STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF PROFESSIONAL ) REGULATION, DIVISION OF REAL ) ESTATE, )

)

Petitioner, )

)

vs. ) CASE NO. 90-3589

)

JAMES P. HUDSON, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, J. Stephen Menton, held a formal hearing in the this case on September 11, 1990, in West Palm Beach, Florida.

APPEARANCES

For Petitioner: Janine B. Myrick, Esquire

Senior Attorney

Department of Professional Regulation

Division of Real Estate

400 West Robinson Street

P. O. Box 1900 Orlando, Florida 32802

For Respondent: James P. Hudson, pro se

413 South Federal Highway Boynton Beach, Florida 33435

STATEMENT OF THE ISSUE

The issue in this case is whether the real estate license issued to the Respondent, James P. Hudson, should be revoked or otherwise disciplined based upon the acts alleged in the Administrative Complaint.

PRELIMINARY STATEMENT

On May 2, 1990, the Petitioner, Florida Department of Professional Regulation, Division of Real Estate, filed an Administrative Complaint charging Respondent, James P. Hudson, a licensed real estate broker, with violating certain portions of Section 475.25(1), Florida Statutes (1989). The Administrative Complaint contains four counts: Count I alleges that Respondent was guilty of culpable negligence or breach of trust in a business transaction in violation of Subsection 475.25(1)(b), Florida Statutes; Count II alleges that Respondent failed to timely place and maintain trust funds in a trust account in violation of Subsection 475.25(1)(k), Florida Statutes; Count III

alleges that Respondent failed to keep accurate records as required by Rule 21B- 14.012, Florida Administrative Code and, therefore, has violated Subsection 475.25(1)(e), Florida Statutes; and Count IV alleges that Respondent failed to keep monthly escrow account reconciliation statements in violation of Rule 21B- 14.012, Florida Administrative Code and, therefore, has violated Subsection 475.25(1)(e), Florida Statutes. The Respondent denied the allegations of the Administrative Complaint and timely requested a hearing on the charges. The case was referred to the Division of Administrative Hearings which noticed and conducted a formal hearing pursuant to Section 120.57(1), Florida Statutes.

At the hearing, Petitioner presented the testimony of Sharon Thayer, an investigator employed by the Petitioner. Petitioner offered seventeen exhibits into evidence, all of which were accepted. Petitioner's Exhibit 16 was a copy of an inspection report prepared by Petitioner's inspector and signed by Respondent. However, the evidence established that certain handwritten comments on the document were added subsequent to the time that it was executed by Respondent.

Respondent testified on his own behalf and offered five exhibits into evidence, all of which were accepted except Respondent's Exhibit 4 which was a composite of four pages that Respondent claims he sent by facsimile to Petitioner's investigator on February 6, 1990. Respondent testified that he directed this facsimile to be sent. However, no competent evidence was presented to establish that the facsimile was in fact transmitted. Therefore, Respondent's Exhibit 4 was not received into evidence. At the hearing, Respondent did not have copies of his exhibits. Respondent was granted leave to submit copies at the conclusion of the hearing. Copies of the exhibits were transmitted by letter dated September 13, 1990 and received by the Division of Administrative Hearings on September 17, 1990.

At the conclusion of the hearing, the parties were granted ten days to decide whether to order a transcript of the proceeding. Neither party has ordered a transcript.

Both parties have submitted proposed recommended orders. A ruling on each of the parties' proposed findings of fact is included in the Appendix attached to this Recommended Order.

FINDINGS OF FACT

Based upon my observation of the witnesses and their demeanor while testifying, the documentary evidence received and the entire record compiled herein, I make the following findings of fact:

1. At all pertinent times, Respondent, James P. Hudson, was a licensed real estate broker in the State of Florida having been issued license No. 0148841 in accordance with Chapter 475, Florida Statutes. Respondent has been operating as a broker from an office at 413 South Federal Highway, Boynton Beach, Florida 33435.

   
   

2. Respondent maintains an escrow account No. 018200602689 at Sun Bank in Boynton Beach, Florida into which he deposits trusts funds received in his capacity as a real estate broker.

3. Sometime in the early part of September 1989, Petitioner initiated a random audit of Respondent's business. Prior to the audit, Petitioner's investigator advised the Respondent that he would need to produce all the records related to his escrow account.

   
   

4. An investigator for Petitioner visited Respondent's office on or about September 18, 1989 to conduct an audit of Respondent's escrow accounts. Based upon the investigator's review of the records, five different transactions were identified as allegedly involving delays or mishandling of escrow funds by Respondent. Those transactions are the basis for several of the allegations in the Administrative Complaint. Each transaction is addressed separately below.

   
   

5. The first transaction involved a contract for the sale and purchase of real property between Fitz as buyer and Kerstin as seller (the "Fitz Contract"). Included in Respondent's files on this transaction was a copy of a contract for sale and purchase that was dated and signed by the buyer on September 6, 1989 and dated and signed by the seller on September 9, 1989.

   
   

6. The buyer in the Fitz Contract gave Respondent a check for $1000 as a deposit to be held in escrow in connection with the transaction. The Respondent's written receipt for that check is dated September 7, 1989. The evidence established that this initial deposit check was delivered to Respondent on Thursday evening, September 7, 1989. Respondent was out of town on Friday, September 8 and returned on Monday evening, September 11. The check was deposited on the afternoon of September 12 and is reflected in the bank records as a deposit on September 13.

   
   

7. The sellers (the Kerstins) signed the contract on September 9, 1989. However, in executing the contract, they crossed out the $900,000 sales price submitted by the buyer and increased the price to $1,400,000. In other words, the sellers made a counteroffer with respect to this contract. The initial deposit was timely returned to the sellers when the counteroffer was rejected.

   
   

8. Petitioner's investigator erroneously assumed that Respondent did not timely collect the additional deposit required under this contract. While Petitioner's investigator considered this signed contract in Respondent's files to be a binding agreement on the parties, it is clear that the change in sales price was only initialed by the sellers and, therefore, there was no enforceable agreement.

   
   

9. The parties to the Fitz Contract subsequently executed another written contract. This second agreement provided for a sales price of $1,100,000. That contract was executed by the buyer on September 20, 1989 and by the sellers on September 24, 1989. This second contract called for a $49,000.00 deposit upon acceptance. The buyers gave Respondent a check dated September 25, 1989 in the amount of $49,000.00. That check was deposited by Respondent in his escrow account on the afternoon of September 26, 1989. The $49,000 deposit is reflected in the bank records as being deposited on September 27, 1989. Under the circumstances, there was no undue delay by Respondent in collecting or depositing the funds into escrow.

   
   

10. The second transaction identified by Petitioner's investigator involved a contract for the sale and purchase of real property between Campanis as buyer and Hoffman as seller. The buyer in this transaction gave Respondent a check dated September 6, 1990 to be held as a deposit for this contract. A photocopy of the check presented to Petitioner's investigator included a

    handwritten note that states "hold until Friday 9/8/89." The evidence did not establish who wrote this note.

    
    

11. The evidence established that the check was received by one of Respondent's sales associates on September 7 and left on the Respondent's desk on September 8. Respondent is the only company employee authorized to deposit checks or otherwise handle transactions involving the escrow account. As indicated above, Respondent was out of town from September 8 through the evening of September 11. The check was deposited on the afternoon of September 12 and is reflected in the bank records as being credited to the escrow account on September 13. Under the circumstances, the Respondent was not delinquent in depositing these funds.

    
    

12. The third transaction involved a contract for the purchase and sale of real property between White as buyer and Adkins as seller (the "White Contract.") The White Contract was executed by the buyer on July 26, 1989 and by one of the sellers on July 27 and by the other seller on Friday, July 28.

    The contract called for an initial deposit of $500.00 with an additional deposit of $1,700 upon acceptance. The initial deposit check was dated July 26, 1989.

    That deposit check was attached to the contract executed by the purchaser and presented to a cooperating real estate agent who was to present the proposed contract to the seller. The executed contract was not returned to Respondent until sometime during the weekend of July 29 and 30. The initial deposit check along with the additional deposit were then deposited into Respondent's escrow account on Monday, July 31, 1989. Under the circumstances, the evidence established that there was no undue delay in depositing the escrow money.

    
    

13. The next transaction identified by Petitioner's investigator involved a contract for sale and purchase of real property between Milera as buyer and Twillie as seller (the "Milera Contract.") The Milera Contract provided for an additional deposit due upon acceptance. The contract was accepted by Twillie on August 23, 1989. The parties to the contract agreed that the time for making the additional deposit would be extended for two days. The check for the additional deposit was dated and received by Respondent on Friday, August 25, 1989. The check was deposited into Respondent's escrow account on Tuesday, August 29, 1989. Under the circumstances, there was no undue delay in depositing the escrow money.

    
    

14. The final transaction involved a contract with the sale and purchase of real property between Gerrety as buyer and the estate of John Walsh as seller (the "Gerrety Contract.") The Gerrety Contract was executed by the purchaser on August 10, 1989. The deposit check was given to one of the Respondent's associates on that Thursday evening. The deposit check was not delivered to Respondent until after business hours on Friday, August 11. The check was deposited into Respondent's escrow account on Monday, August 14. Under the circumstances, there was no undue delay in depositing the escrow money on this transaction.

    
    

15. During the audit, Petitioner's investigator determined that Respondent was holding deposits on two separate rental properties in his escrow account.

    At the time of the audit, Petitioner's investigator was not provided with any leases or other documentation regarding these transactions even though Respondent was supposed to produce records for all sums in the escrow account. Respondent contends that he did not realize he was supposed to produce his rental files, was never specifically asked to produce these files and did not know that Petitioner was questioning these transactions until he received the Administrative Complaint in this action. While there was apparently some

    miscommunication at the time of the audit, adequate documentation for these rental deposits was produced at the hearing. Therefore, Petitioner's allegation that Respondent did not maintain adequate documentation regarding these deposits is without merit.

    
    

16. Petitioner has also charged that Respondent did not produce all of the deposit slips in connection with the escrow account and did not produce any evidence of reconciliation of the escrow account. The evidence at the hearing established that all deposit slips are available even though they were not all kept with the bank statements. Moreover, the evidence failed to substantiate the allegation that Respondent did not reconcile his escrow account. Thus, these charges were not substantiated.

    
    

17. At the time of the audit, Respondent advised Petitioner's investigator that the escrow account included some commission money that had not yet been removed. In the past, Respondent would sometimes collect his commissions at the close of a transaction from the funds held in escrow. (Respondent no longer collects commissions in this manner.) In auditing Respondent's escrow account, Petitioner's investigator determined that there was an overage of approximately

    $8,178.17 in the account. Within thirty days of the completion of the audit, Respondent removed $7,500 of the overage which represented his commission on two previously closed transactions. While Respondent believed that the remaining amount of the overage was also his commission money, he refrained from removing any more money until completion of a year-end audit by his accountant.

    Respondent's records reflected a slight difference in the amount of the overage than the amount calculated by Petitioner during the audit. Respondent wanted to be absolutely certain that only the proper amount was removed from the escrow account.

    
    

18. At the conclusion of the audit on September 18, 1989, Respondent signed an office inspection report form prepared by Petitioner which contained the following pre-printed statement:

    
    

    ...I certify that to the best of my knowledge all records pertaining to my sales escrow/trust account(s) and my rental property management account(s) have been provided to the investigator. The above violations are brought to my attention this date and thoroughly explained. I will take corrective action within thirty days and furnish photo/sketches of corrections and documents on the same...

    
    

19. There is some confusion as to what additional documentation Respondent was expected to provide following the completion of the September, 1989 audit. Respondent did not believe he was required to provide any additional evidence to Petitioner or its investigator and no further documentation was provided by Respondent until Petitioner's investigator returned to his office in January of 1990.

    
    

20. Petitioner's investigator returned to Respondent's office on January 17, 1990. At that time, $7500.00 of the overage had been removed from the escrow account. The remaining amount of the overage was removed later in January.

21. It does not appear that Respondent provided Petitioner's investigator with copies of the rental agreements or the second contract in the Kerstin transaction during the January visit by Petitioner's investigator. Respondent contends that this information was never specifically requested. It is clear that communication between Respondent and Petitioner's investigator had deteriorated from bad to worse by the time of this January visit.

    
    

22. There is no indication that Respondent ever used the escrow account for improper purposes or withdrew money from the escrow account for his own personal or business use.

    
    

23. The Florida Real Estate Commission adopted new record keeping requirements regarding escrow accounts in July of 1989. The new rules require a written monthly reconciliation of a broker's escrow account. At the time of the audit, Respondent was not keeping the minimum written statement comparing broker's total liability with the reconciled bank balance of all trust accounts as required by the new rules. Even after the audit in September, Respondent did not keep the written reconciliations in the format required by the new rules. Respondent was reconciling the account on his computer.

    
    

    CONCLUSIONS OF LAW

    
    

24. The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. Section 120.57(1), Florida Statutes (1989).

    
    

25. Petitioner has the burden to prove by clear and convincing evidence all essential allegations made against Respondent. See, Ferris v. Turlington, 510 So.2d 292 (Fla. 1987).

    
    

26. Section 475.25, Florida Statutes, empowers the Florida Real Estate Commission to revoke, suspend, or otherwise discipline the real estate license of a licensee found guilty of any of the acts enumerated in Section 475.25. The Administrative Complaint alleges that Respondent violated Section 475.25(1)(b),

    (k) and (e). Those sections provide in pertinent part as follows:

    
    

    475.25 Discipline --

    
    

    (1) The Commission may... place a licensee ... on probation; may suspend a license... for a period not exceeding ten years; may revoke a license... may impose an administrative fine not to exceed $1000 for each count or separate offense; and may issue a reprimand, and any or all of the foregoing, if it finds the licensee...

    * * *

    (b) Has been guilty of fraud, misrepresenta- tion, concealment, false promises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence, or breach of trust in any business transaction in this state ...; has violated a duty imposed upon him by law or by the terms of a listing contract, written, oral, express or implied in

    a real estate transaction; has aided, assisted,

    or conspired with any other person engaged in any such misconduct and in furtherance thereof; or has formed an intent, design, or scheme to engage in any such misconduct and committed

    an overt act in furtherance of such intent, design or scheme. It is immaterial to the guilt of the licensee that the victim or intended victim of the misconduct has sustained no damage or loss; that the damage or loss has been settled and paid after discovery of the misconduct; or such victim or intended victim was a customer or a person in confidential relation with the licensee or was an identified member of the general public.

    * * *

    (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 place, upon receipt any money, fund, deposit check 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 an escrow account maintained by him with some bank...wherein the funds shall be kept until disbursement thereof is properly authorized...

    
    

27. Petitioner has charged that Respondent has violated Subsections 475.25(1)(b) and (k) by failing to immediately deposit checks delivered to him to be held in escrow. The term "immediately" is not defined in the Statute or the rules. Obviously, a licensee must be afforded a reasonable opportunity to deposit money received in trust. This is especially true for a small business such as Respondent's where only one person has authority to transact business in the escrow account. A close review of the circumstances surrounding each of the alleged instances indicates that there was no unreasonable delay on the part of the Respondent. Moreover, Petitioner has not established that Respondent is guilty of fraud, misrepresentation or culpable negligence or otherwise has violated Section 475.25(1)(b). Therefore, Petitioner has failed to carry its burden of proof with respect to the allegations in Counts I and II of the Administrative Complaint.

    
    

28. Rule 21V-14.012, Florida Administrative Code, provides:

    
    

    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 statement of accounts rendered by the bank and 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, 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 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 practices 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 the 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 other items necessary to reconcile the bank account balance(s) with a balance per the broker(s) checkbook(s) and

       other trust account books and records disclosing the date of receipt and the source of the fund. The broker shall review, sign and date the monthly statement-reconciliation.

       
       

29. Petitioner has established that Respondent did not maintain the written monthly reconciliations in the format required under Subsection (2) of this rule. Petitioner has also established that an overage existed in Respondent's escrow account and that Respondent's records could not conclusively establish the amount or source of this overage at the time of the audit. However, the evidence established that Respondent had been reconciling the account and the overage existed as a result of Respondent's caution in withdrawing funds from that account.

    
    

30. While Respondent did not provide Petitioner's investigator with all necessary documentation at the time of the initial audit and did not provide evidence of corrective action regarding all of the deficiencies within thirty days as required by the boiler-plate language on the post-audit form signed by Respondent, most of the required documentation was available at the hearing (only the written monthly reconciliations were not available.)

    
    

31. It is clear that there were some miscommunications and misunderstandings between Respondent and Petitioner's investigator from the time the audit commenced. It appears that Respondent did not consider the audit to be a very serious concern and did not give this matter his full attention until the Administrative Complaint was filed. While Respondent should have been more diligent and prompt in responding to the investigator's requests, there is no

    indication that Respondent was trying to be deliberately noncooperative or attempting to hide anything. On the other hand, Petitioner's investigator could have been more specific in her requests and expectations. In any event, the reasons for the miscommunications are irrelevant to this de novo proceeding.

    The evidence established that Respondent is a capable and honest businessman and that any violations that occurred were technical in nature. No customers were in any way harmed nor were any escrow funds ever in jeopardy of being lost. In view of these circumstances, Petitioner's recommendation of a $1000 fine, one year probation and a reprimand is too harsh.

    
    

32. Rule 21V-24.001(4)(b), sets forth aggravating or mitigating circumstances to be considered in disciplining a licensee. Applying these factors, there is no evidence of any harm to the consumer or public, prior discipline of the Respondent, or any other aggravating circumstances. The lack of any aggravating factors and the technical nature of the violations militates in favor of a minimal penalty.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Petitioner enter a Final Order finding Respondent not guilty of the allegations contained in Counts I and II of the Administrative Complaint, finding Respondent guilty of Counts III and IV and reprimanding him for minor and techinical violations of those counts and imposing a fine of

$100.00.

RECOMMENDED in Tallahassee, Leon County, Florida, this 31st day of December, 1991.

J. STEPHEN MENTON 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 31st day of December, 1991.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 90-3589

Both parties have submitted Proposed Recommended Orders. The following constitutes my rulings on each of the parties' proposed findings of fact.

The Petitioner's Proposed Findings of Fact

Proposed Finding Paragraph Number in the Findings of Fact of Fact Number in the Recommended Order Where Accepted or

Reason for Rejection.

1. Addressed in the preliminary statement.

2. Adopted in substance in Findings of Fact 1.

   
   

3. Adopted in pertinenet part in Findings of Fact 3.

   
   

4. Rejected as irrelevant.

   
   

5. Rejected as irrelevant.

   
   

6. Adopted in substance in Findings of Fact 4.

1. Subordinate to Findings of Fact 23. This subject is also addressed in paragraph 9 of the conclusions of law.

   
   

2. Adopted in substance in Findings of Fact 10.

   
   

3. Adopted in substance in Findings of Fact 10.

1. Subordinate to Findings of Fact 16.

   
   

2. Subordinate to Findings of Fact 17.

   
   

3. Rejected as not established by competent susbstantial evidence. The subject matter is addressed in Findigns of Fact 17.

   
   

4. Adopted in substance in Findings of Fact

   19 and 20.

   
   

5. Rejected as not established by competent substantial evidence. The subject matter is addressed to some degree in Findings of Fact 21.

   
   

6. Subordinate to Findings of Fact 21 and 22.

   
   

7. Subordinate to Findings of Fact 21 and 25.

   
   

8. Adopted in substance in Findings of Fact 20.

   
   

9. Rejected as irrelevant.

   
   

10. Subordinate to Findings of Fact 21.

    
    

11. Subordinate to Findings of Fact 21.

    
    

    The Respondent's Proposed Findings of Fact

    
    

    The Respondent's proposed findings of fact are not numbered. The numbers below refer to the numerical sections contained in the findings of fact section of Respondent's Proposed Recommended Order.

    
    

    Proposed Finding Paragraph Number in the Findings of Fact of Fact Number in the Recommended Order Where Accepted or

    Reason for Rejection.

    
    

    1. The first two sentences are adopted in substance in Findings of Fact 6-9. The second two sentences are rejected as irrelevant. This subject matter is addressed in some degree in Findings of Fact 21. The last sentence is rejected as constituting argument rather than a finding of fact.

       
       

    2. The first two sentencess are subordinate to Findings of Fact 10. The next two sentences are adopted in substance in Findings of Fact 11. The last sentence is rejected as constituting argument rather than a finding of fact.

    3. The first two sentence are adopted in substance in Findings of Fact 13. The third sentence is rejected as constituting argument rather than a finding of fact.

       
       

    4. The first three sentences are adopted in substance in Findings of Fact 14. The last sentence is rejected as constituting argument rather than a finding of fact.

       
       

    5. The first two sentences are adopted in substance in Findings of Fact 15. The last sentence is rejected as constituting argument rather than a finding of fact.

       
       

    6. Adopted in substance in Findings of Fact 16.

       
       

    7. The first sentence is adopted in substance in Findings of Fact 17. The second sentence is rejected as vague.

       
       

    8. Subordinate to Findings of Fact 17 and 25.

       
       

    9. The first three sentences are adopted in substance in Findings of Fact 18, 19 and

       22. The fourth sentence is rejected as not established by competent substantial evidence. This subject matter is addressed in part in Findings of Fact 19. The fifth and sixth sentences are rejected as constituting argument rather than a finding of fact.

       
       

    10. Subordinate to Findings of Fact 25.

COPIES FURNISHED:

Janine B. Myrick, Esquire Senior Attorney

Department of Professional Regulation

Division of Real Estate

400 West Robinson Street

P. O. Box 1900

Orlando, Florida 32802

James P. Hudson

413 South Federal Highway Boynton Beach, Florida 33435

Darlene F. Keller Executive Director Department of Professional

Regulation

Division of Real Estate

400 West Robinson Street

P. O. Box 1900

Orlando, Florida 32802

Kenneth E. Easley, Esquire General Counsel

Department of Professional Regulation

1940 North Monroe Street Suite 60

Tallahassee, Florida 32399-0792

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: 90-003589

Orders for Case No: 90-003589