-licensed individual; failing to include information

regarding conditions of recovery from the mortgage brokerage guaranty fund on relevant documents; publishing or distributing misleading information when not fully dIsclosing the names of corporate entities on stationery and business cards; failing to disburse funds according to agreements failing to deposit and maintain trust funds in a trust account until disbursement was authorized; exceeding the charges disclosed on the good faith estimate by more than 10 percent or $100.00 without obtaining an acknowledgement from the borrower; failing to indicate on the good faith estimate the loan origination fees to be charged to the borrower; and failing to maintain adequate books and records to reflect the mortgage transactions.

Respondent disputed the allegations of fact and requested a formal hearing in connection with the charges. The matter was forwarded to the Division of Administrative Hearings for formal proceedings on February 5, 1990.

At the hearing, the Department presented the testimony of the following witnesses: Ronald Mims, a financial analyst/examiner employed by the Department who performed a review of the AFM records; and Peter H. Sayles, an appraiser who performed real estate appraisals for AFM. The Department's exhibits numbered 1 through 4 were admitted into evidence. The Respondent testified in his own behalf.

A transcript of the proceedings has not been filed. After the hearing, the parties filed proposed recommended orders which have been considered in the preparation of this order. Specific rulings on the proposed findings of fact are included in the attached appendix.

FINDINGS OF FACT

Based upon the testimony of the witnesses and the documentary evidence received at the hearing, the following findings of fact are made:

1. For the period September 1, 1987 through August 31, 1988, Respondent was registered as the principal mortgage broker for the company AFM. Respondent's license number, HT 0010066, and street address, 3200 N. Military Trail, Suite 300, Boca Raton, Florida 33431, were included on the mortgage broker business registration renewal form executed and submitted by Respondent to the Department. AFM's mortgage brokerage registration number was HY0019932.

   
   

2. Ronald Mims performed an examination of the AFM business records for a period which included September 1, 1987 through August 31, 1988. One of the loan transactions examined by Mr. Mims pertained to a borrower/applicant named Frazer. The records maintained by AFM related to this transaction contained a good faith estimate, dated April 15, 1988, that was prepared and executed by Darlene M. Mannarino, as the AFM office manager. The file did not contain a copy executed by the borrower.

3. The good faith estimate described in paragraph 2 provided, in part:

   
   

   In compliance with Chapter 494 of Florida Statutes; Lender/Broker hereby acknowledges receipt of an application fee in the amount of $ 300.00 , and agrees that this will be applied towards the settlement charges. If an acceptable commitment is not obtained or loan closing does not occur for any reason, this deposit will not be refunded.

   
   

4. A copy of a check in the amount of $300.00 payable to "American Funding1 from Frazer Distributors was included in the AFM-Frazer transaction file. Also included was a loan application executed by Respondent as the AFM interviewer.

   
   

5. None of the documents contained in the Frazer file dIsclosed the limits and conditions of recovery from the Mortgage Brokerage Guaranty Fund (MBGF). Such documents did not disclose the escrow/trust agent if other the payee, American Funding. AFN did not have an escrow/trust account.

   
   

6. The good faith estimate for the Frazer transaction provided for an estimated charge of $225.00 for an anticipated appraisal fee. Peter H. Sayles performed an appraisal for the Frazer transaction. The total amount billed to AFM by Sayles for he Frazer account was $350.00. Mr. Sayles was not paid for this work nor for an additional $100.00 due to him from AFM for a Roberts account. Mr. Sayles obtained a default judgment for these amounts in summary claims.

   
   

7. Mr. Mims also obtained copies of records maintained by AFM related to a transaction for a borrower/applicant named Neger. A good faith estimate executed by the borrower on October 27, 1987, contained the same language as described in paragraph 3 above. The amount of the Neger deposit, however, was

   $250.00. The file did not contain a copy of the good faith estimate executed by AFM. The file held a copy of a check dated October 27, 1987, from Daniel Neger to "American Funding" in the amount of $250.00. The Neger loan application was signed by Darlene/Sherin Reynolds as the interviewer for AFM.

   
   

8. The Neger documents maintained by AFM did not disclose the conditions or limits for recovery from the MBGF. Additionally, the documents did not disclose the escrow/trust agent for the transaction if other than the payee (American Funding). At the time of this transaction AFM did not maintain an escrow/trust account.

   
   

9. At all times material to this case, Darlene Mannarino was not licensed by the Department. Except as noted above, Ms. Mannarino's duties and the type of payment she received for the work she rendered on behalf of AFM are not established by the record in this case.

   
   

10. AFM did not maintain a mortgage journal in connection with the loan transactions it processed. Instead, AFM retained records in a card index file for loan applications. The records maintained in the card index file were incomplete and, consequently, inadequate to allow Mr. Mims to track the status and completion of loan transactions processed by AFM.

    CONCLUSIONS OF LAW

    
    

11. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of these proceedings.

    
    

12. Section 494.052, Florida Statutes, provides:

    
    

    When the department finds any person in violation of the grounds set forth in s.

    494.055(1), it may enter an order imposing one or more of the following penalties:

    1. Revocation of a license or registration.

    2. Suspension of a license or registration subject to reinstatement upon all reasonable conditions as the department may specify.

    3. Placement of the licensee, registrant, or applicant on probation for a period of time and subject to all reasonable conditions as the department may specify.

    4. Issuance of a reprimand.

    5. Imposition of a fine not to exceed

       $5,000 for each count or separate offense.

    6. Denial of a license or registration.

       
       

13. Section 494.055(1), Florida Statutes, provides, in pertinent part:

    
    

    The following acts shall constitute grounds for which the disciplinary actions specified in S. 494.052 may be taken:

    * * *

    (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 in this state, pursuant to a written agreement, or to deposit said funds in a trust or escrow account maintained by him with a bank or savings and loan association located and doing business in this state, wherein said funds shall be kept until disbursement thereof is properly authorized;

    * * *

    (g) Failure to disburse funds in accordance with agreements;

    * * *

    1. Failure to comply with any department order or rule made or issued under the provisions of this chapter;

       1. Acting as a mortgage broker or mortgage brokerage business without a current, active license or registration;

          * * *

          (n) Failure to maintain, preserve, and keep available for examination all books, accounts, or other documents required by the provisions of this chapter and the rules of the division;

          * * *

          1. Consistently underestimating the maximum closing costs; or

          2. Failure to comply with, or violation of, any other provision of this chapter.

          
          

14. Section 494.02, Florida Statutes, provides, in pertinent part:

    
    

    In this act unless the context or subject matter otherwise requires, the term:

    * * *

    1. "Mortgage loan" means any loan secured by a mortgage on real property or any loan secured by collateral which has a mortgage lien interest in real property.

    2. "Mortgage broker" means any person who for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly negotiates, acquires, sells, or arranges for, or offers to negotiate, acquire, sell, or arrange for, a mortgage loan or mortgage loan commitment. This subsection shall not apply to transactions involving the sale or purchase of notes or bonds secured by mortgages which are subject to registration by the department.

    3. "Mortgage brokerage business" means any person which employs a mortgage broker or mortgage brokers, or which, either directly or indirectly, makes, negotiates, acquires, sells, or arranges for, or offers to make, negotiate, acquire, sell, or arrange for, a mortgage loan or mortgage loan commitment for compensation or gain, or in the expectation of compensation or gain.

    * * *

    (9) "Principal mortgage broker" means a licensee in charge of and responsible for the operation of the principal place of business and all designated associate brokers.

    * * *

    (12) "Mortgage financing transaction" means the negotiation, acquisition, sale, or arrangement for, or the offer to negotiate, acquire, sell, or arrange for, a mortgage loan or mortgage loan commitment.

15. Section 494.08, Florida Statutes, provides, in part:

    
    

    (4)(a) No unlicensed or unregistered person shall charge or receive any commission, bonus, or fee in connection with arranging for, negotiating, selling, or purchasing a mortgage loan to any person operating in this state not licensed or registered under the provisions of this act.

    (b) No person shall pay any commission, bonus, or fee in connection with arranging for, negotiating, selling, or purchasing a mortgage loan to any person operating in this state not licensed or registered under the provisions of this act.

    * * *

    (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.

    
    

16. Section 494.093, Florida Statutes, provides, in pertinent part:

    
    

    It is unlawful, and a violation of the provisions of this chapter, for any person:

    1. To act as a mortgage broker in this state without a mortgage broker license issued by the department.

    2. To employ a mortgage broker or otherwise act as a mortgage brokerage business without a mortgage brokerage registration issued by the department.

17. Section 494.03, Florida Statutes, provides, in part: (3)(a) Natural persons at least 18 years of

    age and employed by a certified registrant

    are exempt from the license requirements of

    S. 494.037 when acting within the scope of employment with a certified registrant.

    
    

18. Rule 3D-40.002, Florida Administrative Code, provides, in part:

    
    

    1. The following persons are exempt from Chapter 494:

       1. Employees of mortgage brokers who have nothing to do with the solicitation of business and who perform strictly routine office duties on a set salary basis, such as clerks, stenographers or typists, who perform the ministerial act of taking or typing of applications for a loan under the direction of a mortgage broker.

19. Rule 3D-40.006, Florida Administrative Code, provides, in part:

    
    

    1. All payments of commissions, finder's fees, referral fees, or other forms of compensation for services rendered in connection with a mortgage loan transaction shall be recorded in such manner as to provide specific reference to the particular transaction concerned. All books, records, cancel led checks pertaining to mortgage transactions and payment of finder's fees, accounts and documents, including a brokerage agreement and closing statement signed by the borrower or his duly authorized agent, will be kept available for inspection by the Department or its deputies during regular business hours for a period of least five

       years from date of original entry. The books of account should include a journal showing

       an entry for each mortgage loan transaction completed. Account records maintained on an electronics data processing system are within the meaning of books of account. Copies of documents required to be delivered to the investor as prescribed by Sections 494.041, and 494.08(8),(9), and (10), F.S., shall be maintained by the licensee or registrant.

    2. In the event a registrant or licensee 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 is finally consummated or not, and the term for which the agreement is to remain in force before return of the deposit for non-performance can be required.

    (6)(a) If deposits are accepted, every licensee or registrant shall maintain and upon receipt immediately place all funds, money, check, draft, or other things of value entrusted to him with some bank or recognized depository. Said trust fund account shall designate the licensee or registrant as trustee and all such trust fund accounts must provide for withdrawals of the funds without previous notice. Such withdrawals should be disbursed according to the terms of the deposit agreement or In the absence thereof, on written demand of the person entitled to the funds. A licensee or registrant who receives such trust funds shall preserve and make available to the Department or its authorized representative, all deposit slips and statements of account rendered by the bank, trust company or title company, in

    which said deposit is placed, together with all agreements between the parties involved in the transaction, all contracts, agreements, instructions to or with the said depository, and shall keep an accurate account in the books of each separate bank account wherein such trust funds have been deposited, together with a record of all

    withdrawals there from, and shall support such accounts by such additional data as good accounting practice requires. Any other amounts accepted by the broker which are not his own or have not been earned by the broker, including mortgage servicing

    payments, should be maintained in trust or escrow until an authorized disbursement is made.

    
    

20. Rule 3D-40.091, Florida Administrative Code, provides, in part:

    
    

    1. Prior to entering into a contract to provide mortgage brokerage services, the broker shall fully inform the borrower, in writing, of all charges and costs, including discounts, if any, that the borrower will be required to pay in connection with securing the loan.

    2. 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 following language is acceptable of the limits and conditions: This transaction is subject to the protection of the Mortgage Brokerage Guaranty Fund pursuant to Section 494.043, Florida Statutes. Recovery from the fund is limited to a maximum of $20,000 per individual claim, and is further limited to an aggregate of

       $100,000 against any one licensed mortgage broker or registered mortgage brokerage business.

       
       

21. As the principal mortgage broker, Respondent was responsible for the operation of the activities conducted by AFM for the period September 1, 1987 through August 31, 1988. Although it is not established from this record that Respondent allowed unlicensed persons to receive commissions or to provide services for which licensure is required, the Department has established other violations of Chapter 494.

    
    

22. Specifically, as alleged in the administrative complaint, the Respondent failed to deposit monies in an escrow or trust account in violation of Section 494.055(1)(e), Florida Statutes. Respondent admitted AFM did not maintain an escrow/trust account. The monies received by AFM (and payable to American Funding) should have been deposited in such account.

23. Further, Respondent failed to include information regarding the MBGF as required by Rule 3D-40.091, Florida Administrative Code, on agreements related to deposits. Consequently, Respondent failed to comply with a rule issued by the Department in violation of Section 494.055(1)(k), Florida Statutes.

    
    

24. Finally, Respondent failed to record loan transactions in a journal as provided in Rule 3D-40.006, Florida Administrative Code, and has, therefore failed to maintain, preserve, and keep available for examination all books, accounts, or other documents required by chapter 494 or the

rules promulgated thereunder. Consequently, Respondent violated Section 494.055(1)(n), Florida Statutes.

RECOMMENDATION

Based on the foregoing, it is RECOMMENDED:

That the Department of Banking and Finance, Division of Finance, enter a final order placing the Respondent licensee on probation for a period of two years. Further, it is recommended that the Department impose an administrative fine against Respondent in the amount of $1000.00.

DONE and ENTERED this 2nd day of July, 1990, in Tallahassee, Leon County, Florida.

JOYOUS D. PARRISH

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 2nd day of July, 1990.

APPENDIX TO CASE NO. 90-0743

RULINGS ON THE PROPOSED FINDINGS OF FACT SUBMITTED BY THE DEPARTMENT:

1. Paragraphs 1 and 2 are accepted.

2. Paragraph 3 is rejected as contrary to the weight of the evidence or unsupported by the record.

3. Paragraph 4 is accepted.

4. Paragraph 5 is accepted but is irrelevant.

5. Paragraph 6 is accepted.

6. Paragraph 7 is accepted.

7. Paragraph 8 is rejected as unsupported by the weight of the evidence. While the Department established that Sayles was not paid for appraisal services rendered, that does not imply nor establish that Respondent misused funds. Whether funds exist from which Sayles could be paid, is unknown. All that is known is that AFM, for whatever reason, did not pay Sayles.

8. Paragraph 9 is rejected as unsupported by the weight of the evidence.

RULINGS ON THE PROPOSED FINDINGS OF FACT SUBMITTED BY THE RESPONDENT:

1. The first sentence of paragraph 1 is accepted. The balance of the paragraph is rejected as unsupported by the evidence or irrelevant.

2. Paragraph 2 is rejected as irrelevant or contrary to the weight of the credible evidence.

3. Paragraph 3 is accepted but is irrelevant.

4. Paragraph 4 is rejected as contrary to the weight of the evidence or argument.

5. Paragraph 5 is rejected as contrary to the weight of the evidence or argument.

COPIES FURNISHED:

Eric Mendelsohn

Assistant General Counsel Office of the Comptroller

Ill Georgia Avenue, Suite 211

West Palm Beach, Florida 33401-5293

Jerald A. Goldstein JERALD A GOLDSTEIN, P.A.

3200 North Military Trail Suite 300

Boca Raton, Florida 33431

Honorable Gerald Lewis Comptroller, State of Florida The Capitol

Tallahassee, Florida 32399-0350

Mr. William G. Reeves General Counsel

The Capitol

Plaza Level, Room 1302 Tallahassee, Florida 32399-0350

Docket for Case No: 90-000743

Orders for Case No: 90-000743