STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF PROFESSIONAL ) REGULATION, DIVISION OF )

REAL ESTATE, )

)

Petitioner, )

)

vs. ) CASE NO. 90-3432

)

BARBARA S. ODOM and )

ODOM REALTY, INC., )

)

Respondents. )

)

RECOMMENDED ORDER

Pursuant to notice, this matter came on for hearing in Pensacola, Florida, before the Division of Administrative Hearings by its duly designated Hearing Officer, Diane Cleavinger, on October 3, 1990.

APPEARANCES

For Petitioner: Janine A. Myrick, Esquire

Department of Professional Regulation

Division of Real Estate Hurston Building - North Tower Suite N-308

400 West Robinson Street Orlando, Florida 32802-1900

For Respondent: Barbara S. Odom, pro se

STATEMENT OF THE ISSUES

The issue in this proceeding is whether the Respondents' real estate brokers licenses should be suspended, revoked or otherwise disciplined.

PRELIMINARY STATEMENT

On June 4, 1990, Petitioner, Department of Professional Regulation, Division of Real Estate, filed an Administrative Complaint against Respondents, Barbara Odom and Odom Realty, Inc. The Administrative Complaint alleged that Respondents' licenses should be disciplined for violating Section 475.25(1)(b), Florida Statutes, through fraud, misrepresentation, dishonest dealing by trick, scheme or device, culpable negligence or breach of trust in a business transaction; and for violating Section 475.25(1)(k), Florida Statutes, by failing to maintain trust funds in a real estate brokerage account until disbursement was authorized. Respondents disputed the allegations of the

Administrative Complaint and requested a formal administrative hearing. The Administrative Complaint and Respondents' request were forwarded to the Division of Administrative Hearings.

At the hearing, the Petitioner presented the testimony of one witness and offered four exhibits into evidence. Respondent, Barbara Odom, testified in her own behalf and on behalf of the corporation. Respondents also presented the testimony of three witnesses and offered two exhibits into evidence.

Petitioner filed a Proposed Recommended Order on October 16, 1990.

Respondents did not file a Proposed Recommended Order with findings of fact. However, on October 9, 1990, Respondents did file a letter containing legal argument. Respondent's letter has been considered in the preparation of this Recommended Order. Similarly, Petitioner's proposed findings of fact have been considered and utilized in the preparation of this Recommended Order except where such proposals were not supported by the weight of the evidence or were immaterial, cumulative or subordinate. Specific rulings on the Petitioner's proposed findings of fact are contained in the appendix to this Recommended Order.

FINDINGS OF FACT

1. Respondent, Barbara Odom, is a licensed real estate broker in the State of Florida, holding license number 0189819. Ms. Odom is the owner of and the qualifying broker for Respondent, Odom Realty, Inc., located in Pensacola, Florida. Respondent, Odom Realty, Inc. is a corporation registered as a real estate brokerage company in the State of Florida, holding license number 0226080. Ms. Odom has been licensed since 1982 and has been the owner of Odom Realty, Inc., since 1983.

   
   

2. Rita Leonard has been the corporation's bookkeeper since Ms. Odom's acquisition of the company. Previous to her employment with Odom Realty, Ms. Leonard was the financial manager in charge of a large bank's accounting and bookkeeping department. Ms. Leonard was and is highly qualified as an accountant/bookkeeper. In addition to Ms. Leonard's bookkeeping services, Ms. Odom also has Odom Realty's books and records, including the various escrow account books and records, annually audited and reviewed by her CPA.

   
   

3. Early in the company's history Ms. Odom entered into the rental property management business. Initially, Ms. Leonard was paying clients' repair bills on that client's rental property out of the corporation's operating account. The CPA questioned whether it was appropriate to pay those bills out of the corporation's operating account and indicated that the bills should be paid out of the corporation's rental property management escrow account, #11823890431. The CPA was not sure what the appropriate bookkeeping practice should be and indicated that Ms. Leonard should check with the Florida Real Estate Commission to discover what the appropriate procedure was.

   
   

4. Ms. Leonard called the Florida Real Estate Commission to inquire about the proper method of paying clients' repair bills. Her impression of that conversation was that client repair bills should be paid out of the escrow account regardless of whether the individual had the money in the account.

   After this conversation with the Florida Real Estate Commission, Ms. Leonard began paying all the clients' repair bills out of the rental property management escrow account. All such client bills were paid promptly upon the repair bill's presentation, whether or not the individual client had the money available in the escrow account. Each client was later billed for the amount not covered by

   the balance in that individuals' escrow account. The client billings occurred on at least a monthly basis and the majority of the rental clients remitted their payments on a monthly basis. Occasionally, one of Respondent's clients was permitted to carry a negative balance for more than a month. These carry- overs occurred in the off-season and were paid when rentals picked back up during the areas main tourist season.

   
   

5. As a consequence of this practice, some of Respondents' clients would have negative escrow balances on their individual escrow ledger account. Respondents were under the impression that such a practice was all right as long as the corporation had money available to cover those negative balances. In fact, the corporation always had such money available, although the actual transfers of funds were never made from the corporation's operating account to the rental property management escrow account. Respondents believed this practice was tantamount to loaning the respective clients money to cover the client's negative balance until that client corrected the deficit. No client ever complained about this practice. In fact, most of Respondents' clients wanted the repair bills paid promptly so that good repair service could be maintained on that client's property.

   
   

6. On March 15, 1990, Elaine Brantley, Petitioner's investigator, conducted an audit of all of Respondents' escrow accounts. The only account she found a problem with was the rental property management account. During that investigation, Ms. Brantley found that Respondents had a trust liability of

   $10,081.71 and a bank balance of $9,480.97, leaving a shortage of $600.74. Respondents, the same day and prior to Ms. Brantley leaving, transferred the amount of the shortage from the corporation's operating account to the escrow account. Ms. Brantley then explained to Ms. Odom and her bookkeeper her opinion of how the Commission wanted escrow accounts maintained. Since that time, Respondents have maintained the escrow accounts in the manner prescribed by Ms. Brantley and no longer follow their policy of maintaining negative balances on the individual ledger sheets of their clients. They now make the actual transfer of funds from the operating account to the escrow account prior to paying any bill which would take an individual client over the amount of money that client has in the escrow account.

   
   

7. The Respondents' books and records for the rental property management account were meticulously kept and both total and individual reconciliations were completed on a monthly basis by Respondents. All the records, including the monthly reconciliations reflected the appropriate negative balances if a particular client should have such a balance. As a consequence of this method of bookkeeping, there were no discrepancies, as opposed to a total shortage, between the total reconciliations and the escrow account's bank statement. Likewise, there were no discrepancies on the individual ledger accounts. There were no discrepancies because everything was added and subtracted out according to the records being kept and the bookkeeping method used in maintaining those records. Importantly, Respondents' CPA never criticized or commented on Respondents' method of accounting and maintenance of negative balances in Respondents' escrow account.

   
   

8. As indicated earlier, the temporary negative balances were maintained for the convenience of the customer in order to obtain better service from repairmen. In reality, Respondents' clients probably never thought about the intricacies and inner workings of the trust account in which that client's money was maintained. Given the desires of Respondents' customers, such payments and the maintenance of a negative balance on behalf of that individual client were impliedly authorized by those respective customers. However none of the clients

   expressly authorized Respondents to use that client's money to pay another client's repair bills. The clients' general desires on getting prompt payment of repair bills is, by itself, insufficient to establish express authorization for one client to use another client's escrow money. Without such express authority Respondents made improper disbursements from the property management escrow account in violation of Section 475.25 (1)(k), Florida Statutes.

   However, because of the client's general desires regarding their repair bills, the record keeping utilized by Respondents, the manner of billing and the obvious lack of any intent to defraud on the part of Respondents, there was no evidence of any fraud, misrepresentation, trick, scheme or device, or breach of trust or culpable negligence on the part of Respondents in the maintenance of their property management escrow account.

   
   

   CONCLUSIONS OF LAW

   
   

9. The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. Sections 120.57 and 120.60, Florida Statutes.

   
   

10. Section 475.25, Florida Statutes, empowers the Florida Real Estate Commission to revoke, suspend, or otherwise discipline the real estate licenses of the Respondents if Respondents are found guilty of any of the acts enumerated in Section 475.25, Florida Statutes. Section 475.25(1), Florida Statutes, provides as follows, in pertinent part:

    
    

    1. The Commission may . . . suspend a license or permit for a period not exceeding ten years; may revoke a license or permit; may impose an administrative fine not to exceed $1,000 for each count or separate offense; and may issue a reprimand, or any or all of the foregoing, if it finds the licensee, permittee, or applicant . . .

       
       

       (b) Has been guilty of . . .false promises, culpable negligence, or breach of trust in any business transaction . . . has violated a duty imposed upon him by law or the terms of the listing contract, written, oral, express, or implied, in a real estate transaction. . .

       
       

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

       
       

       (k) Has failed, if a broker, to immediately replace, upon receipt, any money, fund, deposit, or draft entrusted to him by any person dealing with him as a broker in escrow with a . . . banking institution. . . or to deposit such funds in a trust or escrow account maintained by him with some bank . . . wherein the funds shall be kept until disbursement thereof is properly authorized.

11. Rule 21V-14.011, Florida Administrative Code, states in part:

    
    

    Rights of Broker in Deposits. No broker who receives a deposit shall have any right to or lien upon said deposit, except upon the written agreement or order of the depositor so long as the depositor has sole control of said deposit, nor until the transaction involved has been completely closed, and no person has any claim thereto except the party ultimately to receive the same, in which case the broker may deduct his agreed commission

    therefrom, unless the amount or time or payment thereof is disputed. In case of a dispute as to the amount of the commission, or the time

    of payment thereof, the broker may retain the amount only of his claim in said account and in trust, until the dispute shall be settled

    by agreement, arbitration or court proceedings, as provided for in Section 475.25(1)(d), Florida Statutes. A depositor has the right to demand return of a deposit until such time as another party has acquired some interest or equity therein, subject to the right to make

    an express agreement to compensate the broker for his time and expense incurred prior to a demand for the return of the deposit; and such right to demand to return of the deposit shall again accrue upon a breach by the other party of the contract or agreement under which it is held, or the expiration of the time fixed or a reasonable time, for performance of the things necessary to fix the exclusive right of such other party to said deposit. A broker shall not deliver the deposit to the other party to the transaction until such transaction is finally closed, except as otherwise directed or agreed to specifically by the depositor. The interested parties involved, other than the broker, may by express agreement, alter the disposal of the deposit from that herein stated, but the burden shall be on the broker to establish his good faith in the matter if such agreement is to his advantage and he shall recognize and comply with the joint directions of said parties in such cases, except where the parties act in bad faith with intent to deprive him of his commission, in which case he shall proceed as provided in Section 475.25(1)(d).

12. Rule 21V-14.012, Florida Administrative Code, states in part: Broker's Records.

    1. A broker who receives a deposit such as

       defined herein shall preserve and make available to the Department, or its authorized representative, all deposit slips

       and statements of account rendered by the bank or trust company, credit union, or title company with trust powers, in which said deposit is placed, together with all agreements between the parties respecting the transaction, particularly the deposit, and all contracts, agreements, instructions and

       directions to or with the said depository, and shall keep an accurate account in his books of each deposit transaction, as well as an account in his books of each separate bank account wherein such trust funds have been deposited, together with a record of all withdrawals therefrom, and shall support such accounts by such additional data as good accounting practice requires. All such books and accounts shall be subject to inspection

       by the Department or its authorized representatives at all reasonable times during regular business hours.

       
       

    2. A broker shall cause to be made at least monthly a written statement comparing the broker's total liability with the reconciled bank balance(s) of all trust accounts. The broker's trust liability is hereby defined as the sum total of all deposits received, pending and being held by the broker at any point in time. The minimum information to be

       included in the monthly statement-reconciliation shall be the date the reconciliation was undertaken, the date used to reconcile the balances, the name of the bank(s), the name(s) of the account(s), the account number(s), the account balance(s) and date(s), deposits in transit, outstanding checks identified by date and check number, and any other items

       necessary to reconcile the bank account balance(s) with the balance per the broker's checkbook(s) and other trust account books and records disclosing the date of receipt and the source of funds. The broker shall review,

       sign and date the monthly statement-reconciliation.

       
       

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

13. A "trust" has been defined as a right of property, real or personal, held by one party for the benefit of another or any arrangement whereby property is transferred with the intention that it be administered by a trustee for another's benefit. Black's Law Dictionary 1680 (4th ed. 1968). A "trust deposit" is money or property deposited. The deposit is to be kept intact and not commingled with other funds or property of a bank and is to be returned in time to the depositor or devoted to a particular purpose or requirement of the depositor or for payment of particular debts or obligations of the depositor. Such a deposit is also called a "special deposit." Black's Law Dictionary 1683 (4th ed. 1968).

    
    

14. Under general Florida case law, an escrow agent has control over a money deposit and acts as trustee for the parties of the escrow agreement.

    Chace v. Johnson, 123 So.2d 519 (Fla. 1929). Such an arrangement is tantamount to the creation of a trust with trust deposits. The title to money deposited in escrow remains in the depositor. A broker, with a few exceptions not relevant here, has no right to or lien upon a deposit except by written agreement or order of the depositor so long as the depositor has sole control of the deposit. Rule 21V-14.011, Florida Administrative Code. Inherent in any escrow/trust arrangement, as well as Chapter 475, Florida Statutes, and the rules cited above, is the fact that only the depositor of the trust or escrow property has the right to control the distribution of the escrow fund or property the depositor has established.

    
    

15. Section 475.25 (1)(k), Florida Statutes, states that escrow deposits must be maintained by a broker "until disbursement thereof is properly authorized." Neither Chapter 475, Florida Statutes, nor the rules promulgated pursuant thereto define "proper authorization." However, given the nature of escrow accounts and the fact that Chapter 475, Florida Statutes, was established to protect persons who place their money or property in trust with a real estate broker, it would be an unwise policy to permit disbursements from and escrow account to be made on the type of implied authority involved here. All authority for such disbursements should be express or at least so clear from the facts as to be tantamount to express authority. See 1981 Op. Att'y Gen. Fla. 081-60, 174-175 (Aug. 20, 1981).

    
    

16. Petitioner must demonstrate by clear and convincing evidence that Respondents are guilty of the violations alleged in the Administrative Complaint. Balino v. Department of HRS, 348 So.2d 349 (Fla. 1st DCA, 1977); State ex rel Vining v. Fla. REC., 281 So.2d 487 (Fla. 1973). In this case, Petitioner has demonstrated that Respondents had absolutely no title or interest in the money they held in escrow. Respondents did have escrow shortages which resulted from the negative balances maintained by Respondents. Because everything was accounted for there were no discrepancies in Respondent's property management escrow account. The negative balances were disclosed and their cause was known and corrective action, through billing, taken. These balances, but not the disbursements, were impliedly authorized by Respondents' clients through their general desire to have their repair bills paid promptly. However, Respondents did not have the express permission of the depositor to use those funds to cover expenses for another depositor. Evidence of such express authority would have had to have demonstrated not only that the clients who had negative balances had given such authority, but that all the clients who maintained balances in the rental trust account had authorized, either through words or very clear action, the temporary use of those funds for the benefit of another client/depositor. The latter evidence was not contained in this record. 1/

17. The general desire of Respondents' clients does play a role in mitigation of any penalties assessed for a violation of Chapter 475, Florida Statutes. Additional mitigating factors are the fact that the money to cover the negative balances in Respondents' escrow account was always available in Odom Realty's operating account, Respondents' books and records were meticulously maintained, the CPA tacitly approved Respondents' maintenance of their escrow account and Respondents' believed that the Commission required client repair bills to be handled in such a manner. These same factors are relevant in determining whether a more serious violation of Section 475.25 (1)(b), Florida Statutes, has also been proven, especially on the mental element required for such 1(b) violations. Based upon the escrow shortages resulting from the negative balances maintained by Respondents and the lack of express authorization as outlined above, the Respondents are guilty of having committed a minor violation of Subsection 475.25(1)(k), Florida Statutes. The evidence, however, does not support the Respondents being guilty of having violated Subsections 475.25(1)(b), Florida Statutes, since the requisite intent was never held by Respondents. See DPR v. Hardy et. al., DOAH Case # 87-1973 (Final Order April 5, 1988); Rivard v. McCoy, 212 So.2d 672 (Fla. 1st DCA 1968); Waltman v. Florida Real Estate Commission, 254 So.2d 32 (Fla. 3rd DCA 1971).

    
    

18. Because the violation was very minor, no formal punishment should be imposed. However, a letter of guidance should be issued to Respondents.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is recommended that the Florida Real Estate Commission enter a final order that Respondents are guilty of one violation of Section 475.25(1)(k), Florida Statutes, and issuing a letter of guidance to Respondents for the violation. It is further recommended that the Florida Real Estate Commission enter a final Order dismissing the Counts of the Administrative Complaint charging Respondents with violations of Section 475.25(1)(b), Florida Statutes.

RECOMMENDED this 28th day of December, 1990, in Tallahassee, Leon County, Florida.

DIANE CLEAVINGER

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 28th day of December, 1990.

ENDNOTES

1/ This case demonstrates the dificulties which can arise when an agency does not clearly define statutory terms such as "properly authorized" or clearly provide that negative balances or shortages in a broker's escrow account are prohibited. Here the evidence did not demonstrate that the maintenance of negative balances as described in this Recommended Order was a bad accounting practice. Rule 21V-14.013, Florida Administrative Code, could be read to indicate that escrow shortages or discrepancies may not be subject to discipline if propoer reconciliations with corrections are completed by the broker on a monthly basis. Conversely, Rule 21V-14.011, Florida Administrative Code, clearly states that a broker does not have title to a depositor's escrow funds. However, the Rule is categorized in such a mannner and the transactions discussed within the rule so as to make it unclear whether the rule is one of general applicability where its various provisions may be applicable or does not apply except to closing transactions similar to the closing transactions discussed in the rule. Put simply, the statute and the rules create a potential trap for a licensee attempting to gain insight into whether a given practice is subject to discipline. If this case did not deal with such a basic tenet of trust accounts, no violations could be found given the lack of rules governing a licensee's conduct and the current fog of the rules which exist. Breesman v.

DPR, 15 F.L.W. 2249 (Fla. 1st DCA September 5, 1990).

APPENDIX TO RECOMMENDED ORDER, CASE NO. 90-3432

1. The facts contained in paragraphs 2, 3, 4, 5, 6 and 7 of Petitioner's Proposed Findings of Fact are adopted in substance, in so far as material.

   
   

2. The facts contained in paragraph 1 of Petitioner's Proposed Findings of Fact are subordinate.

   
   

3. The facts contained in paragraph 8 of Petitioner's Proposed Findings of Fact are adopted except for the last sentence which was not shown by the evidence.

COPIES FURNISHED:

Janine A. Myrick, Esquire Department of Professional

Regulation

Division of Real Estate Hurston Building - North Tower Suite N-308

400 West Robinson Street Orlando, Florida 32802-1900

Barbara S. Odom Odom Realty, Inc.

610 North Spring Street Pensacola, Florida 32501

Kenneth E. Easley, Esquire Department of Professional

Regulation

1940 North Monroe Street Suite 60

Tallahassee, Florida 32399-0750

Darlene F. Keller Division Director

400 West Robinson Street Post Office Box 1900 Orlando, Florida 32801

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS:

ALL PARTIES HAVE THE RIGHT TO SUBMIT WRITTEN EXCEPTIONS TO THIS RECOMMENDED ORDER. ALL AGENCIES ALLOW EACH PARTY AT LEAST 10 DAYS IN WHICH TO SUBMIT WRITTEN EXCEPTIONS. SOME AGENCIES ALLOW A LARGER PERIOD WITHIN WHICH TO SUBMIT WRITTEN EXCEPTIONS. YOU SHOULD CONTACT THE AGENCY THAT WILL ISSUE THE FINAL ORDER IN THIS CASE CONCERNING AGENCY RULES ON THE DEADLINE FOR FILING EXCEPTIONS TO THIS RECOMMENDED ORDER. ANY EXCEPTIONS TO THIS RECOMMENDED ORDER SHOULD BE FILED WITH THE AGENCY THAT WILL ISSUE THE FINAL ORDER IN THIS CASE.

Docket for Case No: 90-003432

Orders for Case No: 90-003432