vs. ) CASE NO. 90-5153
Respondents. )
Pursuant to Notice, this cause was heard by Linda M. Rigot, the assigned Hearing Officer from the Division of Administrative Hearings, on August 31, 1990, in Miami, Florida.
For Petitioner: James H. Gillis, Esquire
For Respondents: Harold W. Braxton, Esquire
The issues presented are whether Respondents are guilty of the allegations contained within the Amended Administrative Complaint filed against them, and, if so, what disciplinary action should be taken against them, if any.
On July 25, 1990, the Secretary of the Department of Professional Regulation entered an Order of Emergency Suspension of Real Estate Licenses directed against the Respondents. Petitioner subsequently issued an Administrative Complaint against the Respondents and then an Amended Administrative Complaint. Respondents timely requested a formal and expedited hearing regarding the allegations contained within that Amended Administrative Complaint, and this matter was transferred to the Division of Administrative Hearings for the conduct of a formal proceeding.
Petitioner presented the testimony of Kenneth G. Rehm. Additionally, Petitioner's Exhibits numbered 1-10 were admitted in evidence.
Respondents presented the testimony of Respondent Adriana Creel and Raphael Iglesias. Additionally, Respondents' Exhibits numbered 1-7 were admitted in evidence.
Official recognition was granted, without objection, of Sections 120.59(3), 120.60(8), 455.225(8), 475.01(1)(c) and (d) 475.25(1)(a) - (e) and (h), and
569.241(3), Florida Statutes, and Rules 21V-14.008(1)(c), 21V-14.012(2) and (3), and 21V-24.001, Florida Administrative Code.
All parties submitted post-hearing proposed findings of fact in the form of proposed recommended orders. A ruling on each proposed finding of fact can be found in the Appendix to this Recommended Order.
At all times material hereto, Respondent Emilio Faroy has been a licensed real estate broker in the State of Florida, having been issued License No. 0332008.
At all times material hereto, Respondent Adriana Creel has been a licensed real estate salesperson in the State of Florida, having been issued License No. 033464. Creel has been employed as a licensed real estate salesperson with Faroy Realty since April 1, 1985.
At all times material hereto, Respondent Faroy Realty Company has been a corporation registered as a real estate broker in the State of Florida, having been issued License No. 0236806.
At all times material hereto, Respondent Faroy was licensed and operating as the qualifying broker and the sole officer and director of Respondent Faroy Realty Company.
The real estate licenses of the Respondents are presently suspended pursuant to an emergency suspension order issued by the Secretary of the Department of Professional Regulation on July 25, 1990, because of their activities at the Dunes Beach Club.
Respondent Faroy and Respondent Creel live in a unit owned by Creel at the Dunes Beach Club. Faroy Realty is registered at that same address.
The Dunes Beach Club is a former motel on Miami Beach which was purchased by a developer. The units were sold to individual owners, many of whom make their units available for rental to transients and tourists. Although the Dunes Beach Club is not a condominium, there is a Homeowners' Association. The developer retained ownership of certain commercial space within the Dunes Beach Club and leased the "front desk" to a realtor who managed rentals and sales of the individual units.
The Homeowners' Association became dissatisfied with that realtor and bought the lease for the front desk.
At the May 19, 1986, Board of Directors meeting, the Dunes Beach Club Homeowners' Association decided that it was in the Association's best interest to hire someone to both run the operation of the front desk and manage the Association's affairs. Adriana Creel, a member of the Board of Directors, was hired for that position. Her agreement with the Board was that she would be paid $30,000.00 as a salary, that she would be given the front desk office to use at no charge, add that the Association would receive 1% of the sales price as a commission for any sales or resales of units produced through her office. No evidence was offered to show that Creel sold any units through that office or paid a commission to the Homeowners' Association during the one year that that arrangement was in effect. Creel received no commissions for renting rooms during that year since she was a salaried employee of the Homeowners' Association, and renting rooms was part of her responsibilities.
In April of 1987, the Homeowners' Association decided not to renew their front desk lease with the developer and told Creel to vacate the premises immediately and to cease renting rooms. She did not do so. Instead, she and Faroy negotiated a lease with the developer, the Dunes Beach Club, Inc., which lease commenced on May 1, 1987. Pursuant to the terms of the lease, Faroy Realty was given the right to use the front desk area for "real estate rental and sales" for 36 months in exchange for Faroy Realty paying the sum of
$1,050.00 per month as rent for that space. A few months later, the business address for Faroy Realty was changed to the address of the Dunes Beach Club.
From that point forward until the date of the emergency suspension order entered against Respondents herein, Creel ran the front desk operation through Faroy Realty. She and Faroy set up an operating account in the name of Faroy Realty for the Dunes Beach Club operation. She arranged rentals for approximately 60 of the units at the Dunes Beach Club, collecting the rental money and depositing it Into the Faroy Realty account. She paid expenses from that account and remitted to the owners of the units the rental monies minus expenses. Although the Homeowners' Association, when it was running the front desk, had written agreements with some of the unit owners for the rental of their units, when Faroy Realty took over that operation it obtained no written agreements from any of the unit owners on whose behalf Faroy and Creel acted.
In November of 1989, Creel wrote six checks to Irene Avellino for the proceeds of rentals covering May through September for units 210 and 268. At the time that those checks were written, Faroy Realty did not have sufficient funds in its checking account to cover those checks.
In November of 1989, Creel wrote two checks to Samco c/o Stan Paul, representing rental proceeds for May and June for units 124, 128, and 132. At the time that those checks were written, Faroy Realty did not have sufficient funds in its checking account to cover those checks.
Respondent Creel also wrote two checks to Andrew Mecca representing rental proceeds for unit 102 at the Dunes Beach Club. At the time that those checks were written, Faroy Realty did not have sufficient funds in its checking account to cover those checks.
Pursuant to complaints received by Petitioner, Petitioner initiated an investigation of Respondents on November 9, 1989. The Department's investigator met with Faroy and Creel a number of times. Creel told the investigator that she had made restitution for the worthless checks she had written on the Faroy Realty account. When the investigator contacted Avellino, Paul, and Mecca in mid-December, they advised him that restitution had not been made.
Faroy Realty also had an escrow account. Faroy told the investigator that although monthly reconciliation statements had been made on Faroy Realty's escrow account, none of them could be located.
A subpoena was issued to Faroy Realty and Emilio Faroy on February 9, 1990, for all escrow and operating account monthly bank statements, cancelled checks, all purchase/sale contracts and leases including addenda for the period January 1987 through present, all employment agreements, and bank deposit slips. Very few records were produced pursuant to that subpoena.
The few bank statements which were produced indicated that the Faroy Realty escrow account experienced overdrafts in the early part of 1989. An examination of the Faroy Realty escrow account further revealed that between March of 1987 and October of 1989, Creel wrote checks from the Faroy Realty escrow account for such personal expenses as insurance on automobiles, payments on automobiles, repairs on fax machines, dinners, health insurance, and pet supplies. She had even written checks from the escrow account to Faroy Realty with the notation that the money represented a loan. In defense of her using escrow monies for personal expenses, Creel testified at the final hearing that those checks represented earned commissions. That being the case, then the escrow account contained personal monies intermingled with trust monies.
In defense of Respondent Creel writing checks on the Faroy Realty operating account when there were not monies in the account to cover those checks, Creel testified that she would write postdated checks to the unit owners commensurate with the date that she had calculated there would be sufficient monies in the account to cover those checks. Whatever her reason for doing so, the fact remains that Creel wrote checks from an account which did not have monies in the account to cover those checks.
Creel's explanation for the worthless checks written in November revolved around a German tour group which, according to Respondents' exhibit, stayed at the Dunes Beach Club in October. However, the checks written by Creel in November which "bounced," on their face, represent the proceeds from rentals well prior to October.
Creel testified that Emilio Faroy knew nothing of her check-writing practices. Taken in its best light, her testimony shows that Faroy failed to exercise his supervisory responsibilities over the Faroy Realty escrow account, the Faroy Realty operating account, and Faroy Realty's licensed salesperson Creel. Creel's testimony is consistent with Faroy's statement to Petitioner's investigator that he was primarily involved with his bail bond business and Creel was running Faroy Realty.
Creel testified that monthly reconciliation statements had been made regarding the Faroy Realty escrow account but that they could not be found. She further testified that no attempt was made to obtain copies from the accountant who allegedly prepared those monthly statements and that she does not know whether Faroy ever signed any of the monthly reconciliation statements alleged prepared. An accountant testified on behalf of Respondents in this proceeding that he was hired in March of 1990 to do the monthly reconciliation statements on Faroy Realty's escrow account and that he had gone back to 1986 to prepare those reconciliations. None of the statements performed by that accountant have been signed by Faroy. It is found that Respondent Faroy has failed to prepare, sign, retain, and produce for inspection the required written monthly escrow account reconciliations.
Creel testified that restitution had been made for the worthless checks written to Avellino, Samco c/o Stan Paul, and Mecca. Absent from her testimony was the date on which restitution was made. Respondents did offer in evidence affidavits regarding those three unit owners, which affidavits were admitted without objection. One of the affidavits was dated August 29, 1990 and two were dated August 30, 1990, one and two days prior to the final hearing in this cause. Absent from each of the three affidavits is the date on which restitution was made. The affidavits state that two of the owners have received restitution. It is noted that the affidavit from Stan Paul does not, in fact, state that restitution was made but rather that Paul has arranged a payment plan with Creel. No proof of restitution was offered to Petitioner prior to the entry of the emergency suspension order against Respondents or prior to the filing of the Administrative Complaint or Amended Administrative Complaint in this cause. It is also noteworthy that Mecca had to file a lawsuit against Creel and Faroy Realty to secure payment of the rental proceeds for which Creel had written the worthless checks to him.
Respondents' failure to produce to Petitioner bank statements, cancelled checks from the escrow account, and monthly reconciliation statements has prevented a meaningful audit from being performed on the Faroy Realty accounts. Similarly, Respondents' failure to provide to Petitioner employment agreements or management agreements has made it impossible to determine Respondents' obligation to the unit owners.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter and the parties in this case. Section 120.57(1), Florida Statutes (1989).
Section 475.25(1), Florida Statutes, authorizes the Florida Real Estate Commission to take disciplinary action against a licensee if that licensee commits the following conduct:
Has violated any provision of s. 475.42 or of s. 455.227(1).
Has been guilty of fraud, misrepresentation, 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. ...
1.Has failed to account or deliver to any person,
... at the time which has been agreed upon or
is required by law or, in the absence of a fixed time, upon demand of the person entitled to such accounting and delivery, any personal property such as money.. .which has come into his hands and which is not his property or which he is
not in law or equity entitled to retain under the circumstances....
Has violated any of the provisions of this chapter... or rule made or issued under the provisions of this chapter or chapter 455.
(h) Has shared a commission with, or paid a fee or other compensation to, a person not properly licensed as a broker, broker-salesman, or sales-
man under the laws of this state, for the re- ferral of real estate business, clients, prospects, or customers, or for any one or more of the services set forth in s. 475.01(1)(c)....
Counts I, II, and III of the Amended Administrative Complaint charge Respondents Faroy, Creel, and Faroy Realty, respectively, with having violated Section 475.25(1)(b), Florida Statutes, by being guilty of dishonest dealing by trick, scheme or device, culpable negligence or breach of trust. Petitioner has clearly proven that Respondents Faroy and Faroy Realty are guilty of culpable negligence by permitting Creel to operate the front desk on their behalf in such a manner that they and Creel are guilty of breach of trust in a business transaction by writing worthless checks to the unit owners on whose behalf they were acting.
Counts IV and VI charge Faroy and Faroy Realty, respectively, with having failed to timely account and deliver rental funds in violation of Section 475.25(1)(d), Florida Statutes. Petitioner has met its burden of proof as to these Counts. The worthless checks show on their face that they were written in November for rental monies as far back as May. By November 9, 1989, Petitioner had received sufficient complaints to have initiated an investigation against Respondents. Although Petitioner did not prove the time at which demand for the rental monies was made by the unit owners, the evidence is clear and uncontroverted that owner, Mecca, had to file a civil suit against Respondents Faroy Realty and Creel in order to recover his monies. Further, the evidence is clear that at least by mid- December of 1989, the monies had not been paid to the unit owners. There is no proof as to when restitution, i.e., payment of the rental monies to the owners entitled to receive them, was made prior to the affidavits from them dated August 29 and 30, 1990. In fact, one of those affidavits indicates that a payment plan has been worked out, which would mean that restitution has still not been made.
Section 475.42(1)(b), Florida Statutes, provides as follows: "No person licensed as a salesman shall operate as a broker or operate as a salesman for any person not registered as his employer." Count V of the Amended Administrative Complaint alleges that Creel has violated Section 475.25(1)(a) by violating Section 475.42(1)(b), Florida Statutes. The gravamen of this Count is that Creel operated as a broker for Faroy Realty while licensed as a salesman and operated as a salesman for the Homeowners' Association, a person not registered as her broker. Respondents argue that Creel is not guilty of violating Count V because Section 509.241(3), Florida Statutes, provides an exemption from licensure and that Creel would not have needed a real estate license for her rental activities on behalf of the Dunes Beach Club Homeowners' Association or Faroy Realty at the Dunes Beach Club. Respondents argue that rentals can be arranged by a non-licensed person in a resort motel. Although there was testimony that the Dunes Beach Club is a resort motel, Respondents have failed in their burden of proof to show that they fall under the exemption. Rather, the exemption appears to apply to persons engaging in rental activities only where the facilities rented are under one ownership. In this case, Creel was renting units on behalf of many individual unit owners. Although for one year she was employed by the Homeowners' Association to do so, there is no evidence that the Homeowners' Association owned the units that Creel was renting. Further, the evidence indicates that Creel was operating Faroy Realty, and Faroy made that admission to Petitioner's investigator. Accordingly, Petitioner has proven that Creel is guilty of violating the statutory prohibitions alleged in Count V of the Amended Administrative Complaint.
Counts VII and VIII allege that Faroy and Faroy Realty have violated Rule 21V-14.008(1)(c), Florida Administrative Code, which prohibits depositing or intermingling personal funds with any funds being held in escrow or in trust and that they have, therefore, violated Section 475.25(1)(e), Florida Statutes, by violating one of the Commission's rules. In defense of using Faroy Realty trust account funds for personal use, Creel testified that those monies represented earned commissions. That testimony was uncontroverted. Accordingly, personal funds were intermingled in the Faroy Realty escrow account, and Faroy and Faroy Realty are guilty of the violations alleged in Counts VII and VIII.
Counts IX and X allege that Faroy and Faroy Realty failed to maintain escrow account records supported by such data as good accounting practices require, in violation of Rule 21V- 14.012, Florida Administrative Code, and have therefore violated Section 475.25(1)(e), Florida Statutes. Faroy and Faroy Realty failed to produce pursuant to the investigator's request and pursuant to the subsequent subpoena from the Department of Professional Regulation, the escrow account banking statements, monthly reconciliation statements, and cancelled checks and have, therefore, failed to maintain escrow account records. Faroy and Faroy Realty are guilty of the violations alleged in Counts IX and X. Although Respondents argue that discovery rules do not require one to produce records not in one's possession, the investigator's requests and the Department's subpoena did not relate to discovery as the Department and the Respondents were not engaged in litigation at the time.
Rule 21V-14.012(2) and (3), Florida Administrative Code, requires that a broker cause to be made, at least monthly, a written reconciliation statement of all trust accounts; prescribes the contents of such statements; requires that the broker review and sign and date such statements; and requires that the reconciliation statements contain an explanation for any discrepancies, services charges, or fees for non-sufficient checks or whenever an account has a negative balance.
Counts XI and XII charge Faroy and Faroy Realty with failing to prepare the monthly written escrow account reconciliation statements, in violation of that rule and, therefore, also, in violation of Section 475.25(1)(e), Florida Statutes. Faroy and Faroy Realty were unable to produce such monthly reconciliation statements pursuant to the investigator's request and the Department's subpoena. Creel testified that the statements had been prepared and lost. However, she further testified that no steps had been taken to obtain a copy of those statements from the accountant who allegedly prepared them and that she did not know whether Faroy had ever signed any of those statements. The testimony is uncontroverted that in March of 1990, Faroy hired an accountant to prepare those statements dating back to 1986, that the accountant had done so, and that Faroy had failed to sign even those statements prepared by the accountant in 1990. It has been found that there were no monthly reconciliation statements prepared by Faroy or Faroy Realty, and they are guilty of the violations alleged in Counts XI and XII.
Counts XIII and XIV allege that Faroy and Faroy Realty failed to properly supervise Creel, in violation of Sections 475.01(1)(d) and 475.25(1)(b), Florida Statutes, and therefore Section 475.25(1)(e), Florida Statutes. Section 475.01(1)(d) essentially defines a salesman as someone who performs real estate transactions under the direction, control, or management of another person. It is reasonable to believe that Faroy did exercise some direction or supervision of Creel but that he did so in such a negligent way that she was able to engage in numerous violations of the statutes and rules
regulating the practice of real estate. Faroy Realty, although licensed separately from Faroy, is guilty as is Faroy of these violations. Faroy Realty has only one broker, officer, and director according to Petitioner's licensure files - Emilio Faroy. Both Faroy and Faroy Realty failed to properly supervise Creel. The evidence is clear that her writing of checks for personal expenses from the escrow account was done over several years, and neither Faroy nor Faroy Realty took steps to stop her. Even if Creel's testimony that she discussed the operations of the front desk with Faroy daily were believed so as to show that Faroy did supervise her, it is clear that he did not properly supervise her and allowed her to mismanage both the trust account and the operating account of Faroy Realty. Petitioner has proven the allegations contained in these Counts.
Counts XV, XVI, and XVII allege that Creel, Faroy, and Faroy Realty, respectively, violated Sections 475.01(1)(c) and 475.25()(h), Florida Statutes, by sharing a commission with a person not properly licensed for the referral of real estate business or for one or more of the services set forth in Section 475.01(1)(c), Florida Statutes. That section defines activities to be performed by a licensed broker and includes the rental of real property. Although the evidence is clear that Creel agreed to pay a commission to the Dunes Beach Club Homeowners' Association, a prohibited activity, Petitioner has not proven that she ever did so. The statutes cited prohibit paying a commission to an unlicensed person such as the Homeowners' Association for the rental of real property but do not prohibit an agreement to do so. Accordingly, Petitioner has failed in its burden of proof as to Counts XV, XVI, and XVII.
Disciplinary guidelines are contained in Rule 21V- 24.001, Florida Administrative Code. Several of the statutory violations of which Faroy, Creel, and Faroy Realty have been found guilty carry penalties involving suspension or revocation of licensure. In its proposed recommended order, Petitioner recommends that the licenses of Faroy and Faroy Realty be revoked and that Creel's license be suspended and that she be fined. Respondents' proposed recommended order recommends that Creel's license be placed on probation for two years, that Faroy be fined $1,000 and be placed on probation for two years, and that Faroy Realty be fined $1,000. Faroy and Faroy Realty allowed Creel to write checks for personal expenses from the trust account over a period of several years. They did nothing to stop her improper check-writing practices. They failed to maintain escrow records, to make and sign monthly reconciliation statements, or to properly supervise their employee. Creel managed the Faroy Realty trust account and the Faroy Realty operating account however she saw fit. She even agreed to pay a commission for sales made by her to an unlicensed entity, although Petitioner failed to prove that she actually did so. She committed breaches of the trust imposed upon her by the unit owners. The offenses are not technical but rather show a disregard for the statutes and rules regulating the conduct of real estate brokers and salespersons. The fact that Respondents have not been disciplined previously is not sufficient a mitigating circumstance to overcome the haphazard nature of their real estate practices. It is appropriate that the public be protected by revoking Respondents' licenses.
Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered revoking the real estate
Faroy, Adriana Creel, and Faroy Realty Company.
LINDA H. RIGO
APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 90-5153
James H. Gillis, Esquire
Harold M. Braxton, Esquire Suite 400 - One Datran Center 9100 South Dadeland Boulevard Miami, Florida 33156
Kenneth E. Easley, Esquire General Counsel
Darlene F. Keller, Division Director Division of Real Estate
