STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

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

)

Petitioner, )

)

vs. ) CASE NO. 92-3751

)

MELVIN J. POWELL, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, this cause came on for administrative hearing before P. Michael Ruff, duly-designated Hearing Officer of the Division of Administrative Hearings, in Panama City, Florida.

APPEARANCES

For Petitioner: Janine B. Myrick, Esquire

Department of Professional Regulation Division of Real Estate

Post Office Box 1900 Orlando, Florida 32802-1900

For Respondent: Melvin J. Powell, pro se

2610 Dade

Panama City, Florida 32408

5622 Thomas Drive

Panama City, Florida 32408 STATEMENT OF THE ISSUES

The issues to be resolved in this proceeding concern whether the Respondent's real estate license should be subjected to sanctions based upon charges that the Respondent committed culpable negligence or breach of trust in a business transaction and allegedly failed to account or deliver a deposit in violation of Section 475.25(1)(b) & (d)1., Florida Statutes (1991).

PRELIMINARY STATEMENT

This cause arose upon the filing of an Administrative Complaint against the above-named Respondent alleging that the Respondent committed violations of Section 475.25(1)(b) & (d)1., Florida Statutes (1991). The Respondent disputed those charges and timely requested a hearing pursuant to Section 120.57(1), Florida Statutes. In due course, the hearing was noticed and conducted in Panama City, Florida. The Petitioner presented the testimony of Thomas Newbauer, Barbara Jean Parmer, David Parmer and Paul R. Bratton. The

Petitioner's witnesses were cross-examined by the Respondent and Respondent himself testified in his own behalf. The Petitioner presented eight (8) exhibits, all of which were admitted into evidence; and the Respondent's four

1. exhibits were all admitted into evidence. At the conclusion of the proceeding, the transcript was ordered by the parties and in due course, the parties timely submitted Proposed Recommended Orders. The proposed findings of fact contained in the Proposed Recommended Orders are treated in this Recommended Order and in the Appendix attached hereto and incorporated by reference herein, in which, to the extent possible, specific rulings upon separately-identified proposed findings of fact from those Proposed Recommended Orders are made.

   
   

   FINDINGS OF FACT

   
   

   1. The Petitioner is an agency of the State of Florida charged with the responsibility to license and regulate the licensure standards of real estate brokers and salespersons in the State of Florida and with prosecuting Administrative Complaints against the licensure status of those persons for alleged violations of the various provisions of Chapter 475, Florida Statutes (1991), and the rules promulgated thereunder.

      
      

   2. The Respondent at all times material hereto was a real estate broker- salesperson operating and licensed in the State of Florida having been issued license number 0162601. The last license issued the Respondent was effective on September 30, 1991 and accorded him the status of a "non-active broker" with an address at 5622 Thomas Drive, Panama City, Florida 32408.

      
      

   3. In 1987, Barbara Jean Parmer, also known as Barbara Jean Withers (hereafter Barbara Parmer), responded to a newspaper ad and rented a residential property from the Respondent. She gave the Respondent a damage deposit of approximately $395.00. Subsequent to renting the property, she expressed an interest in buying it from the Respondent and was advised by the Respondent that she could seek financing from his lender or she could make payments directly to the Respondent; and when he was fully paid, he would transfer the deed to her and pay off the existing first mortgage. This was the first occasion she had ever attempted to purchase a home.

      
      

   4. The Respondent told Barbara Parmer that the existing mortgage balance was $29,000.00 and that to sell her the property, he wanted a $5,000.00 down payment and $12,000.00 in "rent" for a total sales price of $46,000.00. In effect, the so-called payments would be payments toward purchase of his equity in the home.

      
      

   5. On October 9, 1987, the Respondent and Barbara Parmer executed a "Receipt for Deposit-Offer to Purchase-Contract for Sale" (contract) reflecting a $5,000.00 earnest money deposit for property located at 335 Gardenia Street, Panama City, Florida. On that day, Barbara Parmer gave the Respondent check number 108 for $5,000.00 as the down payment on the house. He cashed that check on October 12, 1987.

      
      

   6. The Respondent drafted the contract at issue and did not advise Barbara Parmer to have an attorney review the document. Barbara Parmer testified that she trusted the Respondent, in effect, because he was a real estate licensee. When she signed the contract and gave the earnest money deposit or down payment, she understood that she was contracting to purchase the property from the Respondent.

   7. Sometime after signing the contract and the tendering of the earnest money deposit, Barbara Parmer (then Withers) married David Parmer.

      
      

   8. Subsequent to the signing of the contract and the payment of the earnest money deposit, the Respondent advised the Parmers that he was getting divorced. He told them he did not want his wife to gain possession of the property and so suggested that Barbara Parmer go to Sun Bank to have the property transferred into her name, in other words, by re-financing the house with Sun Bank and thus paying off the existing first mortgage and any equity still owed the Respondent. After the Respondent told the Parmers about his impending divorce, Mr. Parmer asked the Respondent to return the $5,000.00 earnest money deposit. The Respondent advised that if he sold the house, he would return the deposit, which was being held in an account drawing interest, according to the Respondent. He also represented that he would not refund any of the money expended by them for improvements because he had not requested that any of the improvements be made. He had apparently taken the position in entering the arrangement with Barbara Parmer that it was a sale of the property under a "contract for deed" arrangement whereby title would pass only after his purchase price had been paid.

      
      

   9. In any event, Barbara Parmer went to Sun Bank and was advised by Loan Officer, Cindy McNeal, that the documents entered into between Barbara Parmer and the Respondent regarding purchase of the property were legally flawed in the opinion of Ms. McNeal and that Barbara Parmer should seek an attorney's advice. Sun Bank declined to refinance the property because Mr. Parmer was then unemployed due to an accident and was only receiving income from worker's compensation and no salary. After the conversation with the representative of Sun Bank, Barbara Parmer called Great Western, the holder of the first mortgage executed by the Respondent, to inquire as to the balance due on that first mortgage. Barbara Parmer received a document from Great Western dated November 13, 1990 indicating that the balance on the mortgage was approximately

      $33,000.00. In 1987, when she contracted with the Respondent to purchase the property, the Respondent had told her that the balance was approximately

      $29,000.00. The first mortgage was apparently an adjustable rate mortgage and either the represented $29,000.00 figure was inaccurate or the mortgage was in negative amortization or both. The Respondent never advised the Parmers of any negative amortization situation.

      
      

   10. Between October 9, 1987 and March or April of 1991, Barbara Parmer paid the Respondent between $400.00 and $500.00 per month toward purchase of the property. The checks for the monthly payments were payable to Respondent Melvin

       J. Powell and were negotiated by Powell. At the direction of the Respondent, the payments were made at the office of Sun Spot Realty. During this time, the Respondent's licensure was located and registered with Sun Spot Realty.

       
       

   11. The variation in the monthly payment was because the Respondent advised Barbara Parmer that the monthly payment on the first mortgage held by Great Western was $200.56 and that anything she paid over that amount would go toward the $12,000.00 equity she owed the Respondent pursuant to their agreement. Some months she paid different amounts over and above the amount represented by the monthly payment on the Great Western first mortgage.

       
       

   12. The Respondent gave Barbara Parmer a ledger sheet showing the dates she made payments on the property, the amount that went to Great Western to retire the first mortgage, and the amount that went to the Respondent toward the

       $12,000.00 second mortgage representing his equity, as well as the amounts contributed to interest, taxes, and insurance.

   13. During the approximately three and one-half years that she lived in the house, she made improvements to the property, including but not limited to: landscaping the front and back yards, pouring a foundation, erecting a metal shed, repairing the roof, painting the interior and exterior, replacing the walls and floor in the bathroom, wallpapering and finishing the kitchen, and installing a new dishwasher and a new hot water heater.

       
       

   14. Respondent never expended any funds for upkeep of the property during the time the Parmers occupied the house. The Parmers spent at least $5,000.00 on improvements to the property they were purchasing from the Respondent. The Respondent told them then to make whatever improvements they wished because the house was theirs. The Parmers would not have spent the money on the improvements had they not believed that they were purchasing the property.

       
       

   15. After attempting to obtain financing from Sun Bank, Barbara Parmer contacted Attorney Glenn Hess, who sent a letter to Respondent's counsel regarding Barbara Parmer's concerns. Prior to seeing Attorney Hess, the Respondent had admonished Barbara Parmer not to see an attorney, that the matter could be settled amicably between them, and he threatened to sue her if she did contact an attorney about her concerns. The Respondent told Mr. Parmer that Barbara Parmer had a legal contract to purchase the property and warned against them seeking legal advice by threatening to sue them for breach of contract if they did so. Attorney Hess advised Barbara Parmer that it would be uneconomical to file a lawsuit against the Respondent. Despite demand for return of the earnest money deposit, the Respondent never returned the deposit nor did he ever compensate the Parmers for the funds they expended on improvements to the property. They vacated the property on advice of their attorney.

       
       

   16. The Respondent never gave notice to the Parmers that he was claiming any of their funds for damage to the property or for breach of contract. When they vacated the property, there was no damage to the property other than a five-inch hole in one bedroom wall. Within two months of the Parmers moving out, the Respondent rented the property to another tenant for almost $100.00 per month more than the Parmers had been paying.

       
       

   17. On the advice of Attorney Hess, the Parmers filed a complaint against the Respondent with the Bay County Board of Realtors, Inc. Thomas S. Newbauer has been a licensed real estate broker since 1973 and serves as chairman of the Professional Standards Committee (hereafter Committee) of the Bay County Board of Realtors. The Committee hears cases and renders decisions on allegations of violations of the Board of Realtors' code of ethics.

       
       

   18. In September, 1991, Mr. Newbauer served as a member of the panel appointed by the Committee in considering the complaint filed by the Parmers against Respondent. A hearing was held by the appointed panel to consider the complaint filed by the Parmers against the Respondent. The Respondent was notified of the hearing and appeared and testified. On September 30, 1991, the ethics hearing panel of the Committee filed a decision regarding the Parmer complaint against the Respondent and determined that the Respondent had violated three articles of the realtor code of ethics and further that there might be grounds for investigation by the Florida Department of Professional Regulation.

       
       

   19. On October 1, 1991, Mr. Newbauer sent a letter to the Board of Directors of the Board of Realtors informing them of the determination of the panel of the Committee. The determination by the panel that the Respondent had violated the code of ethics was upheld by the Board.

   20. Paul R. Bratton, III has been a real estate investigator with the Department of Professional Regulation for some nine years. The Respondent told Mr. Bratton that he had kept the $5,000.00 earnest money deposit because the Parmers had breached the contract.

       
       

       CONCLUSIONS OF LAW

       
       

   21. The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. Section 120.57(1), Florida Statutes (Supp. 1992).

       
       

   22. Section 475.25, Florida Statutes (1991), provides inter alia, that the Florida Real Estate Commission may impose probation, suspension, revocation, or an administrative fine not to exceed $1,000.00 for each count or separate offense and may issue a reprimand or any or all of the foregoing when a licensee has violated Section 475.25, Florida Statutes.

       
       

   23. Section 475.25(1)(b), Florida Statutes, proscribes fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence or breach of trust in any business transaction.

       
       

   24. Section 475.25(1)(d)1., Florida Statutes (1991), proscribes, inter alia, failure to account or to 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, fund, deposit, 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.

       
       

   25. The Respondent claims exculpation from liability on the theory that he acted as a principal in dealing with his own property in the subject transaction and not as a registered real estate broker. He cannot thus avoid liability, however. "A registered real estate broker may be disciplined not only for dishonest conduct in transactions in which his only interest is as a broker, but also for such conduct in his own personal business affairs. Section 475.25(1)(b), Florida Statutes (1981)." LaRossa v. Department of Professional Regulation, Division of Real Estate, 474 So.2d 322, 324 (Fla. 3rd DCA 1985). In that case, the broker involved was engaged in a personal business transaction with a family member. In the case at bar, the Respondent solicited Barbara Parmer through an advertisement in a newspaper. Prior to that time, she was unknown to him. Even if this transaction was a personal business deal, Barbara Parmer at crucial times placed trust in the Respondent's status as a real estate licensee. She did not initially seek independent legal counsel because of this, allowed the Respondent to draft the contract, gave him the $5,000.00 earnest money deposit, and accepted his representation as to the correctness of the amortization schedule and mortgage balance.

       
       

   26. The Hearing Officer's function in proceedings such as this is to consider all evidence presented, resolve conflicts in it, determine the credibility of witnesses, and arrive at permissible inferences from the evidence, reaching ultimate findings of fact based upon competent, substantial evidence. State Beverage Department v. Ernal, Inc., 115 So.2d 566 (Fla. 3rd DCA 1959); Heifetz v. Department of Business Regulation, 475 So.2d 1277, 1281 (Fla. 1st DCA 1985). In this regard, it is noted that the Respondent testified under oath that his agreement with the Parmers was in the nature of a lease. He

       testified alternatively, however, that the agreement was a contract for purchase of the property that at some time became "null and void", as he put it, as a result of actions by the Parmers. He then testified that the $5,000.00 earnest money deposit was used to make repairs to the property when the Parmers moved out, yet when the Parmers demanded return of the earnest money deposit, the Respondent informed them that it would be returned, although only upon the sale of the property. He also testified that his keeping of the $5,000.00 earnest money deposit was justified since the contract was "null and void". He later testified, however, that the contract was "open" and that the Parmers could purchase the property at any time. Thus, Respondent's testimony was conflicting and contradictory and cannot be accorded sufficient credibility to be considered competent, substantial evidence.

       
       

   27. In analyzing the rights and responsibilities of the Respondent and the purchasers concerning the subject transaction, as defined by the above Findings of Fact, it is critical to point out initially that the Respondent was in no trust relationship as a broker with the purchaser, Mrs. Parmer. This is because the Respondent was dealing with his own personal property, renting the premises and later selling the premises to Barbara Parmer. In conducting this transaction, the Respondent was acting as the seller and conducting himself from the seller's viewpoint and was in no way a "stakeholder" or third party broker/escrow agent. Thus, while it is true that the law, as expressed in the LaRossa decision, supra., and others, is that a registered broker may be disciplined for dishonest or other reprehensible conduct in transactions conducted on his own personal account and not merely where he is acting as a broker or salesman, the facts of the instant case do not establish that he occupied the position of an escrow agent and broker in a trust relationship with the purchaser, such that he was required by the above-cited statute to properly account for and deliver to a person entitled to them the "earnest money" funds paid to him by Barbara Parmer.

       
       

   28. The case of Fleischman v. Department of Professional Regulation, 441 So.2d 1121 (Fla. Appeals 3rd Dist. 1983), stands for the proposition that a real estate licensee cannot be disciplined for failure to return a deposit in a proposed deal which involved his own property, as the deposit is in no sense "escrowed property", as contemplated by Section 475.25(1)(d), Florida Statutes. The term "escrowed property" as used in that statute refers to property placed with a stakeholder or third party not involved in the transaction itself. The court held that discipline under that statute can only be imposed for the refusal of a licensee to account for and return property held in trust or escrow in his professional capacity. Here, the broker/Respondent was not acting in his professional capacity but rather dealing on his own personal account as a mere seller of the property in question. Consequently, the funds he received from Barbara Parmer, the $5,000.00 "earnest money" deposit or down payment, was received as a seller and not as an escrow agent and broker for another person. Thus, it cannot be concluded that the statute referenced last above has been violated, since the funds were not the proper subject of an escrow account and accounting nor were they deposited with the Respondent in a trust relationship and arrangement.

       
       

   29. Although the question, of course, arises as to who was entitled to the

       $5,000.00 down payment or earnest money funds upon the failure of the subject sale to ultimately close, and title pass to Barbara Parmer, any disputes concerning the proper ownership of that $5,000.00 sum involve construction of the contractual rights of the parties which is the proper province of the civil courts. Even it be ultimately determined that the Respondent was obligated to return the $5,000.00 or pay damages with regard to his improperly withholding

       repayment of the same, that is a matter to be determined in a civil proceeding before the appropriate court and is not the proper subject of disciplinary action by a regulatory agency, such as the Petitioner. Thus, for these reasons and based upon the holding in the Fleischman case, it cannot be determined that the Respondent violated Section 475.25(1)(d), Florida Statutes.

       
       

   30. Section 475.25(1)(b), Florida Statutes (1991), proscribes fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme, or device, culpable negligence or breach of trust in any business transaction. The competent, credible evidence of record culminating in the above Findings of Fact establishes that the Respondent committed a misrepresentation when he sold the property to Barbara Parmer for the $5,000.00 down payment and her assumption of payments on the first mortgage. In the process of that transaction, he represented the first mortgage balance to be $29,000.00 and represented to her that her payments thereon, at the amount found above, would reduce the principal amount of the first mortgage so that, after a time certain, the first mortgage would be totally retired and she would obtain title to the property. In fact, she paid on the first mortgage, and the Respondent's second mortgage, for in excess of three years at the end of which period of time the first mortgage balance was actually approximately $33,000.00. Therefore, either the Respondent misrepresented that the principal balance of the first mortgage was $29,000.00 on the point of the closing of the contract or the Respondent misrepresented the fact that the mortgage, at the payment rate he required of Barbara Parmer was being negatively amortized, or he misrepresented as to both factors affecting the balance on the first mortgage and, therefore, the term after which the first mortgage would be retired and title could pass to Barbara Parmer. She relied on that representation in agreeing to enter into the transaction represented by the contract because she was of the belief that if she did so, at a time certain she would have totally paid off the first mortgage and, upon paying off the second mortgage in conjunction therewith, would obtain title to the property.

       
       

   31. "Culpable negligence" has been defined as "that reckless indifference to the rights of others which is equivalent to an intentional violation of them". Jackson v. State, 100 So.2d 839, 840 (Fla. 1st DCA 1958). In construing Section 475.25(1)(b), Florida Statutes, the courts have defined the requirements of a real estate broker and stated, "the statute is not ambiguous, and the words used therein must be construed according to their usual and natural meaning. It requires nothing more of a real estate dealer or broker than an honest, open and fair relationship with his clients, such as is normally expected of a businessman of sound integrity". Rivard v. McCoy, 212 So.2d 672, 674 (Fla. 1st DCA 1968). In view of the opinion in LaRossa v. Department of Professional Regulation, Division of Real Estate, 474 So.2d 322, 324 (Fla. 3rd DCA 1985), applying the principle that a broker may be disciplined not only for improper conduct in transactions in which his interest is as a broker but also in instances of such conduct exhibited in the conduct of his own personal business affairs, these standards expressed by the courts as to the conduct for brokers, in terms of the expression of a standard of honest, open and fair dealing expected of brokers, are equally applicable to the instant situation where the Respondent broker was conducting business on his own personal account.

       
       

   32. The unrebutted, competent evidence of record, evinced by the above Findings of Fact, shows that, in terms of the representations the Respondent made at various times to Barbara Parmer and also Mr. Parmer, knowing that the Parmers were relying on his expertise and experience as a broker and were unrepresented, was culpably negligent in the manner in which he conducted the transaction with regard to the representations made concerning the first

mortgage balance and the manner and means by which it would be amortized by Barbara Parmer, as well as the use and disposition he represented would be made of her $5,000.00 down payment and the conditions upon which she could expect return of that sum. Accordingly, it has been established that the Respondent has committed a violation of Section 475.25(1)(b), Florida Statutes, in terms of having committed a misrepresentation, as well as culpable negligence, in the business transaction involved in this proceeding and delineated in the above Findings of Fact.

RECOMMENDATION

Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, and the pleadings and arguments of the parties, it is

RECOMMENDED that the Respondent be found guilty of having violated Section 475.25(1)(b), Florida Statutes, and that his Florida real estate license be suspended for a period of one year, that he be accorded a formal written reprimand, that he complete 60 hours of post-licensure continuing education for brokers within three years from the date of the Final Order entered in this cause, and that he pay a fine of $1,000.00 to the agency within 30 days of the filing of the Final Order in this cause.

DONE AND ENTERED this 13th day of May, 1993, in Tallahassee, Florida.

P. MICHAEL RUFF 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 13th day of May, 1993.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-3751

Petitioner's Proposed Findings of Fact

1-46. Accepted.

Respondent's Proposed Findings of Fact

The Respondent filed no separately-stated findings of fact but rather a one-page "Proposed Recommended Order" merely stating the conclusions that the Respondent was not guilty of the charges in Counts I and II of the Administrative Complaint and the statutes he was charged with violating.

COPIES FURNISHED:

Ms. Darlene F. Keller Division Director

Department of Professional Regulation Division of Real Estate

P.O. Box 1900

Orlando, FL 32802-1900

Jack McRay, Esq.

General Counsel

Department of Professional Regulation 1940 North Monroe Street

Tallahassee, FL 32399-0792

Janine B. Myrick, Esq.

Department of Professional Regulation Division of Real Estate

Post Office Box 1900 Orlando, FL 32802-1900

Melvin J. Powell 2610 Dade

Panama City, FL 32408

Melvin J. Powell 5622 Thomas Drive

Panama City, FL 32408

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit to the agency written exceptions to this Recommended Order. All agencies allow each party at least ten 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: 92-003751

Orders for Case No: 92-003751