STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BANKING AND ) FINANCE, DIVISION OF FINANCE, )

)

Petitioner, )

)

vs. ) CASE NO. 94-2065

) NATIONAL MORTGAGE BANKERS, ) INC., )

)

Respondent. )

) NATIONAL MORTGAGE BANKERS, ) INC., )

)

Petitioner, )

)

vs. ) CASE NO. 94-2066

) DEPARTMENT OF BANKING AND ) FINANCE, DIVISION OF FINANCE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, final hearing in the above-styled case was held on September 9 and 26, 1994. The parties, attorney, witnesses, and court reporter attended the hearing in Ft. Myers on September 9. The parties, witnesses, and court reporter attended the hearing in Tampa on September 26. Robert E. Meale, Hearing Officer of the Division of Administrative Hearings, participated by videoconference from Tallahassee on both dates, and Attorney Susan E. Steinberg participated by videoconference from Tallahassee on September 26.

APPEARANCES

The parties were represented at the hearing as follows:

For Department Susan E. Steinberg

of Banking Assistant General Counsel and Finance: Office of the Comptroller

1313 Tampa Street, Suite 615

Tampa, Florida 33602-3394

For National Sheldon Voron Mortgage 775 Tamiami Trail

Bankers, Inc.: Port Charlotte, Florida 33953

STATEMENT OF THE ISSUE

The issue in Case No. 94-2065 is whether National Mortgage Bankers, Inc. violated certain disciplinary proceedings governing mortgage brokers and, if so, what penalty should be imposed. The issue in Case No. 94-2066 is whether National Mortgage Bankers, Inc. is entitled to licensure as a correspondent mortgage lender.

PRELIMINARY STATEMENT

By Administrative Complaint for Order to Cease and Desist, Refund Order, Imposition of Administrative Penalties and Notice of Rights dated February 28, 1994, the Department of Banking and Finance, Division of Finance, alleged that National Mortgage Bankers, Inc. was licensed as a mortgage lender, but operated solely as a mortgage brokerage business.

The Administrative Complaint alleges that National Mortgage Bankers, Inc. failed to disclose in writing, prior to accepting an application, that National Mortgage Bankers, Inc. could not make mortgage loans or commitments and could not guarantee acceptance into any particular loan program or promise any loan terms or conditions; failed to disclose, at the time of the application, the nature of the mortgage brokerage fee arrangement, which varied according to the terms of the loan; received third party fees and/or refundable application fees from borrowers; failed to maintain an updated and accurate record of escrow account activity on appropriate forms as it did not record check numbers for checks used to disburse third party fees to vendors; failed to keep supporting documentation for expenses or fees paid by National Mortgage Bankers, Inc. on behalf of clients; failed to keep a journal of mortgage brokerage transactions on appropriate forms as it failed to record when the client applied for the mortgage loan, the date of disposition, the total amount of brokerage fee, and the name of the lender; transferred monies from its escrow account to its general operating account without proper documentation; failed to maintain the required net worth, as of February 12, 1993; and failed to cease business and timely notify the Department in writing of receipt of its audited financial statement indicating that its net worth had fallen below minimum requirements.

On June 27, 1994, the Department filed a Motion to Amend the Administrative Complaint, which was granted. The Amended Administrative Complaint adds the allegations that, from November 1993 through March 1994, the Department received numerous consumer complaints about National Mortgage Bankers, Inc. The alleged complaints were that National Mortgage Bankers, Inc. failed to close loans within the promised time period; employees of National Mortgage Bankers, Inc. repeatedly asked for documents from customers who had already provided them to the company; employees of National Mortgage Bankers, Inc. failed to return telephone calls; National Mortgage Bankers, Inc. created a potential lien against the property of an applicant without authorization; and National Mortgage Bankers, Inc. demanded payment of a mortgage brokerage fee prior to obtaining a loan commitment or closing the loan. The Amended Administrative Complaint alleges that Sheldon Voron authorized and instructed his employees to conduct themselves in the manner described in this paragraph and such conduct caused financial losses to the customers of National Financial Mortgage, Inc.

Based on the allegations contained in the Amended Administrative Complaint, the Department alleged that National Mortgage Bankers, Inc. violated Sections 494.0038(2)(a) and 494.0072(2)(p) by failing timely to make the disclosures required by Section 494.0038(2)(a) and (b); Sections 494.0038(1)(b) and 494.0072[2](j) and (p) and Rule 3D-40.008(1) by failing to disclose specifically

to the borrower the nature of the fee arrangement; Sections 494.0016(4), 494.0038(5), and 494.0072(2)(j) and (p) by failing to maintain an accurate record of escrow account activity on the appropriate form; Sections 494.0016(4), 494.0037(1), (3), and (4), and 494.0038(5), 494.0072(2)(j) and (p)

and Rules 3D-40.175 and 3D-40.260(5) by failing to maintain supporting documentation for all expenses paid on behalf of clients; Sections 494.0016(4) and 494.0072[2](j) and (p) and Rules 3D-40.177 and 3D-40.265(4) by failing to maintain a current mortgage brokerage transaction journal in an appropriate format; Sections 494.0038(2)(c) and 494.0072(2)(b), (f), (g), (h), (j), and (p) and Rules 3D-40.156 and 3D-175 by failing timely to refund amounts collected in excess of the actual cost for third party fees and by transferring excess escrow funds into the general operating account; Sections 494.0061(1)(c) and 494.0072(2)(j) and (p) and Rule 3D-40.250(1)(a) and (3) by failing to cease business and notify the Department in writing that National Mortgage Bankers, Inc. failed to maintain the minimum net worth of $250,000; Section 494.0072(2)(b) by committing fraud, misrepresentation, deceit, negligence, or incompetence in a mortgage financing transaction; Section 494.0072(3) because National Mortgage Bankers, Inc. is subject to disciplinary action under Section 494.0072(1) for violations of Section 494.0072(2) by its officers or employees; and Section 494.0072(4) because Sheldon Voron and other employees are subject to disciplinary action under Section 494.0072(1) for violations of Section 494.0072(2).

Based on the foregoing alleged violations, the Amended Administrative Complaint specifically requests a cease and desist order under Section 494.0014(1); the imposition of one or more of the penalties described in Section 494.0072(1) due to the violation of Section 494.0072(2); the imposition of an administrative fine of $500 under Rule 3D-40.156(3) for the failure to comply with Rule 3D-40.156; the imposition of an administrative fine of $300 under Rules 3D-40.17[5](a) and 3D- 40.260(8)(a) for numerous instances of incomplete files and missing documentation; and the imposition of an administrative fine of $500 under Rules 3D-40.177(4) and 3D-40.265(6) for the failure to maintain a current transaction journal. The Amended Administrative Complaint also requests generally an order requiring National Mortgage Bankers, Inc. to refund all sums improperly withdrawn from the escrow account and the imposition of other administrative penalties, including fines of $5000 per each count or separate offense, against National Mortgage Bankers, Inc., as well as Sheldon Voron and other individuals who were not parties to the present case.

By letter dated March 2, 1994, the Department of Banking and Finance, Division of Finance, informed National Mortgage Bankers, Inc. that its application for licensure as a correspondent mortgage lender was denied. Citing Section 494.0062(2), the letter states that Case No. 94-2065 involves allegations of fraud, dishonest dealing, or other acts of moral turpitude against National Mortgage Bankers, Inc.

By Petition for Formal Proceeding filed March 31, 1994, National Mortgage Bankers, Inc. admitted that the allegations in Case No. 94-2065 involved fraud, dishonest dealing, or other acts of moral turpitude. The petition requests a formal hearing after the resolution of Case No. 94-2065.

The cases were consolidated. At the final hearing, the Department called eight witnesses and offered 34 exhibits into evidence. National Mortgage Bankers, Inc. called one witness and offered one exhibit into evidence. All exhibits were admitted into evidence.

After the commencement of the final hearing, on September 21, 1994, the Department filed a Motion to Amend Denial Letter of Correspondent Mortgage Lenders's License Application. The motion was denied as untimely.

The transcript was filed October 21, 1994. The Department filed a proposed recommended order. All of the Department's proposed findings are adopted or adopted in substance, except for those contained in paragraph 7, which is rejected as unsupported by the appropriate weight of the evidence.

FINDINGS OF FACT

1. As of September 3, 1992, the Department of Banking and Finance, Division of Finance (Department), issued a mortgage lender's license to National Mortgage Bankers, Inc. (NMB).

   
   

2. At all material times, NMB acted as a mortgage broker, not a mortgage lender. NMB originated mortgaged loans, which were funded by third parties. NMB's principal place of business was in Pt. Charlotte.

   
   

3. At all material times, Sheldon Voron was employed as the chief executive officer of NMB.

   
   

4. Business was slow for NMB during the first few months after it acquired its mortgage lending license. NMB was operated by Mr. Voron, who supervised loan officers and the processing of loan applications, and Mark Asciutto, who handled bookkeeping, payroll, and the checking accounts, including the escrow account. Mr. Asciutto left the company in September 1993.

   
   

5. By the end of 1992, the net worth of NMB was $89,115.23, according to an audited financial statement issued on February 12, 1993. The net worth deteriorated during 1993, dropping to $63,533 by December 31, 1993, according to an audited financial statement issued on March 7, 1994. At no time did NMB ever advise the Department that its net worth was below $250,000.

   
   

6. In early 1993, business picked up from late 1992, and NMB hired a second loan processor. Refinancing activity in early 1993 required that NMB continually add new help. At this time, the approval of uncomplicated conventional loan applications took 30-45 days, and the operation ran smoothly.

   
   

7. But business continued to increase. From March to June, NMB opened up offices in Naples and Sarasota. A branch in office in Englewood was opened and quickly closed due to its proximity to other offices.

   
   

8. By April, the volume of business at NMB was increasing rapidly, aided in part by the addition of government loans. An average of 75 cases monthly during the first three months increased to 125 cases in April. Employing four to five loan processors, NMB continued to hire additional employees, but soon had problems finding qualified persons, as competition in the lending business was increasing due to considerable refinancing activity.

   
   

9. Mr. Asciutto handled the escrow account during these busy months, until another employee assumed these duties in late July or August 1994. Mr. Asciutto routinely transferred money from the escrow account to the general operating account when Mr. Asciutto determined that NMB was entitled to retain the money, such as when customers had not been responsive to inquiries from NMB employees.

   The only such transfer for which a specific amount was identified at the hearing was $860, which was swept from escrow to general operations by check dated April 16, 1993.

   
   

10. As is obvious from the trend in net worth, profitability did not increase in direct proportion to increases in business volume. In fact, total income increased from $82,716.01 in 1992 to $556,907 in 1993, but net income increased only from $30,714.88 to $43,528. NMB simply could not keep up with the business, as is evidenced by the experiences of its customers.

    
    

11. In July 1993, William Zinser read an NMB advertisement in the newspaper offering an adjustable mortgage rate and a low fixed-rate mortgage. He called the number and set up an appointment to visit the office.

    
    

12. He met with an employee of NMB, who discussed interest rates and closing fees. She assured Mr. Zinser that it would take only about 30 days to close the loan. Mr. Zinser submitted a loan application, and the employee said NMB would be back in touch with him.

    
    

13. Mr. Zinser waited three or four weeks and heard nothing. He called and was told that there were no problems. On two or three occasions, an NMB employee requested from Mr. Zinser a profit and loss statement or a verification of his wife's income. However, NMB had the wife's income information since the start of the loan application process and twice had received the profit and loss statements.

    
    

14. On January 4, 1994, Mr. Zinser applied for a loan with another lender. Shortly thereafter, an NMB employee called him and said that his loan was approved. When he said that he had gone elsewhere, she reminded him that he had obligated himself to pay a $1250 fee in connection with the loan. He refused to pay.

    
    

15. On or about July 15, 1993, Janice Hamann first contacted NMB about refinancing her home. She applied for a mortgage, and an NMB employee asked for more information. She supplied it the following day, and the employee said everything was fine. The employee said that it would probably take 4-6 weeks to close.

    
    

16. On August 13, 1993, Ms. Hamann called NMB to check on the status of the loan application. An NMB employee said that they would probably close when she returned from a week's vacation.

    
    

17. On August 23, Ms. Hamann called and was told to provide some additional information on her payment history. She provided the requested information by September 20. For a second time, she had to provide verification of her husband's employment.

    
    

18. On September 18, Ms. Hamann received notification from her homeowner's insurer that they had changed her insurance, evidently to show a new loss payee. No one from NMB had told her that the loan was ready to close.

    
    

19. A couple of months later, surveyors showed up and surveyed the property that was to have been the subject of the loan and additional property. Ms. Hamann called NMB and informed them of the mistaken inclusion of additional property.

20. On November 22, Ms. Hamann called NMB and said that she wanted her paperwork and was withdrawing her application. Ten days later, someone from NMB called her and said they were ready to close. Ms. Hamann restated her demand for her paperwork and refused to close. A few days later, she received a letter demanding $1500 in addition to the $300 that she had paid for the credit check, survey, and appraisal. She still receives bills from the surveyor.

    
    

21. On September 9, 1993, Richard Chadbourne contacted NMB about refinancing a mortgage. At the first office visit, he completed an application and delivered a check to NMB in the amount of $300. An NMB employee said they would contact him for more information and said it would take 30-45 days to close his loan.

    
    

22. At the first meeting, Mr. Chadbourne stated that he wanted the 3.259 percent variable rate mortgage with a six point cap, which NMB was offering. An NMB employee said that they could get him a 3.375 percent rate.

    
    

23. On the one or two occasions that NMB contacted Mr. Chadbourne for more information, he provided it to them immediately. Repeated calls to NMB by Mr. Chadbourne or his agent were never returned. No one from NMB ever called Mr. Chadbourne to tell him whether his loan was approved or denied, and he never withdrew his application.

    
    

24. On September 10, 1993, Katherine Healey and her husband visited the NMB office to apply for a refinancing loan. Responding to a newspaper advertisement for a 3.375 percent interest rate, the Healeys learned that they would have to pay $1250 in fees to obtain such a low rate. They agreed to pay the sum. They were asked only for salary information and certain documentation concerning their liabilities. An NMB employee said they could lock in the quoted rate when they returned from vacation in a couple of weeks.

    
    

25. After returning from vacation, the Healeys called NMB repeatedly, but often could not find anyone to speak to or to return their calls. When they finally talked to someone about their loan, they were told they had to pay another $100 or $150 to lock in at 3.375 percent.

    
    

26. They continued calling NMB without much success for two months after returning from vacation. They could not get a closing date, and nothing was happening. In response to their repeated requests to lock in an interest rate, they were told only that they could not lock in until two weeks before closing. By the end of November, the Healeys applied elsewhere for a refinancing loan.

    
    

27. Shortly after the Healeys applied elsewhere for a loan, which closed about three weeks later, they received a call from an employee of NMB, who told them that they had a closing date. They said that they had decided to obtain a loan elsewhere.

    
    

28. The employee demanded the $1250 fee, which the Healeys had not yet paid, and threatened to sue them if they did not pay. The Healeys refused to pay the fee and were able to use the appraisal, for which they had already paid, with their new application. However, they had to pay for a second credit report.

    
    

29. In November 1993, Wendy Harrison contacted NMB for two mortgages--one on a home in Massachusetts and one on a home in Punta Gorda. She filed mortgage applications on or about December 15, 1993, but, by mutual agreement, she withdrew her application on the Florida home.

30. Ms. Harrison subsequently left several telephone messages that were not returned. In January, she was assigned a new loan processor, who still did not return calls. Around this time, Ms. Harrison's husband received a notice from the mortgagee on the Florida property concerning a payoff amount. The Harrisons contacted NMB and told them that this was the wrong property.

    
    

31. Mortgage rates began to increase in January. Ms. Harrison called repeatedly on the status of her mortgage refinancing from mid-January to mid- March. A new person assumed loan processing duties on her file. She called Ms. Harrison on or about March 9 and said that the credit report raised some problems. This was the first time either Mr. or Ms. Harrison had been told that there were problems with the credit report, which NMB had received in late December. Ms. Harrison mailed the requested explanatory documents on the following day.

    
    

32. Two weeks later, after hearing nothing, Ms. Harrison called NMB and learned that the interest rate would be 8 percent annually, which was higher than the rate in effect when she initiated the loan approval process. The NMB employee explained that the higher rate was due to the fact that the Massachusetts property was a rental property, but NMB employees had known that from the start. However, the NMB employee assured Ms. Harrison that the file was complete and being forwarded to Miami for final approval.

    
    

33. The following day, Ms. Harrison sent a certified letter withdrawing the application and asking for the appraisal and any other services for which she had already paid. NMB received the letter on March 26.

    
    

34. On April 5, Ms. Harrison found in her mailbox an unstamped, uncancelled envelope that had evidently been hand- delivered by an NMB employee or agent. Inside was a rejection letter backdated to March 23, so as to look like the Harrison application had been rejected before it was withdrawn.

    
    

35. Based on customer complaints, the Department financial examiner conducted an unannounced inspection of NMB from November 15-17, 1993. In addition to discovering a violation of the minimum net worth requirement imposed upon mortgage lenders, the examiner found several violations of requirements imposed upon mortgage brokers.

    
    

36. At no time did NMB disclose in writing that it could not guarantee acceptance into a particular loan program and could not promise any specific loan conditions or terms.

    
    

37. When taking applications, NMB failed to disclose the nature of the mortgage brokerage fee charged by NMB. The fee varied according to the terms of the loan, and NMB only disclosed a broad range of fees at the time of the application.

    
    

38. NMB received monies from customers, but did not record check numbers for checks used to pay vendors on behalf of specific customers. NMB thereby failed to maintain an updated record of escrow account activity on an appropriate form. In fact, NMB had the Department-promulgated form, but, as discussed below, used it improperly to try to record mortgage brokerage transactions.

39. NMB did not maintain supporting documentation for monies paid from its escrow account on behalf of customers. NMB often used courier prepayments to pay unrelated expenses. NMB did not record the dates and amounts paid out of escrow.

    
    

40. NMB maintained a mortgage brokerage transaction journal, but it lacked the date the customer applied for the mortgage loan, the date of disposition of the application, the total amount of brokerage fees, and the name of the lender. NMB used the Department-promulgated form for escrow account activity and tried to adapt it for mortgage brokerage transactions, but failed to include the

    above-cited crucial items of information.

    
    

41. Concerning NMB's application for a correspondent mortgage broker's license, there is evidence, in at least one case, of fraud or deceit. Ms. Harrison, who was very credible, described an act of fraud or dishonest dealing in the postdating and delivery of her rejection letter. The atmosphere of incompetence and neglect that prevailed at NMB might well have left a typed letter unmailed for days or even weeks. However, an employee or other agent committed a wilful act of deceit in driving the letter out to Ms. Harrison's home and leaving it in the mailbox, rather than simply dropping it in the mail.

    
    

    CONCLUSIONS OF LAW

    
    

42. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties. Section 120.57(1), Florida Statutes. (All references to Sections are to Florida Statutes.)

    
    

43. The Department is authorized to regulate persons engaged in the business of mortgage brokering, mortgage lending, or correspondent mortgage lending. Sections 494.003 through 494.0043 govern mortgage brokers. Sections 494.006-494.0077 govern mortgage lenders and correspondent mortgage lenders.

    
    

44. Under Section 494.001(2), a "mortgage broker":

    
    

    means, for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly, accepting or offering to accept an application for a mortgage loan, soliciting or offering to solicit a mortgage loan on behalf of a borrower, or negotiating

    or offering to negotiate the terms or conditions of a mortgage loan on behalf of a borrower, or negotiating or offering to negotiate the terms

    of conditions of a mortgage loan on behalf of a lender.

    
    

45. Under Section 494.001(3), a "mortgage lender":

    
    

    means to make a mortgage loan or to service a mortgage loan for others or, for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly, to sell or offer to sell a mortgage loan to a noninsti- tutional investor.

    
    

46. The requirements of licensure as a mortgage lender are stated in Section 494.0061. Section 494.0061(1)(c) requires:

    Audited financial statements, which documents disclose that the applicant has a bona fide and verifiable net worth, pursuant to generally accepted accounting principles, of at least

    $250,000, which must be continuously maintained as a condition of licensure[.]

    
    

47. Section 494.0062 describes the requirements of licensure as a correspondent mortgage lender, which are less strict. The requirements include maintaining a net worth of only $25,000, as required by Section 494.0062(1)(c). However, Section 494.0062(2) adds:

    
    

    Notwithstanding the provisions of subsection (1), it is a ground for denial of licensure if the applicant, any principal officer or director of the applicant, or any natural person who is the

    ultimate equitable owner of a 10-percent or greater interest in the applicant has committed any violation specified in s. 494.0072, or has pending against him any criminal prosecution or administrative enforcement action, in any jurisdiction, which involves fraud, dishonest dealing, or any act of moral turpitude.

    
    

48. The distinction between the mortgage lender's license and correspondent mortgage lender's license is described in Section 494.0062(5):

    
    

    A person licensed as a correspondent mortgage lender may make mortgage loans, but may not service a mortgage loan for more than 4 months after the date the mortgage loan was made or acquired by the correspondent mortgage lender.

    
    

49. A mortgage lender may act as a mortgage broker. In such cases, Section 494.0073 provides that Sections 494.0038, 494.0042, and 494.0043(1), (2), and (3) apply.

    
    

50. Section 494.0016, which applies to all mortgage brokers, mortgage lenders, and correspondent mortgage lenders, provides, in relevant part:

    
    

    1. Each licensee shall maintain, at the principal place of business designated on the license, all books, accounts, records, and documents necessary to determine the licensee's compliance with ss. 494.001- 494.0077.

       * * *

       1. All books, accounts, records, documents, and receipts for expenses paid by the licensee

          on behalf of the borrower, including each closing statement signed by a borrower, shall be preserved and kept available by the department for at least

          3 years after the date or original entry.

       2. The department may prescribe the minimum information to be shown in the books, accounts, records, and documents of licensees so that such records will enable the department to determine

       the licensee's compliance with ss. 494.001-494.0077.

       Section 494.0037 contains identical provisions.

       
       

51. Section 494.0038 provides:

    
    

    (1)(a) A person may not receive a fee for acting as a mortgage brokerage business except pursuant to a written agreement between the mortgage brokerage business and the borrower. The agreement must describe the services to be provided by the mortgage brokerage business and specify the amount and terms of the mortgage

    brokerage fee that the mortgage brokerage business is to receive.

    1. 1. If any of the rates, points, fees, and other terms quoted by or on behalf of the lender are to be received by the mortgage brokerage business, such fact shall be specifically disclosed to the borrower.

       2. If the mortgage brokerage fee is for brokering a loan for a particular program under which the brokerage fee varies according to the terms of the loan, the brokerage fee may be disclosed as a range of fees at the time of application. The mortgage broker shall, in such instance, disclose the nature of the fee arrangement to the borrower, and the exact amount of the fee must be disclosed at settle- ment or closing.

    2. The department may prescribe by rule the form of disclosure of brokerage fees.

    1. Prior to entering into a written agreement or accepting an application, an application fee, credit report fee, property appraisal fee, or any other third-party fee, a mortgage brokerage business must disclose in writing to any applicant for a mortgage loan the following information:

       1. That such mortgage brokerage business may not make mortgage loans or commitments. The mortgage brokerage business may make a commitment and may furnish a lock-in of the rate and program on behalf of the lender when the mortgage brokerage business has obtained a written commitment or lock-in for the loan from the lender on behalf of the borrower for the loan. The commitment must be in the same form and substance as issued by the lender.

       2. That such mortgage brokerage business cannot guarantee acceptance into any particular loan program or promise any specific loan terms or conditions.

       3. A good faith estimate of the credit report fee, property appraisal fee, or any other third-party fee and the terms and conditions for obtaining a refund

    of such fees, if any. Any amount collected in excess of the actual cost shall be returned within 60 days after rejection, withdrawal, or closing.

    * * *

    (5) Any third-party fee entrusted to a mortgage brokerage business shall immediately, upon receipt, be placed into a segregated account with a financial

    institution located in the state the accounts of which are insured by the Federal Government. Such funds shall be held in trust for the payor and shall be kept in the account until disbursement. Such funds may be placed in one account if adequate accounting measures are taken to identify the source of the funds.

    
    

52. Section 494.0072(2) states that the following acts constitute grounds for discipline:

    
    

    * * *

    b. Fraud, misrepresentation, deceit, negligence,

    or incompetence in any mortgage financing transaction.

    * * *

    1. Failure to account for or to deliver to any person any personal property that has come into his hands and that is not his property or that he is not in law or equity entitled to retain, under the circumstances and 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.

    2. Failure to disburse funds in accordance with agreements.

    3. Any misuse, misapplication, or misappropriation of personal property entrusted to his care to which he had no current property right at the time of the entrustment.

    * * *

    j. Failure to comply with any department order or rule made or issued under the provisions of ss. 494.001-494.0077.

    * * *

    p. Failure to comply with, or violations or, any other provision of ss. 494.001-494.0077.

    
    

53. Section 494.0072(3) provides that a

    
    

    mortgage lender or correspondent mortgage lender is subject to the disciplinary actions specified in subsection (1) for a violation of subsection

    (2) by an officer, director, or ultimate equitable owner of a 10-percent or greater interest in the mortgage lender or correspondent mortgage lender, or employee of the licensee.

    
    

54. Section 494.0072(4) states that a

    
    

    natural person employed by a mortgage lender or correspondent mortgage lender is subject to the disciplinary actions specified in subsection (1) for a violation of subsection (2) regarding any action for which such person was involved.

    
    

55. In the case of violations of Section 494.0072(2), Section 494.0072(1) authorizes the Department to revoke or suspend a license, place a licensee on probation, issue a reprimand, impose a fine of not more than $500 for each count

or separate offense, and/or deny an application. Section 494.0014(1) also authorizes the Department to issue a cease and desist order whenever the Department "has reason to believe the person is violating, has violated, or is about to violate any provision of ss. 494.001-494.0077 [or] any rule or order of the department issued under ss. 494.001-494.0077 . . ..

56. Rule 3D-40.008(1) states:

A mortgage brokerage business shall state in each contract for services the total fee to be received. The total fee shall not exceed the maximum as prescribed in s. 494.0042(2), F.S.

1. Rule 3D-40.156 provides:

   
   

   1. All third-party fees and refundable application fees received by a mortgage brokerage business shall immediately be deposited in a segregated account in a federally insured financial institution located in Florida. The account shall be in the name of the mortgage brokerage business and shall provide for withdrawal of funds without notice. The account shall be used exclusively for third party fees and refundable application fees. The licensee shall maintain an updated and accurate record of account activity on Form DBF-MX-999, which is hereby incorporated by reference . . . or on a format substantially similar to Form DBF-MX-999.

   2. For the purposes of this rule "immediately" means within seven (7) business days of receipt of the funds.

   3. The administrative penalty for the failure to comply with this rule shall be $500. Incidental and isolated clerical errors or omissions shall not

      be considered a violation of this rule. The penalty for intentional or repeat violations of this rule shall be a $500 fine and suspension or revocation.

      
      

2. Rule 3D-40.175 provides:

   
   

   1. Each mortgage brokerage business shall maintain a file for each mortgage brokerage transaction. The files shall be maintained in a central location and in an alphabetical or numerical sequence.

   2. Each file shall contain the following:

      1. Mortgage brokerage agreement pursuant to s. 494.0038, FS.

      2. Copy of signed closing statement as required by 494.0037(3), or documentation of denial or cancellation of the loan application.

      3. A copy of the good faith estimate of costs pursuant to s. 494.0038(2)(c), FS.

   3. Supporting documentation shall be maintained for all expenses or fees paid by the licensee on behalf of the client indicating the amount and the date paid.

      * * *

      (8) All documentation must be maintained for three (3) years from the date of the original entry

      . . . .

      (9)(a) The penalty for failure to maintain files and required documentation (incidental and isolated clerical errors or omissions shall be not considered a violation) shall be:

      1. If the licensee has numerous instances of incomplete files and missing documentation the fine shall be $300 for a first offense. For the purpose

         of this rule "numerous" shall mean at least three (3), and a percentage equal to or greater to 20 percent of the files examined.

      2. If the licensee fails to maintain files and documentation such that an audit trail of all mortgage transactions is provided [sic], the penalty shall be a fine of $1000 and a six-month suspension of the licensee.

      * * *

      
      

3. Rule 3D-40.177 requires "each mortgage brokerage business" to "maintain a journal of mortgage brokerage transactions which shall include, at least, the following information":

   
   

   1. Brokerage transaction number;

   2. Name of client;

   3. Date client applied for the mortgage loan;

   4. Disposition of the mortgage loan application. The journal shall indicate the result of the brokerage transaction. The disposition of the

      case shall be categorized as one of the following: loan funded, loan denied, application withdrawn or other (with explanation);

   5. Date of disposition;

   6. Amount of the mortgage note (if funded);

   7. Total amount of brokerage fee;

   8. Amount of application fee paid;

   9. Name of lender.

   
   

4. Rule 3D-40.177(2) provides that the mortgage brokerage transaction journal shall be maintained in a format substantially similar to form DBF-MX- 888, which is incorporated by reference into the rule. Rule 3D-40.177(3) requires that the mortgage brokerage journal be maintained in the principal office or each branch office where transactions take place. The rule also requires that the licensee keep the journal current, which is defined to mean that entries shall be made within seven days of the transaction.

   
   

5. Rule 3D-40.177(4) provides:

   
   

   The penalty for failure to maintain the trans- action journal or to keep the journal current (incidental and isolated clerical errors or omissions shall not be considered a violation) shall be a fine of $500. The penalty for

   intentional or continued violations of this rule shall be a fine of $500 and suspension of the license.

   
   

6. Rule 3D-40.250 provides, in relevant part:

   
   

   1. Each licensee . . . shall document and verify the required net worth with audited financial statements, prepared in accordance with Generally Accepted Accounting Principles, by an independent licensed certified public accountant.

      1. Each mortgage lender shall continuously maintain a net worth of $250,000, or more.

         * * *

         (3) Failure to maintain net worth. Each licensee who fails to maintain net worth as prescribed in subparagraphs (1)(a), (b), and (c) of this rule shall immediately cease business and notify the department in writing by U.S. certified mail within five (5) business days. A licensee shall not resume business without written depart- ment authorization.

         
         

7. Rule 3D-40.260 provides in relevant part:

   
   

   * * *

   (5) If the mortgage lender or correspondent mortgage lender acts as a mortgage brokerage business it must comply with the file requirement set forth in Rule 3D-40.175 ....

   * * *

   (8)(a) The penalty for failure to maintain files and required documentation (incidental and clerical errors or omissions shall not be considered a violation) shall be:

   1. If the mortgage lender or correspondent mortgage lender has numerous instances of incomplete files and missing documentation the fine shall be

      $300 for a first offense. For the purpose of this rule "numerous" shall mean at least three incomplete files and a percentage equal or greater to 20 percent of the files examined.

   2. If the mortgage lender or correspondent mortgage lender fails to maintain an audit trail of all mortgage transactions, the penalty shall be a fine of $1000 and a six month suspension of the license of the mortgage lender or correspondent mortgage lender.

   
   

8. Rule 3D-40.265(4) require each mortgage lender or correspondent mortgage lender acting as a mortgage brokerage business to "maintain documents and a journal of such transactions as required by rule 3D-40.177." Rule 3D- 40.265(6) states that the penalty for failure to maintain the transaction journal or to keep the journal current, except for isolated clerical errors or omissions, shall be a fine of $500. For intentional or continued violations of the rule, the penalty shall be a fine of $500 and suspension of the license.

9. The Department must prove the material allegations against Respondent by clear and convincing evidence. Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).

   
   

10. As a mortgage lender, NMB has violated Section 494.0061(1)(c), by allowing its net worth to fall below $250,000 and by failing to notify the Department of this fact in the time allowed by law.

    
    

11. Acting as a mortgage broker, NMB has violated Section 494.0038(2)(a) and (b) by failing to disclose in writing that it may not make mortgage loans or commitments and that it cannot guarantee acceptance into any particular loan program or promise any specific loan terms or conditions.

    
    

12. Acting as a mortgage broker, NMB has violated Section 494.0038(1)(b)2 by failing to disclose the nature of the fee arrangement.

    
    

13. Acting as a mortgage broker, NMB violated Section 494.0038(5) and Rule 3D-40.156(1) by failing to maintain current and updated escrow account records.

    
    

14. Acting as a mortgage broker, NMB violated Sections 494.0038(5) and 494.0072(2)(f), (g), (h), and (j) by failing to hold in trust all escrow funds and disburse said funds as authorized.

    
    

15. Acting as a mortgage broker, NMB violated Rules 3D- 40.177 and 3D- 40.265(4) by failing to maintain a current mortgage brokerage transaction journal with all of the required information.

    
    

16. The evidence concerning the treatment that the customers received from NMB establishes negligence and incompetence on the part of NMB in mortgage financing transactions. The evidence concerning the backdating and delivery of the Harrison rejection letter establishes fraud, dishonest dealing, misrepresentation, and deceit on the part of NMB in a mortgage financing transaction. The other violations of Sections 494.001-494.0077 further establish the negligence and incompetence of NMB.

    
    

17. Based on the numerous violations and their gravity, the appropriate penalty is revocation of NMB's mortgage lender's license.

    
    

18. Although NMB still meets the minimum net worth requirement imposed upon correspondent mortgage lenders, NMB, through the act of an unidentified employee or other agent, is guilty of fraud and dishonest dealing in connection with the Harrison transaction. Thus, NMB is not entitled to a license as a correspondent mortgage lender.

RECOMMENDATION

Based on the foregoing, it is hereby

RECOMMENDED that the Department of Banking and Finance enter a final order revoking the mortgage lender's license of National Mortgage Bankers, Inc. and denying its application for licensure as a correspondent mortgage lender.

ENTERED on November 3, 1994, in Tallahassee, Florida.

ROBERT E. MEALE

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 on November 3, 1994.

COPIES FURNISHED:

Hon. Gerald Lewis Comptroller

The Capitol, Plaza Level Tallahassee, FL 32399-0350

William G. Reeves General Counsel

Department of Banking and Finance The Capitol

Plaza Level, Room 1302 Tallahassee, FL 32399-0350

Susan E. Steinberg Assistant General Counsel Office of the Comptroller 1313 Tampa St., Suite 615

Tampa, FL 33602-3394

Sheldon Voron 775 Tamiami Tr.

Port Charlotte, FL 33953

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

================================================================= AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA DEPARTMENT OF BANKING AND FINANCE

DIVISION OF FINANCE

DEPARTMENT OF BANKING AND FINANCE, DIVISION OF FINANCE,

Petitioner,

vs. DBF Case # 3282-F-2/94

(DOAH Case No. 94-2065)

NATIONAL MORTGAGE BANKERS, INC.,

Respondent.

/ NATIONAL MORTGAGE BANKERS,

INC.,

Petitioner,

vs. DBF Case # 3338-F-4/94

(DOAH Case # 94-2066)

DEPARTMENT OF BANKING AND FINANCE, DIVISION OF FINANCE,

Respondent.

/

FINAL ORDER AND NOTICE OF RIGHTS

This matter has come before the State of Florida Department of Banking and Finance (hereinafter the Department) for an entry of a final order in the above referenced proceeding based upon a review of the entire record and upon the following grounds:

BACKGROUND

This matter arose by the issuance of an administrative complaint, which was subsequently amended, against National Mortgage Bankers, Inc. (hereinafter NMB) and the issuance of a letter denying the application of NMB to obtain a correspondent mortgage lenders license. A formal hearing was conducted by a DOAH hearing officer, who entered a Recommended Order (hereinafter RO) on November 3, 1994, Exhibit A, which is adopted and incorporated by reference as if set forth at length except as modified below. Subsequent to the entry of the RO, the Department filed exceptions. Exhibit B. The Department will consider each exception in the order presented.

FIRST EXCEPTION

The first exception states:

As its first exception to the Recommended Order, the Department states that the Hearing Officer erred by failing to direct a refund of all fees directly or indirectly assessed and charged by National Mortgage Bankers, Inc. (hereinafter "NMB) on mortgage loan transactions with its customers which were unauthorized or exceeded the fees incurred by or charge to NMB customers, as required by Section 494.0014, Florida Statutes. As evidenced by Exhibits 9 and 10, which exhibits were entered into evidence at the formal hearing in this proceeding, and as found by the Hearing Officer in paragraphs 9, 39 and 70 of the Recommended order, a $860 refund is due to those customers whose accounts were wrongfully charged fees by NMB.

Essentially, the Hearing Officer concluded that an employee of NMB transferred monies out of NMB's escrow account when the employee "determined that NMB was entitled to the money ...", RO para. 9, which amounted to $860. However, "NMB did not maintain supporting documentation for monies paid from its escrow account on behalf of its customers." RO para. 39. Accordingly, the Hearing Officer concluded that Chapter 494 had been violated. RO para. 70. Pursuant to Section 494.0014(1 and 2), Florida statutes, the Department may order that excessive fees be refunded and that any person who has violated Chapter 494 to take corrective action to rectify the transgression. As it has been established that NMB has improperly charged customer's accounts with unsubstantiated charges, there does not appear to be any basis for allowing NMB to retain the monies improperly acquired. Should licensees be permitted to profit from their wrongdoing, it would place consumers in financial jeopardy contrary to the consumer protection purposes of the statute. Based upon the foregoing, the NMB is directed to refund to its customers those charges identified in the Department's Exhibit 9 within 30 days from the entry of this order.

SECOND EXCEPTION

The second exception states:

As its second exception to the Recommended Order, the Department states that the Hearing Officer erred by failing to assess the mandatory fine against NMB for its failure to comply with Rule 3D-40.156, Florida Administrative Code.

The Hearing Officer found in paragraphs 9 and 39 of the Recommended Order that NMB swept $860 from its escrow account to its general account without properly maintaining supporting documentation for the monies paid from its escrow account on behalf of its customers. The Hearing Officer also found in paragraph 38 of the Recommended Order that NMB failed to maintain an updated record of escrow account activity on the appropriate form and also failed to properly record check numbers for checks used to pay vendors on behalf of specific customers. The penalty for failure to comply with Rule 3D- 40.156, Florida Administrative Code, is a mandatory fine of Five Hundred Dollars ($500). The Final Order should assess the $500 penalty against NMB for this violation.

Although not noted in the above-exception, the Hearing Officer specifically found that Rule 3D-40.156(1), F.A.C. had been violated. RO para. 69. The minimum penalty for violation of this rule is a $500 penalty. Based upon the foregoing, the NMB is directed to pay $500 to the Department's Regulatory Trust Fund within 30 days from the entry of this order.

THIRD EXCEPTION

The third exception states:

As its third exception to the Recommended Order, the Department states that the Hearing officer erred by failing to properly assess the mandatory fine against NMB pursuant to Rules 3D-40.177 and 3D-40.265, Florida Administrative Code. The Hearing Officer found in paragraph 40 of the Recommended Order that NMB failed to maintain a mortgage brokerage transaction journal on Form DBF-MX-888 or in a format substantially similar thereto as required by Rules 3D-40.177 and 3D-40.265, Florida Administrative Code.

Failure to maintain the mortgage brokerage transaction journal and to keep the journal current requires the assessment of a mandatory fine in the amount of Five Hundred Dollars ($500). The Final Order should assess the $500 penalty against NMB for this violation.

Although not noted in the above-exception, the Hearing Officer specifically found that Rules 3D-40.177 and 3D-40.265(4)1 F.A.C. had been violated. RO para. 71. The minimum penalty for violation of this rule is a $500 penalty. Based upon the foregoing, the NMB is directed to pay an additional $500 to the Department's Regulatory Trust Fund within 30 days from the entry of this order.

FOURTH EXCEPTION

The fourth exception states:

As its fourth exception to the Recommended Order, the Department states that the Hearing Officer erred by failing to properly assess a monetary penalty against NMB pursuant to Rule 3D-40.175(3), Florida Administrative Code. When supporting documentation is not maintained for all expenses and fees paid by the licensee on behalf of the client, indicating the amount and the date paid, such failure is a violation of Rule 3D-40.175, Florida Administrative Code.

The Hearing Officer found in paragraphs 9 and 39 of the Recommended Order, that in numerous instances NMB failed to maintain such records regarding expenses and fees paid in amounts totaling $860. Therefore, pursuant to Rule 3D- 40.175(9)(a)l., Florida Administrative Code, a mandatory fine of Three Hundred Dollars ($300) for a first offense shall be imposed against NMB for numerous instances of incomplete files and missing documentation as required by this rule. The Final order should assess a $300 fine against NMB for a first offense of failure to comply with Rule 3D-40.175, Florida Administrative Code.

Although not noted in the above-exception, Rule 3D-40.175(9)(a)1, F.A.C., requires that the incomplete files or missing documents pertain to at least 20 percent of the files examined. The Hearing Officer did not render a factual finding regarding whether the 20 percent threshold was met. However, rather than remand to the Hearing Officer for additional factual findings and in view of the fact that the requested fine is fairly minor and the case load of DOAH hearing officers is fairly large, it is decided that it is more appropriate to reject the requested exception.

FIFTH EXCEPTION

The fifth exception states:

As its fifth exception to the Recommended Order, the Department states that paragraph 55 of the Recommended Order contains a typographical error in the restatement of Section 494.0072(1), Florida Statutes. The Department is authorized to impose a fine of not more than $5000 for each count or separate offense rather than a fine of $500 as stated in paragraph 55. For the record to be clear, it is necessary that this conclusion of law be corrected.

For the reasons stated above, the Department accepts this exception.

SIXTH EXCEPTION

The sixth exception states:

As its sixth exception to the Recommended order, the Department states that the Hearing Officer found numerous violations of Chapter 494 and the rules promulgated thereunder. Based thereon, a fine should have been assessed against NMB for such violations. The Recommended order neither, gives an explanation for the Hearing Officer's failure to assess a fine against NMB pursuant to Section 494.0072, Florida Statutes, nor states any mitigating circumstances which would justify eliminating such a fine.

The Hearing Officer erred by failing to assess a fine against NMB in this proceeding. A reasonable fine based upon the Findings of Fact and Conclusions of Law in the Recommended Order is Fifteen Thousand Dollars ($15,000). The Final Order should impose a fine against NMB for the violations committed by NMB.

The Department is correct that the Hearing Officer found numerous violations of Chapter 494 and the duly promulgated rules of the Department. RO paras. 66-74. However, as the Hearing Officer has recommended the significant penalties of revocation of the existing license and denial of the license application, the Department will defer to the judgment of the Hearing Officer in this instance.

SEVENTH EXCEPTION

The seventh exception states:

As its seventh exception to the Recommended Order, the Department states that the Hearing Officer erred by failing to recommend that a Cease and Desist Order be entered

against NMB for the numerous violations of Chapter 494, Florida Statutes, and the rules promulgated thereunder committed by NMB. Pursuant to Section 494.0014(1), Florida Statutes, it is appropriate in this case that a Cease and Desist Order be entered as part of the Final Order.

The Department agrees that in view of the numerous violations found by the Hearing Officer that a cease and desist order should be entered against NMB. In addition, the Hearing Officer noted three instances where NMB was attempting to collect brokerage fees despite its violation of Chapter 494. RO paras. 14, 20,

1. Based upon the foregoing, NMB is directed to cease and desist from further violations of Chapter 494 and the duly promulgated rules of the Department. NMB is further directed to cease and desist from further efforts to collect the fees alleged to be due from the Healeys, Janice Hamann, and William Zinser in paragraphs 14, 20, and 28 of the Recommended Order.

   
   

   CONCLUSION

   
   

   Having ruled on the exceptions filed by the parties, it is accordingly ordered:

   
   

   1. The Hearing Officer's Findings of Fact and Conclusions of Law are adopted except as modified or rejected herein;

      
      

   2. NMB's mortgage lender's license is revoked;

      
      

   3. NMB's application for a corresponded mortgage lender's license is denied;

      
      

   4. NMB is directed to refund to its customers those charges identified in the Department's Exhibit 9 within 30 days from the entry of this order;

      
      

   5. NMB is directed to pay $1000 to the Department's Regulatory Trust Fund within 30 days from the entry of this order;

      
      

   6. The RO para. 55 is amended to refer to $5,000 rather that $500;

      
      

   7. NMB is directed to cease and desist from further violations of Chapter

      494 and the duly promulgated rules of the Department; and

      
      

   8. NMB is directed to cease and desist from further efforts to collect the fees alleged to be due from the Healeys, Janice Hamann, and William Zinser in paragraphs 14, 20, and 28 of the Recommended Order.

DONE and ORDERED in Tallahassee, Leon County, Florida this 15th day of December , 1994.

GERALD LEWIS, As Comptroller of the State of Florida and Head of the Department of Banking and Finance

NOTICE OF RIGHTS TO JUDICIAL REVIEW

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE COMMENCED BY FILING ONE (1) COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE DEPARTMENT OF BANKING AND FINANCE AND A SECOND COPY, ACCOMPANIED BY FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, OR WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY RESIDES. THE NOTICE OF APPEAL MUST BE FILED WITHIN THIRTY (30) DAYS OF RENDITION OF THE ORDER TO BE REVIEWED.

COPIES FURNISHED:

Linda G. Dilworth, Director Division of Finance Susan

Steinberg Sandler Assistant General Counsel

CERTIFICATE OF SERVICE

The undersigned certified that true and correct copies of the foregoing Order and Notice of Rights were duly sent by U.S. Certified Mail to the attached list this 16th day of December, 1994.

PAUL C. STADLER, JR.

Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302

Tallahassee, Florida 32399-0350

(904) 488-9896

Service List

National Mortgage Bankers, Inc. c/o Sheldon Voron

775 Tamiami Trail

Port Charlotte, Fla. 33953

Docket for Case No: 94-002065

Orders for Case No: 94-002065