STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS ) REGUIATION, DIVISION OF ) FLORIDA LAND BALES, ) CONDOMINIUMS AND MOBILE ) HOMES, )

)

Petitioner, )

)

vs. ) CASE NO. 91-0011

)

CAMBRIDGE PARK, INC., )

)

Respondent. )

) DEPARTMENT OF BUSINESS ) REGULATION, DIVISION OF ) FLORIDA LAND SALES, ) CONDOMINIUM8 AND MOBILE ) HOMES, )

)

Petitioner, )

)

vs. ) CASE NO. 91-0460

)

H. JERRY HARRINGTON, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, final hearing in the above-styled case was held in Titusville, Florida, on June 13, 1991 before Robert

E. Meale, Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Calvin Johnson

Assistant General Counsel Department of Business Regulation The Johns Building

72S S. Bronough St.

Tallahassee, Florida 32399-1000

For Respondent Cambridge Park, Inc.:

Richard H. Miller Richard H. Miller, P.A.

307 Palmetto St. Titusville, Florida 32796

For Respondent H. Jerry Harrington:

no appearance STATEMENT OF THE ISSUE

The issue in this case is whether Respondents sold subdivided lots in violation of provisions of Chapter 498, Florida Statutes, and, if 80, what penalty should be imposed.

PRELIMINARY STATEMENT

Separate Notices to Show Cause filed November 30, 1990, require Respondents to show cause why Petitioner should not enter a cease and desist order, impose civil penalties, revoke or suspend their registration, and take other affirmative action to further the purpose of Chapter 498, Florida Statutes.

Both Notices to Show Cause allege that each Respondent offered, disposed of, or participated in the offer or disposition of lots, parcels, unite, or interests in Cambridge Park subdivision to at roast 24 purchasers. The notices allege that these transfers involved subdivided lands that were not exempt from registration. As such, the transfers were allegedly in violation of Section 498.023(1) because Respondents failed to possess a valid order of registration or an approved reservation program.

The notices allege that each disposition of nonexempt subdivided land violated Section 498.023(2) because Respondents failed to deliver a current public offering statement to each of the 24 purchasers prior to disposing or participating in the disposition of any interest in the Cambridge Park subdivision.

The notices also allege that each offer and disposition of the 24 lots was in violation of Section 498.051(1)(b). The notices allege that Respondents, directly or through an agent or employee, knowingly engaged in false, deceptive or misleading advertising, promotional or sales methods. Each Respondent allegedly did so by knowingly conveying lots that each Respondent represented as unencumbered by mortgages or liens when the lots were and remain encumbered by mortgages.

Each Respondent requested a formal hearing. However, Respondent Harrington failed to appear at the final hearing.

At the hearing, Petitioner called four witnesses and offered into evidence eight exhibits. Respondent Cambridge Park, Inc. called one witness and offered into evidence no exhibits. All exhibits were admitted at the hearing but Petitioner's Exhibit 8. In addition, ruling was reserved on Petitioner's Exhibit 5. The objections to Petitioner's Exhibit

5 are overruled.

The parties were given the opportunity to file two exhibits following the hearing. Either party was given leave to file a title report showing the status of title for the 24 lots at present and on the date of the conveyance to each individual purchaser. Either party was given leave to file a copy of a letter from American Title to Catherina Holcomb. An Opinion of Title was filed on September 10, 1991. The American Title letter was never filed.

The transcript was filed July 2, 1991. Petitioner filed a proposed recommended order. Treatment accorded the proposed findings is detailed in the appendix.

FINDINGS OF FACT

1. Cambridge Park is a mobile home park located in Brevard County, Florida. Respondent Cambridge Park, Inc. owns about 40 contiguous acres of platted and unplatted land, of which the mobile home park is a part.

   
   

2. As relevant to this case, the park was originally owned by C.H.K.S., Inc., whose interest was subject to a mortgage in favor of Executive Center. The mortgage contained a release clause that reportedly released lots for payments of about $4000 per lot.

   
   

3. In the process of developing the land for use as a mobile home park, on October 5, 1984, C.H.X.S., Inc. dedicated a plat map for the uses described in the map. On September 6, 1985, the Clerk recorded the plat after finding that it conformed with the requirements of Chapter 177, Florida Statutes. The plat of Cambridge Park, Phase I (as it later was known), which contains about nine acres, comprises 25 lots: Lots 1-4 and 5361, Block A, and Lots 1-4, 34-37, and 53-56, Block B.

4. Before selling a significant number of lots, C.H.K.S., Inc. sold the 40-acre tract, including the Cambridge Park subdivision, to a Mr. Coomer. It appears that C.H.K.S., Inc. may have taken back a purchase money mortgage, which was sold to Chrysler Credit Corp. Mr. Coomer held the property for about a year, experienced some difficulty remaining current on the Chrysler Credit mortgage, and reconveyed the property to C.H.K.S., Inc.

   
   

5. After it reacquired the property, C.H.K.S., Inc. needed cash to service and possibly reinstate the mortgage debt and develop the property so lots could be marketed. At some stage, another mortgage in favor of Southeast Bank may have been placed on the property, and it may have been in default too.

   
   

6. C.H.K.S., Inc. made few if any sales while seeking new capital. At all times, Bonnie Kay remained the sole officer and director of C.H.K.S., Inc., although she probably did not control all of the stock of the company. About four years ago, Ms. Kay married Ralph Bates and is hereafter referred to as Mrs. Bates. Mrs. Bates, who lacked significant real estate experience prior to Cambridge Park, was assisted in real estate matters by her husband. Throughout these complicated transactions, however, Mr. Bates maintained a low profile, such as by taking no ownership or management positions due to pending divorce proceedings.

   
   

7. Since the early 1980's, a mortgage brokerage firm known as Northeast Mortgage, Inc. had been operating in Brevard County. Northeast Mortgage originated and sold mortgages, although the company also owned interests in real estate and a; restaurant. The principal of Northeast Mortgage was George Newman.

   
   

8. As a result of recommendations from various reputable sources in the community, Mr. and Mrs. Bates contacted Northeast Mortgage to see if it could help them with their capital needs. Neither of them had ever met anyone involved with Northeast Mortgage.

   
   

9. At Northeast Mortgage, the Bateses met several times with Respondent Harrington, who was an employee of Northeast Mortgage. Respondent Harrington, who owned an office building with Mr. Newman, had been employed at Northeast Mortgage for three to five years. Respondent Harrington'a duties included the origination of mortgagee and sale of mortgages to private parties.

   
   

10. In a short time, the Bateses, Respondent Harrington, and Mr. Newman, who had joined the negotiations, reached an agreement. In return for their assistance in obtaining financing and marketing the lots, Mr. Newman and Respondent Harrington would each receive one-quarter of the profits from the sale of the lot.. In return for their equity (if any) and development work, such as for constructing site improvements, the Bateses would receive one-half of the profits from the sale of the lot.

    
    

11. Mr. Newman and Respondent Harrington were also to receive their normal commission; from originating and selling mortgages. Some of these mortgagee would be from C.H.R.S., Inc. and represent, in effect, partial refinancings of the project. Other mortgagee would be purchase money mortgagee given by purchasers of individual lots.

    
    

12. The Bateses were 1ikewise to receive their normal payments for development work, which was to be performed by Clyde's Mobile Home Sales, Inc. Clyde's a corporation controlled by Mrs. Bates and possibly Mr. Bates.

    
    

13. The agreement was never reduced to writing. By failing to memorialize the agreement, Mr. Newman intended to conceal his equity position from the purchasers of mortgages from Northeast Mortgage. By failing to disclose his interest in the Cambridge Park development, Mr. Newman made it easier to sell the mortgagee. Mr. Newman explained to the Bateses that Northeast Mortgage had to control the finances for the protection of those persona buying mortgagee from 0a company.

    
    

14. In May, 1987, the parties executed the first stage of the transaction. On May 20, 1987, C.H.X.S., Inc. and Mrs. Bates individually executed five notes and mortgages in favor of Northeast Mortgage. On May 27, 1987, C. H. K. S., Inc. and Mrs. Bates individually executed a sixth note and mortgage in favor of Northeast Mortgage. The loans appear to have bean for between $16,000 and $43, 000 and were typically repayable by 11 equal monthly payments of a small amount followed by a single, lump-sum payment of the balance.

    
    

15. In most if not all cases, Northeast Mortgage immediately sold the mortgages. The loan proceeds probably were used to bring current, satisfy, or obtain partial releases from the existing mortgagee, including those owned by Executive Center and Chrysler Credit, as well as to develop and market

    Cambridge Park. All of the May, 1987, mortgages given to Northeast Mortgage contained release clauses,

    
    

16. According to borrower's closing statements for the six May, 1987, loans, the proceeds were used to pay commissions (of a little less than 101) and origination fees to Northeast Mortgage and typical closing coats to other parties. The closing costs included an item for "title search or policy" that was presumably payable to the closing agent, Atlantic Title & Escrow, Inc. The amounts paid to Atlantic Title for title searches or policies varied directly with the else of the loan, suggesting that mortgagee title insurance policies were contemplated rather than title opinions.

    
    

17. For the sex loan closings in May, 1987, the remaining proceeds were divided between C.H.K.S., Inc. and Atlantic Title. The former, as owner of the property and mortgagor, received a total of $20,590.36. Atlantic Title, as closing agent, received a total of $130,768 for disbursement to mortgagees.

    
    

18. The funds retained by Atlantic Title were to be paid to Executive Center on the first mortgage, Chrysler Credit on what apparently was a second mortgage, and any other mortgagee, such as Southeast Bank. These payments were necessary to give the May, 1987, mortgagees the priority that they expected to receive.1 According to Mr. Newman, the funds were so used. Although by this time most if not all of the lots in Phase I of Cambridge Park had been released from the mortgage, this payment may have obtained the release of portions of the 40-acre tract that had not been subdivided.

    
    

19. In early fall, 1987, at Mr. Newman's suggestion, the Bateses incorporated Respondent Cambridge Park, Inc., which took title to the Cambridge Park property from C.H.K.S., Inc. by various deeds dating from late 1987 through mid 1988. Mr. Newman obtained the legal services of William Block in Titusville to incorporate the new company. Mr. Block, who also owned Atlantic Title, expired shortly after Northeast Mortgage discontinued doing business in the fall of 1988.

    
    

20. On November 19 and December 22, 1987, according to borrowers' closing statements, C.H.K.S., Inc. and Respondent Cambridge Park, Inc., respectively, executed two more mortgages in favor of Northeast Mortgage, Inc. in the respective amounts of $25,000 and $55,000. Several lots used to collateralize these mortgages had been used to secure one or more May, 1987, mortgagee.

    
    

21. For the November and December mortgages, Northeast Mortgage took no commission, although it did take a mortgage origination fee. This time, no funds were retained by Atlantic Title. C.H.X.S., Inc. received $24,092.25 from the first loan and Respondent Cambridge Park, Inc. received $53,298.40 from the second. Both closing statements reflected costs for "title search or policy." As was the case with the May, 1987, closings, these costs varied directly with the amount of the loan, suggesting the use of mortgagee policies rather than title opinions.

    
    

22. As May, 1988, approached, and the balloon notes on the May, 1987, mortgages were about to mature, Mr. Newman and Respondent Harrington contacted the mortgagees and obtained their agreement to rollover the loans for another year on the same terms. Mortgage modification agreements were signed by the mortgagor--C.H.X.S., Inc. (although it no longer owned many of the lots)--but were never signed by the mortgagees, who reportedly agreed verbally to the extensions.

    
    

23. On May 17, 1988, Mrs. Bates, as president of Respondent Cambridge Park, Inc., dedicated Phase II of the Cambridge Park. Covering about 15 acres immediately north and west of Phase I, Phase II comprises Lots 35-52, Block A, and Lots 27-33 and 38-52, Block B, for a total of 40 lots. Finding the plat in conformance with Chapter 177, Florida Statutes, the Clerk of the Court recorded the plat on July 15, 1988.

    
    

24. Petitioner argues that the plat was defective due to the lack of "Joinders." The Clerk's certificate states that the plat conformed with Chapter 177, Florida Statutes. More importantly, the Opinion of Title does not establish by clear and convincing evidence any deficiencies in the plat or any lack of joinders.

    
    

25. Sales of lots in Phase II began in earnest in the first half of 1988. By this time, the roles of the Bateses, Mr. Newman, and Respondent Harrington had evolved from their original arrangement.

    
    

26. At all times, Mrs. Bates remained the sole officer, director, and shareholder of Cambridge Park, Inc., as reflected by the corporate records. However, pursuant to their initial agreement, and with Mrs. Bates' knowledge and consent, Mr. Newman and Respondent Harrington acted on behalf of Respondent Cambridge Park, Inc. in financing and marketing matters .

    
    

27. In connection with the sale to Mrs. Holcomb, for instance, Respondent Harrington represented to her that he was the vice-president of Respondent Cambridge Park, Inc. He did this in the presence of Mrs. Bates, who did not correct him or object.

    
    

28. Based on the evidence, it is clear that Mr. Newman and Respondent Harrington possessed actual and apparent authority to represent Respondent Cambridge Park, Inc.

    
    

29. By some point during 1988, Respondent Harrington concentrated almost exclusively on Cambridge Park matters at Northeast Mortgage. Mrs. Bates agreed to allow Respondent Harrington to become a paid employee of Respondent Cambridge Park, Inc. He was to receive $500 weekly, although he withdrew double this amount. During 1988, Respondent Harrington assumed primary responsibility for Cambridge Park, as between him and Mr. Newman. The two men would meet a few times a week so Respondent Harrington could keep Mr. Newman informed of what was happening.

    
    

30. There is no evidence that Mr. or Mrs. Bates was aware of what eventually took place, although there is considerable evidence of Mrs. Bates' bad judgment, as she allowed Mr. Newman and Respondent Harrington to handle all corporate matters with little involvement on her part.

    
    

31. Prior to October, 1987, corporate checks for Respondent Cambridge Park, Inc. could be signed by any two of Mrs. Bates, Mr. Newman, and Respondent Harrington. Most checks were signed by the latter two because they did not often see Mrs. Bates .

    
    

32. Respondent Harrington opened a new corporate account on or shortly after October 9, 1987. The corporate resolution of that date reflects that Respondent Harrington was the president and secretary, Mr. Newman was the vice-president, and an employee of Northeast Title was the secretary. The signature card executed on October 14, 1987, which shows that the account is an escrow account for Respondent Cambridge Park, Inc., authorizes any one of the three "officers" to sign cheeks. The card states that the corporate office was located at an office of Respondent Harrington. Respondent Harrington was the only person authorized to sign checks on a corporate escrow account, according to a signature card executed on December 1, 1987.

33. Mr. Newman admitted that he and Respondent Harrington attempted to keep certain checks from Mrs. Bates, so she would not see who was being paid what. Mr. Newman also testified that Mrs. Bates had no knowledge of the above-described signature cards or corporate resolution.

    
    

34. Petitioner produced at the hearing copies of recorded general warranty deeds from December, 1987, through September 30, 1988, corresponding to the 24 transactions cited in the Notices to Show Cause. Each warranty deed represents that the land was free of all encumbrances, such as mortgages. Each deed was promptly recorded following execution (except for one that went unrecorded for 17 day;). Each deed bears a corporate seal and is signed by Respondent Harrington as either president or vice-president of Respondent Cambridge Park, Inc.

    
    

35. The notation on each recorded deed concerning documentary stamps shows taxes of between $75 and $110 for most conveyances. At the rate then in effect under Section 201.02(1), Florida Statutes (1987), ($0.55 per $100), the lots were sold for about $13,000 to $20,000 each.

    
    

36. Most if not all lot purchasers executed purchase money mortgagee to Respondent Cambridge Park, Inc., which routinely assigned the mortgages to Northeast Mortgage. Northeast Mortgage would assign partial or whole interests in the mortgages to its customers, who included individuals and Fleet Mortgage.

    
    

37. Although Fleet Mortgage was sometimes advised that a purchase money mortgage was not a first mortgage, the individual purchasers of mortgages were never so advised, according to Mr. Newman. Mr. Newman admitted that the purpose of this concealment was to induce the purchasers to buy the mortgages. He testified that Respondent Harrington was aware of the deception, but the Bateses were not.

    
    

38. The proceeds from the sale of the mortgagee by Respondent Cambridge Park, Inc. would generally be used to pay senior mortgagee and operating expenses of the company. On occasion, Mr. Newman and Respondent Harrington would divert funds from Respondent Cambridge Park, Inc. to a recreational- vehicle development known as Willow Lakes, which Mr. Bates had owned. The Bateses, Mr. Newman, and Respondent Harrington had entered into a verbal arrangement under which the profits from Willow Lakes would be divided by allocating one-third to the Bateses received, one-third to Mr. Newman, and one-third to

    Respondent Harrington. However, funds received from the sale of mortgages secured by land at Willow Lakes sometimes were deposited in the account of Respondent Cambridge Park, Inc.

    
    

39. Apparently toward the end of the arrangement, in an attempt to cover bad checks of Northeast Mortgage, Mr. Newman from time to time would cause Atlantic Title to issue checks payable to Mr. Bates. Mr. Newman would then deposit them in a Northeast Mortgage account without the Bateses' knowledge.

    
    

40. Consistent with the representations contained on each warranty deed, Mr. Newman and Respondent Harrington assured each purchaser of a lot that he or she would receive fee simple title to 0a or her lot clear of all mortgages except any purchase money mortgage.

    
    

41. Mr. Newman testified that the plan was, following the conveyance to the lot purchaser, to pay off or obtain releases from the other mortgagee, which by this time appear to have been reduced to the 1987 mortgagee from C.H.K.S. to Northeast Mortgage and assigned to third parties, although there is some evidence that the Executive Center mortgage may not have been fully satisfied. Mr. Nawman admitted that he often decided to use the proceeds from the sale of the purchase money mortgages for other purpose, s0 the underlying mortgages were not removed from the property following closing. He testified that Respondent Harrington was "not in all cases" kept informed of Mr. Newman's decisions of this type, and the Bateses ware never so informed.

    
    

42. According to Mr. Nawman, he and Respondent Harrington asked Mr. Block at Atlantic Title to prepare the closing documents without any indication of the underlying 1987 mortgages to Northeast Mortgage. Mr. Newman and Respondent Harrington assured Mr. Block that they would clear up the mortgages following closing, but Mr. Block never checked back with them to see if they had. Unknown to Respondent Harrington, Mr. Newman had verbally agreed with Mr. Block that Mr. Newman would share in a percentage of the profits of Atlantic Title.

    
    

43. Atlantic Title rarely issued the title commitments or policies called for in the closing documents. Complaints from persons purchasing mortgages from Northeast Mortgage culminated in the appointment of a receiver for the company by the Florida Comptroller in October, 1988. Respondent Cambridge Park, Inc. continued to sell lots for awhile, but eventually complaints

    from lot purchasers resulted in the commencement of the subject proceeding.

    
    

44. Petitioner produced a recorded warranty deed dated June 30, 1988, showing that Curtis Scott Singleton purchased property described by metes and bounds and also known as Lot 50, Block A, pursuant to an unrecorded plat. The Opinion of Title, which fails to find the deed into Mr. Singleton, notes an assignment of mortgage from Northeast Mortgage to a third party, but omits any mention of the origination of the mortgage. Without such information, it is impossible to find, by clear and convincing evidence, that the mortgage assignment evidences an enforceable lien against the property. The Opinion of Title also notes the "possibility of a mortgage encumbrance, n possibly referring to the Executive Center mortgage and a deficiency in the joinder process. This information does not constitute clear and convincing evidence of an outstanding mortgage or a deficiency in the joinder process.

    
    

45. Petitioner produced a recorded warranty deed dated June 17, 1988, to Rudolph T. and Patricia B. Heward for property described by metes and bounds and also known as Lot 43, Block B, pursuant to an unrecorded plat. The Opinion of Title notes a quitclaim deed from Respondent Cambridge Park, Inc. Dated

    August 30, 1988, but omits mention of the warranty deed. The Opinion of Title states that, at the time of the quitclaim deed, a third party held a mortgage for which no record exists of the mortgage's origination. The Opinion of Title also notes the "possibility" of a mortgage similar to that described in the preceding paragraph. On December 28, 1990, a foreclosure judgment was entered against the Hewards in favor of the third party holding the mortgage for which no record exists of its origination. Absent evidence as to whether the Hewards defended the foreclosure action, the evidence is not clear and convincing that the warranty deed to the Hewards was incorrect in the omitting a recorded mortgage (rather than merely an assignment) and absent a clearer indication in the report that another mortgage actually encumbers the property.

    
    

46. Petitioner produced a recorded warranty deed dated June 1, 1988, to James C. Sawyer and Lottie A. Sawyer for Lot 34, Blook B. The only potential problem disclosed in the Opinion of Title is the "possibility of a mortgage encumbrance," which has been discussed above.

    
    

47. Petitioner produced a recorded warranty deed dated May 12, 1988, to Cheryl L. Pagell Barding, Kevin Watera, and Robert

    J. Pagell for Lot 56, Block A. Although two mortgagee existed at the time of the conveyance, they were later satisfied. Respondent Cambridge Park, Inc. assigned the purchase money mortgage to "two different parties," but the Opinion of Title does not indicate whether partia1 interests were assigned. In any event, even two assignments of entire interests in the purchase money mortgage would not damage the lot purchasers, who would continue to be liable for only a single mortgage note.

    
    

48. Petitioner produced a recorded warranty deed dated June 1, 1988, to John A. Napoli and Rachel Weiner for property described by metes and bounds and also known as Lot 42, Block A, pursuant to an unrecorded plat. The Opinion of Title notes only a quitclaim deed from Respondent Cambridge Park, Inc. Dated August 30, 1988, and a "possibility of a mortgage," as discussed previously.

    
    

49. Petitioner produced a recorded warranty deed dated June 1, 1988, to Darl W. Morton and Janet M. Morton for property described by metes and bounds and also known as Lot 41, Block A, pursuant to an unrecorded plat. The Opinion of Title notes a quitclaim deed from Respondent Cambridge Park, Inc. Dated

    August 30, 1988, a "possibility of a mortgage," and a foreclosure action commenced on a mortgage for which there is no record evidence of its origination.

    
    

50. Petitioner produced a recorded warranty deed dated May 23, 1988, to Butord W. Brooka and Carol A. Brooks for

    property described by metes and bounds and also known as Lot 52, Block A, pursuant to an unrecorded plat. However, the Opinion of Title, which notes a "possibility of a mortgage, did not find the deed.

    
    

51. Petitioner produced a recorded warranty deed dated June 24, 1988, to Peggy SUQ Speeker for Lot 61, Block A. The Opinion of Title clearly establishes a problem in this transaction because two undisclosed mortgages existed at the time of the conveyance. One mortgage for $16,000 was to Robert and Barbara Clark and one mortgage for $27,000 was to Edwin and Anna F. Scott. Both mortgagee remain outstanding.

    
    

52. Petitioner produced a recorded warranty deed dated June 15, 1988, to John F. Oxendine for Lot 58, Block A. Although two mortgagee existed at the time of the conveyance, they were both released.

    
    

53. Petitioner produced a recorded warranty deed dated

    June 27, 1988, to Robert K. and Susan L. Mast for property described by metes and bounds and also known as Lot 51, Block A, pursuant to an unrecorded plat. The opinion of Title fails to report the warranty deed, but notes an August 30, 1988, quitclaim deed from Respondent Cambridge Park, Inc. and a "possibility of a mortgage."

    
    

54. Petitioner produced a recorded warranty deed dated July 27, 1988, to James A. Lichlyter and Deborah D. Johnson for Lot 47, Block A. The Opinion of Title notes a "possibility of a mortgage," which is presently in foreclosure.

    
    

55. Petitioner produced a recorded warranty deed dated July 1, 1988, to Willlam Thomea and Julia C. Loeffler for Lot 57, Block A. The opinion of Title notes that two mortgages encumbered the property at the time of the conveyance, but were both satisfied. Although the Opinion of Title states that the satisfactions took place "much later," there is no indication of when, relative to the closing, the satisfactions were obtained or recorded. The opinion of-Title fails to show by clear and convincing evidence that the satisfaction of these mortgages did not conform to the prevailing custom in real estate closings in which satisfactions and releases are not obtained and recorded until after closing.

    
    

56. Petitioner produced a recorded warranty deed dated July 6, 1988, to James A. and Dorothy A. Scanzillo for Lot 59, Block A. The opinion of Title notes that two mortgagee encumbered the property at the time of the conveyance, but were both satisfied. Although the Opinion of Title states that the satisfactions took place "much later," there is no indication of when, relative to the closing, the satisfactions were obtained or recorded.

    
    

57. Petitioner produced a recorded warranty deed dated July 1, 1988, to Steven J. and Laura A. Allen for property described by metes and bounds and also known as Lot 38, Block A, pursuant to an unrecorded plat. The Opinion of Title reports a corrective quitclaim deed dated August 30, 1988, and a "possibility of a mortgage." The Opinion of Title also notes that Respondent Cambridge Park, Inc. gave Northeast Mortgage a

    $12,000 mortgage on August 9, 1988, and this mortgage remains outstanding. There is no information as to when the mortgage was recorded. It is likely that Respondent Cambridge Park, Inc. did not have record title on July 1, 1988, so a corrective deed was necessary. Absent evidence of when Respondent Cambridge Park, Inc. obtained title, however, it is impossible to find by

    clear and convincing evidence that the August 9 mortgage is enforceable.

    
    

58. Petitioner produced a recorded warranty deed dated August 15, 1988, to Daniel A. and Barbara White for Lot 30, Block B. The Opinion of Title clearly discloses a problem in this transaction. Aside from a "possibility of a mortgage," the Opinion of Title reports that, at the time of the conveyance to the Whites, the property was encumbered by a mortgage in the amount of $7000 in favor of B. Wright, and the mortgage remains outstanding.

    
    

59. Petitioner produced a recorded warranty deed dated June 1, 1988, to H. Roger and Darlene R. Parsons for Lot 54, Block B. The Opinion of Title notes that the grantor, Respondent Cambridge Park, Inc., did not have title at the time of the conveyance. On June 14, 1988, C.H.K.S., Inc. conveyed title to Respondent Cambridge Park, Inc. by quitclaim deed. A mortgage encumbering the property at the time of the conveyance by warranty deed was later satisfied.

    
    

60. Petitioner produced a recorded warranty deed dated July 27, 1988, to Leon R. and Virginia D. Cronk for Lot 51, Block B. Aside from noting the possibility of a mortgage," the Opinion of Title reports that the Cronks defaulted on their purchase money mortgage and lost the land in the ensuing foreclosure action.

    
    

61. Petitioner produced a recorded warranty deed dated February 24, 1988, to Charles A. and Hilda N. Hobday for property described by metes and bounds and also known as Lot 42, Block B, pursuant to an unrecorded plat. The Opinion of Title fails to find the deed into the Hobdays, but reports the "possibility of a mortgage."

    
    

62. Petitioner produced a recorded warranty deed dated February 24, 1988, to Duayne Charlea Paguette for property described by metes and bounds and also known as Lot 41, Block B, pursuant to an unrecorded plat. The Opinion of Title fails to find the deed into Mr. Paquette, but reports the "possibility of a mortgage." The Opinion of Title notes an outstanding mortgage, but does not indicate the origination of the mortgage.

    
    

63. Petitioner produced a recorded warranty deed dated September 30, 1988, to Joseph Wayne and Catherine Marie Holcomb for Lot 44, Block A. The Opinion of Title reports the

    "possibility of a mortgage," for which a foreclosure action is pending.

    
    

64. Petitioner produced a recorded warranty deed dated December 18, 1987, to Rick Eugene and Sherry Rae Greene for Lot 54, Block A. The grantor, Respondent Cambridge Park, Inc., did not have title to the property at the time of the conveyance, but acquired title from C.H.X.S., Inc. by quitclaim deed dated January 8, 1988. Respondent Cambridge Park, Inc. then gave the Greenes a corrective warranty deed. The Opinion of Title clearly discloses a problem in this transaction. Two mortgages existed at the time of both warranty deeds. One was in the amount of $16,000 to Robert H. Clark and his wife. The other was in the amount of $27,000 to B. Wright. The Clark mortgage was later satisfied, but the Wright mortgage was not and is in foreclosure.

    
    

65. Petitioner produced a recorded warranty deed dated September 9, 1988, to George W. and Peggy A. Bauer for Lot 44, Block B. The Opinion of Title discusses several matters involving this transaction. The only matter approaching clear and convincing evidence of a title problem arises when, on August 9, 1988, Respondent Cambridge Park, Inc. gave a mortgage to Northeast Mortgage, which assigned it on August 15. However, the Opinion of Title does not report, as it does in other cases, that the August 9 mortgage remains outstanding. Other matters are mentioned as possibilities or, in the case of two mortgages, fail to include record evidence of the origination of mortgages.

    
    

66. Petitioner produced a recorded warranty deed dated August 12, 1988, to William D. Newman for Lot 40, Block A. The Opinion of Title reports only a "possible" competing interest in the property.

    
    

67. Petitioner produced a warranty deed dated June 20, 1988, to Charles LaMattina for property described by metes and bounds and also known as Lot 48, Block A, pursuant to an unrecorded plat. The Opinion of Title fails to find the warranty deed, but reports a quitclaim deed from Respondent Cambridge Park, Inc. dated August 30, 1988. Otherwise, the Opinion of Title reports a "possibility of a mortgage" and the assignment of a mortgage for which no record of origination was found.

    
    

68. In sum, the Opinion of Title establishes by clear and convincing evidence title problems in three transactions: Lot 61, Block A (two outstanding undisclosed mortgages); Lot 30,

    Block B (one outstanding undisclosed mortgage); and Lot 54, Block A (one outstanding undisclosed mortgage). There is no problem with the title status of 10t 54, Block B for reasons discussed in the Conclusions of Law. In addition to Lot 54, Block B, the opinion of Title establishes that Lot 56, Block A; Lot 57, Block At Lot 58, Block A; and Lot 59, Block A suffer no title defects. The status of title for the remaining 16 lots is unclear.

    
    

69. The record establishes that the following 10 "lots" were not sold as subdivided lots, but rather were sold by metes and bounds: Lot 38, Block A; Lot 41, Block A; Lot 42, Block A; Lot 48, Block A; Lot 50, Block A; Lot 51, Block A; Lot 52, Block A; Lot 41, Block B; Lot 42, Block B; and Lot 43, Block B. 0f these parcels, only Lot 41, Block B was sold prior to the dedication of the plat for Phase II on May 17, 1988.

    
    

70. At no time did either Respondent possess a valid order of registration from Petitioner or establish a valid reservation program, nor did anyone ever provide lot purchasers with any public offering statement.

    
    

    CONCLUSIONS OF LAW

    
    

71. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties. Section 120.S7tl), Florida Statutes. (All references to Sections are to Florida Statutes.)

    
    

72. Section 498.051(1)(a), (b), and (d) authorizes Petitioner to issue cease and desist orders and take certain affirmative action if Petitioner determines that a person has "violated any provision of [Chapter 498]"; "[d]irectly or through an agent or employee knowingly engaged in any false, deceptive, or misleading advertising, promotional, or sales methods to offer or dispose any interest in subdivided lands[;]" or "[disposed of any interest in subdivided lands which have not been registered with Petitioner]."

    
    

73. For purposes of Chapter 498, Section 498.004(19)(a) provides that "subdivided lands" are "[a]ny contiguous land which is divided or proposed to be divided for the purpose of disposition into 50 or more lots, parcels, units, or interests.

    
    

74. Section 498.023(1) prohibits the disposition or offer of disposition, or participation in any such disposition or offer of disposition, of subdivided lands or an interest in

    subdivided lands located in the State of Florida without possessing a valid order of registration for the offering or disposition.

    
    

75. Section 498.023(2) prohibits the disposition, or participation in the disposition, of subdivided lands or an interest in subdivided lands located in the State of Florida unless a current public offering statement is delivered to the purchaser prior to the disposition and the purchaser is given a seven-day period within which to cancel the purchase.

    
    

76. Section 498.024 allows a developer, under certain conditions, to establish a reservation program, including an escrow account. The provisions of Section 498.024 provide an alternative to the requirements of Section 498.023, but are irrelevant to this case because no reservation program was established.

    
    

77. Section 498.025(2) exempts from Chapter 498 offers or dispositions of interests in lots, parcels, or units in a "recorded subdivision plat" if various requirements are met, unless the offer or disposition is adopted for purposes of evading Chapter 498. One of the requirements is that the "subdivider is at all times prepared to convey title to the purchaser by general warranty deed unencumbered by any mortgages or other liens." Section 498.023(2)(e).

    
    

78. Petitioner must prove the material allegations against Respondent by clear and convincing evidence. Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987). However, Respondents must prove their entitlement to a statutory exception or exemption. See. e.g., In re Livingston's Estate, 172 So. 2d 619 (Fla. 2d DCA 1965): Green v. Panama City Housing Authority, 110 So. 2d 490 (Fla. 1st DCA), cert. quashed, 115 So. 2d 560 (Fla. 1959).

    
    

79. The first question is whether either or both Respondents violated Section 498.023(1) through the offer or disposition of subdivided lands without a valid order of registration. Although Respondent Cambridge Park, Inc. was the grantor of the deeds, Respondent Harrington obviously participated in the dispositions.

    
    

80. The key to liability in this case under Section 498.023(1) is whether the parcels sold qualify as "subdivided lands." The statutory definition requires at least 50 lots, although the lots may be "divided or proposed to be divided." At

    the conclusion of Phase I, only 25 lots ware divided. The only clear and convincing evidence of a proposal to divide more lots is the dedication on May 17, 1988, of the 40 lots constituting Phase II of Cambridge Park.

    
    

81. Thus, only offers or dispositions of lots taking place after May 17, 1988, constitute violations of Section 498.023tl). In the absence of clear and convincing evidence of dates on which offers were made, the determinative dates are those shown on the warranty deeds. Twenty lots were sold after May 17, 1988. Each Respondent thus committed 20 separate violations of Section 498.023(l).

    
    

82. Nothing in Associated Mortgage Investors v. Department of Business Regulation, 503 So. 2d 379 (Fla. 1st DCA 1987) compels a different method of calculating the number of lots. In Associated Mortgage, the developer had subdivided land into

    77 iota and then sold 40 lots to a builder for eventual resale and sex iota to end users. Rejecting the developer's claim that the 40-lot sale should be treated as a sale to a single purchaser, the court held that the clear "plan of disposition" referenced in Section 498.025(1)(d) required that the 40-lot sale be treated as part of a plan to sell to 40 purchasers.

    
    

83. Associated Mortgage interprets a statutory exemption. The present issue requires the interpretation of a Jurisdictional prerequisite to discipline. These are entirely different matters. There is no clear and convincing evidence that, until the offer of dedication on May 17, 1988, Cambridge Park involved more than 25 lots, which is exactly half of what is required to constitute "subdivided lands."

    
    

84. The second question is whether either or both Respondents violated Section 498.023(2) by the disposition or participation in the disposition of subdivided lands without the prior delivery of a public offering statement. For the reasons set forth above, both Respondent, disposed or participated in the disposition of lots. Given the requirement of subdivided lands," only the 20 lots sold after May 17, 1988, constitute violations.

    
    

85. The third question is whether either or both Respondents violated Section 498.051(1)(b) by knowingly engaging in any false, deceptive, or misleading advertising, promotional, or sales methods to offer or dispose of any interest in subdivided lands to the 24 lot purchasers.

86. Petitioner proved by clear and convincing evidence that serious title problems, in the form of unsatisfied undisclosed mortgages, existed in three of the transactions: Lot 54, Block A; Lot 61, Block A; and Lot 30, Block B. The apparent problem with Lot 54, Block B, for which Respondent Cambridge Park, Inc. did not acquire title until after the conveyance, is probably eliminated by application of the doctrine of after- acquired title. See. e.g., Tucker v, Cole, 148 Fla. 214, 3 So. 2d 875 (1941). As to the three transactions, the conveyance of Lot 54, Block A took place prior to the offer of dedication of Phase II; thus, the definition of "subdivided lands" was unmet at the time. The evidence is therefore insufficient to establish more than two violations by each Respondent of Section 498.0Sl(l)(b). In the offer and sale of Lot 61, Block A and Lot 30, Block B, Respondents knowingly engaged in false, deceptive, or misleading promotional or sales methods to offer or dispose subdivided lands.

    
    

87. The final question as to each of the above-described violations is whether the above-described statutory provisions apply to the offers or dispositions involved in this case. Respondent Cambridge Park, Inc. claims an exemption from these three statutory provisions, Section 498.025(2) provides:

    
    

    Unless the method of offer, disposition, or transfer is adopted for the purpose of evading this chapter, the provisions of this chapter do not apply to offers or dispositions of interests in lots, parcels, or unite contained in a recorded subdivision plat, if all of the following conditions exist:

    
    

    * * *

    
    

    e) The subdivider is at all times prepared to convey title to the purchaser by general warranty deed unencumbered by any mortgages or other liens.

    
    

88. Although other prerequisites exist to qualify for this exemption, there was no dispute concerning these requirements. Because Section 498.025(2) is an exemption, Respondents must establish the grounds for the exemption. Thus, the exemption is available for, at most, the five lots for which the evidence establishes that no title problems exist. Because all of them were sold as aubdivided lots with reference to a recorded plat,

    rather than by metes and bounds, all five lots potentially qualify for the exemption.

    
    

89. Petitioner argued that a subdlvider cannot be; prepared to convey title by general warranty deed unencumbered by mortgagee or other liens if mortgages superior to the purchase money mortgages encumber the property, even though such mortgages would be released or satisfied with the closing proceeds. It is unnecessary to adopt Petitioner's interpretation. It is sufficient to interpret the statute as allowing a subdivider to satisfy this condition by selling the lot for a price that leaves sufficient funds to satisfy or release senior mortgages within the time after closing customarily allowed to obtain and record the necessary documentation. There is considerable evidence of mortgage activity affecting all of Cambridge Park, and Respondents have failed to show that the sales proceeds from the five lots were sufficient to obtain releases or satisfactions.

    
    

90. Based on the foregoing, it is concluded that each Respondent committed 20 violations of Section 498.023(1) in the sale of Lots 38, 40, 41-42, 44, 47-48, 50-52, 57-59, and 61, Block A and Lots 30, 34, 43-44, 51, and 54, Block B; 20 violations of Section 498.023(2) in the sale of the same lots, and two violations of Section 498.051(1)(b) in the sale of Lot 61, Block A and Lot 30, Block B.

    
    

91. Section 498.051(1) provides the" Petitioner may impose a cease and desist order and "take such affirmative action as will carry out the purpose of this chapter" for any violation of Chapter 498, including false, deceptive, or misleading promotional or sales methods. Section 498.051(3) authorizes, as affirmative action, the requirement that a person notify any purchaser of subdivided land who has a rescission right that he or she may elect that right, as provided by Chapter 498, establish an escrow account to assure payment of refunds to those electing rescission or to assure the conveyance of clear and marketable title to those who do not elect to rescind.

    
    

92. As for the right to rescind, Section 498.024(5) states:

    
    

    When this chapter requires delivery of a public offering statement to the prospective purchaser . . . prior to the execution of the contract for purchase . . ., the prospective

    purchaser shall have the right of rescission for a period of 7 days from the date of delivery of the public offering statement. . .

    .

    
    

    Therefore, the purchasers of the 20 above-named iota should have been given a right to rescind.

    
    

93. Section 498.049(5) provides that each person who:

    
    

    materially participates in any offer or disposition of . . . subdivided lands in violation of this chapter . . . involving fraud, deception, false pretenses, misrepresentation, or false advertising and who . . . is a[n] officer . . . or employee of a subdivider shall also be liable under this subsection Jointly and severally with and to the same extent as the subdivider, unless that person did not know, and in the exercise of reasonable care could not have known, of the existence of the facts creating the alleged liability. Civil

    penalties shall be limited to $10,000 for each offense. . . .

    
    

94. Respondent Harrington materially participated in the offers and dispositions found to have violated the only cited provision of Chapter 498 involving fraud: i.e., Section 498.051(1)(b). For reasons already discussed, his actions are attributable to Respondent Cambridge Park, Inc. Thus, each Respondent is liable for two separate violations falling under Section 498.049(5).

    
    

95. In its proposed recommended order, Petitioner seeks civil penalties of $1000 for each violation of Section 498.023(1), $500 for each violation of Section 498.023(2), $5000 for each violation of Section 498.0Sl(l)(b) and Section 498.049(5). Petitioner also seeks payment of all sums necessary to clear the title of all 24 lot purchasers and obtain for them title insurance.

RECOMMENDATION

Based on the foregoing, it is hereby

RECOMMENDED that the Division of Florida Land Sales, Condominiums and Mobile Homes enter A final order finding each Respondent guilty of 20 violations of Section 498.023(1), 20 violations of 498.023(2), and two violations 498.051(1)(b); ordering each Respondent to cease and desist from future violations of Chapter 498; ordering Respondent Harrington to pay a fine of $20,000, subject to reduction as provided below; ordering Respondent Cambridge Park, Inc. to pay a fine of

$20,000, subject to reduction as provided belongs ordering Respondent Cambridge Park, Inc. to provide the purchasers of the

20 lots for which a public offering statement should have been provided with written notice giving them seven days from receipt to exercise their right to rescind their purchases; and ordering both Respondents to establish an escrow account to assure the payment of refunds to those 20 lot owners timely electing to rescind and the payment of such sums necessary to provide the nonelecting lot owners from among those 20 owners with clear and marketable title to their lots. Each Respondent will receive a 100% credit against his or its S20,000 fine for all moneys actually deposited into the escrow account or actually and reasonably expended in clearing the title.

ENTERED this 2nd day of October, 1991, in Tallahassee, Florida.

ROBERT E. MEALE

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalaches Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 2nd day of October, 1991.

ENDNOTE

1/ Mr. Newman testified that the money would be used to "buy back the mortgage from Chrysler Credit." Petitioner's Exhibit 1,

p. 17. Later, he testified that William Block purchased the Chrysler Credit mortgage with the proceeds from the sale of Northeast Mortgage's mortgages to third parties. Id., p. 34.

Corroborating this transaction, Petitioner's Exhibit 5 notes the recording of an assignment of mortgage from Chrysler Credit to "Black" on April 15, 1988, for Lots 1-4 and 53-61, Block A, Phase I; Lots 1-4, 34-37, and 53-56, Block B, Phase I; and an unspecified portion (possibly all) of Phase II. Mr. Newman "explained" that the purpose of this transaction "was just a way of getting a grand total of money to [Block] to disburse as we needed it."

COPIES FURNISHED:

Mark Henderson

Assistant General Counsel Department of Business Regulation The Johns Building

725 S. Bronough St. Tallahassee, FL 32399-1000

Richard H. Miller Richard H. Miller, P.A.

307 Palmetto St. Titusville, FL 32796

H. Jerry Harrington

P.O. Box 2391

Satellite Beach, FL 32937

Janet E. Ferria, Secretary Department of Business Regulation The Johna Bullding

725 South Bronough Street Tallahassee, FL 32399-loOo

Donald D. Conn, General Counsel Department of Business Regulation The Johns Building

725 South Bronough Street Tallahassee, FL 32399-1000

Henry So1ares, Director Division of Florida Land Sales,

Condominiums, and Mobile Homes Department of Business Regulation The Johns Building

725 South Bronough Street Tallahassee, FL 32399-1000

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 exception. 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: 91-000011

Orders for Case No: 91-000011