DEPARTMENT OF BUSINESS AND ) PROFESSIONAL REGULATION, DIVISION ) 0F REAL ESTATE, )
vs. ) Case No. 99-2970
Respondent. )
Daniel Manry, Administrative Law Judge, Division of Administrative Hearings, conducted the administrative hearing in this proceeding on October 14, 1999, in Orlando, Florida.
For Petitioner: Sunia Y. Marsh, Esquire
For Respondent: Michael R. Riemenschneider, Esquire
O'Brien, Riemenschneider, Kancilia and Lemodidia, P.A.
The issue in this case is whether Respondent violated Sections 455.228, 475.25(1)(e), and 475.42(1)(a), Florida Statutes (1997), by operating as an unlicensed broker or salesperson. (All Chapter and Section references are to Florida Statutes (1997) unless otherwise stated.)
On April 14, 1999, Petitioner filed an Administrative Complaint against Respondent alleging that Respondent unlawfully advertised properties for sale, solicited buyers, and offered to share commissions with licensed real estate agents. Respondent timely requested an administrative hearing.
At the hearing, Petitioner presented the testimony of three witnesses and submitted 17 exhibits for admission in evidence.
Respondent testified on his own behalf, called no other witnesses, and submitted 15 exhibits for admission in evidence.
The identity of the witnesses and exhibits, and the rulings regarding each, are set forth in the Transcript of the hearing filed on November 4, 1999. Petitioner timely filed its Proposed Recommended Order ("PRO") on November 19, 1999. Respondent timely filed his PRO on November 22, 1999.
Petitioner is the state agency responsible for the regulation and discipline of real estate licensees in the state. Respondent is not licensed in the state as a real estate sales person or broker but has been engaged in the business of real estate investment in Florida for approximately six years.
Respondent generally maintains investments in approximately 50 real estate properties in the state at a given point in time. Of those properties, Respondent typically holds approximately 15 properties in his individual name and
approximately 35 properties in the name of Results Home Buyers of Melbourne ("Results"), Respondent's wholly-owned Florida corporation.
Respondent's real estate investment business generally involves the purchase and sale of real property that is financially distressed. Respondent purchases real property that is either in or near foreclosure or property for which the sellers are experiencing difficulty servicing the existing indebtedness.
Respondent purchases properties by assuming the existing debt, paying off the debt at a discount, and then selling the properties to subsequent purchasers for a profit. Closing of the subsequent sale of a particular property may occur simultaneously with the closing of Respondent's purchase of the property or sometime thereafter. Respondent induces subsequent purchasers with non-qualifying financing and purchase prices that are discounted less than the amount of discount Respondent obtains from existing lenders.
Respondent begins each real estate investment by obtaining some form of an option on a property for a fixed time period. The option may take the form of a simple option to purchase property. In most instances, however, the option takes the form of a Standard Purchase and Sales Agreement (a "purchase agreement").
The purchase agreement is subject to financing discussed subsequently in this Recommended Order. If Respondent is unable to obtain financing, the seller may retain only that portion of the binder deposit required to pay sales and loan processing costs incurred by the seller.
During the option period, Respondent conducts a title search to determine the state of the title, the identity of record lien holders, and the amount of each lien. Respondent also attempts to obtain financing by negotiating with the existing lenders a discounted pay off of the existing indebtedness. If Respondent fails to negotiate a satisfactory discount, Respondent allows the option to lapse. If Respondent negotiates a satisfactory discount, Respondent exercises the option and closes on the property.
When Respondent closes on a property, Respondent generally pays all closing costs and utilizes a title company for the closing. Prior to closing, Respondent places the funds required to pay off the discounted indebtedness in escrow. Respondent generally uses his own money to fund the escrow if Respondent has obtained a subsequent purchaser for the property. Respondent generally uses a third party lender to fund the escrow if Respondent has not obtained a subsequent purchaser, if Respondent must incur improvement costs before selling the property, or if the subsequent purchaser must rent the property for some time before the purchaser can close on the property.
There is no written escrow agreement. The escrowed funds are subject only to those conditions in the written documents between Respondent and the seller. The title company disburses escrow funds upon Respondent's verbal authorization.
When Respondent purchases real property, title generally does not pass by warranty deed to Respondent. Title passes to a land trust.
Respondent creates a land trust in three steps. Each step is evidenced by a separate document, but all three documents are executed simultaneously.
In the first step, the seller enters into an Agreement and Declaration of Trust with Respondent (the "trust agreement"). The trust agreement names the seller as the beneficiary and either Respondent or Respondent's nominee as the trustee. The trust agreement is intended to preserve Respondent's anonymity and to insulate the assets of Respondent and Results from any claims or litigation that may arise out of Respondent's real estate investment business.
In the second step, the beneficiary of the trust, who is also the seller, executes a Warranty Deed to Trustee (the "warranty deed"). The warranty deed is generally recorded in the public records of the county in which the property is located.
It reflects record title in the trustee who is generally Respondent's nominee. However, Respondent sometimes acts as trustee.
In the third step, the beneficiary of the trust, who is also the seller, assigns his or her beneficial interest in the trust to either Respondent or Results. The assignment transfers all beneficial interest in the property, except legal title, to either Respondent or Results. The recorded legal title remains in the trustee. Respondent believes that he insulates himself and his company from liability for claims by retaining record title in the trustee and assigning beneficial ownership from the seller, as the trust beneficiary, to Respondent or Results. Respondent is the assignee in approximately 15 out of 50 property transactions, and Results is the assignee in approximately 35 of
50 transactions. The assignee has exclusive authority to designate or change the trustee.
Petitioner claims that in 1997 Respondent engaged in the practice of real estate on behalf of the owners of four residences. Respondent claims that he engaged in the activities alleged in the Administrative Complaint in his own behalf as the beneficial owner of the four properties or as the sole shareholder of the beneficial owner.
Three of the four residences at issue in this proceeding are located in Satellite Beach, Florida. The fourth property is located in West Melbourne, Florida.
The three properties in Satellite Beach are located at:
340 Ocean Spray Avenue (the "Ocean Spray property or transaction"); 697 Hedgecock Square North (the "Hedgecock
property or transaction"); and 479 Skylark Boulevard (the "Skylark property or transaction"). The property in West Melbourne is located at 633 Manor Place (the "Manor property or transaction").
On February 22, 1997, Respondent executed separate purchase agreements for the Hedgecock, Manor, and Skylark properties. On March 6, 1997, the parties executed separate trust agreements, warranty deeds, and assignments in the Hedgecock and Manor transactions. On March 17, 1997, the parties executed the trust agreement, warranty deed, and assignment in the Skylark transaction. The warranty deed in each transaction expressly stated that the interests of the beneficiaries were personal property.
In the Hedgecock transaction, Respondent was designated as the trustee. The warranty deed transferred title to Respondent, and the seller assigned her beneficial interest in the property to Results. The warranty deed was not recorded because the seller remained in possession of the property while she attempted to purchase a replacement residence.
In the Manor and Skylark transactions, Ms. Sonia Souza, an unrelated nominee of Respondent, was designated as the trustee. The warranty deeds transferred title in both properties to Ms. Souza. Neither property was occupied, and the warranty deeds were recorded in both transactions. The seller of the Manor property assigned her beneficial interest in the property
to Results. The seller of the Skylark property assigned her beneficial interest to Respondent.
Respondent paid the outstanding indebtedness on the Manor and Skylark properties and sold the Skylark property sometime in September or October 1997. Respondent still owns the Manor property and has made improvements to the property totaling approximately $30,000. At the seller's request, Respondent transferred title in the Hedgecock property back to the seller in November 1997, when the seller's attempt to purchase a replacement residence failed.
On May 19, 1997, Respondent executed an Option to Purchase the Ocean Spray property. The option terminated on August 19, 1997. Between May 19 and August 19, 1997, Respondent attempted to secure a buyer for the property. However, intervening legal claims against the property prevented the seller from conveying clear title, and Respondent allowed the option to lapse.
The seller of the Ocean Spray property eventually resolved the pending claims and has subsequently attempted to sell the property to Respondent. However, Respondent has declined to purchase the property pending the outcome of this proceeding.
As the Administrative Complaint alleges, in relevant part, Respondent attempted to sell the four properties at issue in this proceeding between August 7 and 19, 1997. Respondent
distributed flyers to licensed real estate brokers and salespersons concerning each property. Each flyer included a statement that the owner wanted offers, details of the particular property, and a statement that the owner would pay brokers and salespersons a $500 referral fee or a four percent commission for the sale of each property.
Between August 7 and August 19, 1997, Respondent was not acting as a broker within the meaning of Section 475.01(1)(a). Respondent was not acting "for another." Respondent or Respondent's wholly owned corporation was the beneficial owner of the Hedgecock, Manor, and Skylark properties even though Respondent was the record owner of only the Skylark property. In the Ocean Spray transaction, the Option to Purchase gave Respondent a contractual right to sell the property in his own behalf.
The sellers of all four properties at issue in this proceeding did not enter into a listing agreement with Respondent. The sellers did not promise, either in writing or verbally, to pay a commission or other compensation to Respondent. Respondent did not promise to pay the sellers any portion of the sale proceeds Respondent received from subsequent purchasers. Respondent was solely liable for the commission and referral fee described in the brochures that Respondent distributed to licensed real estate brokers and salespersons.
The only economic benefit for Respondent to sell the properties to subsequent purchasers was the difference between the sale price received by Respondent and the discounted indebtedness paid by Respondent. The gross profit thus derived by Respondent was reduced by the commissions, if any, paid by Respondent to licensed real estate brokers and salespersons.
The sellers in all four transactions at issue in this proceeding had no legal right to approve the discounted payoff of the existing indebtedness or the sale price at which Respondent sold the properties. Nor did the sellers have any right to approve any other terms or conditions of any sale by Respondent. Finally, the sellers did not have the right to transfer title to the property.
Except for the Ocean Spray transaction, the risk of loss and the economic risk of not selling the property in each transaction was borne by Respondent during the time that Respondent was marketing the properties. In fact, Respondent was unable to sell the Manor property, and Results has paid for approximately $30,000 in improvements to the property.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter and parties in this proceeding. The parties were duly noticed for the administrative hearing.
The burden of proof is on Petitioner. Petitioner must show by clear and convincing evidence that Respondent committed the acts alleged in the Administrative Complaint and the reasonableness of any proposed penalty. Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).
The Administrative Complaint charges that Respondent operated as a broker or salesperson without a license in violation of Sections 455.228, 475.42(1)(a), and 475.25(1)(e). Section 475.25(1), in relevant part, prescribes penalties for the violation of any provision of Chapter 475 within the meaning of Section 475.25(1)(e). Section 475.42(1)(a), in relevant part, prohibits any person from acting as a real estate broker or salesperson without a license. Section 455.228 generally authorizes the Florida Real Estate Commission (the "Commission") to issue cease and desist orders to unlicensed persons who act as a broker or salesperson and to impose prescribed penalties.
The activities of a broker and salesperson are defined in Section 475.01(1)(a) and (k), respectively. Section 475.01(1)(k), in relevant part, defines a salesperson as a person who performs any act specified in the definition of a broker.
Section 475.01(1)(a), in relevant part, defines a broker to mean:
. . . a person who, for another, and for compensation or valuable consideration directly or indirectly paid or promised, expressly or impliedly, or with an intent to collect or receive a compensation or valuable consideration therefor, . . . sells . . .
buys, rents, or offers, attempts or agrees to
. . . negotiate the sale, . . . purchase, or rental of . . . any real property or . . . who advertises or holds out to the public by any oral or printed solicitation or representation that she or he is engaged in the business of . . . buying, selling, . . . leasing, or renting . . . real property of others . . . or who takes any part in the procuring of sellers, purchasers, lessors, or lessees of . . . the real property of another
. . . or who directs or assists in the procuring of prospects or in the negotiation or closing of any transaction which does, or is calculated to, result in a sale, exchange, or leasing thereof, and who receives, expects, or is promised any compensation or valuable consideration, directly or indirectly therefor. (emphasis
supplied)
For reasons stated in the Findings of Fact and incorporated here by this reference, Respondent did not act as broker or salesperson within the meaning of Section 475.01(a) and (k). Respondent did not act "for another" and did not act for a commission or other compensation from the seller.
Petitioner showed by clear and convincing evidence that Respondent bought and sold real property, attempted or agreed to negotiate the sale and purchase of real property, and advertised or held out to the public by oral and printed solicitation or representation that he was engaged in the business of buying and selling real property. Petitioner showed that Respondent took part in the procuring of sellers and purchasers of real property and directed or assisted in the procuring of prospects or in the negotiation or closing of transactions which did, or were calculated to, result in a sale of real property. However,
Petitioner failed to show by clear and convincing evidence that Respondent engaged in any of those activities "for another" or for compensation paid by the sellers in the form of a commission or otherwise.
Disciplinary statutes such as Section 475.25 are penal in nature and must be strictly interpreted against the authorization of discipline and in favor of the person sought to be penalized. Munch v. Department of Business and Professional Regulation, 592 So. 2d 1136, 1143 (Fla. 1st DCA 1992); Fleischman v. Department of Business and Professional Regulation, 441 So. 2d 1121, 1133 (Fla. 3rd DCA 1983.) A statute imposing a penalty is never to be construed in a manner that expands the statute. Hotel and Restaurant Commission v. Sunny Seas No. One, 104 So. 2d 570, 571 (Fla. 1958.)
Petitioner cited no statute, rule, or case law authorizing an administrative law judge to disregard the legal significance of the separate steps in the four transactions at issue in this proceeding or to disregard the legal documents evidencing each step. Respondent testified to the bona fide business purpose for conducting business in the form in which he chooses to conduct his business. That testimony was credible and persuasive and not rebutted by Petitioner.
Petitioner argues that Section 475.28(1) operates to show that Respondent engaged in the alleged activities for a commission. Section 475.28(1), in effect, states that when
Petitioner is required to show that the activities of a broker or salesperson were engaged in for a commission, the performance of the acts is prima facie evidence that the acts were performed for a commission.
As a threshold matter, Petitioner failed to show that Respondent engaged in the activities of a broker or salesperson. Petitioner failed to show that Respondent engaged in any such acts "for another." Even if it were determined that Respondent had acted "for another," Respondent presented sufficient evidence to rebut the prima facie showing of a commission that arises by operation of statute.
Petitioner also claims that it has proved the case against Respondent by clear and convincing evidence by virtue of Section 475.43. Petitioner relies on two separate provisions in Section 475.43.
Petitioner first relies on a statutory presumption in Section 475.43. In relevant part, the statute creates a presumption that Respondent acted as a broker or salesperson if Respondent sold real property or advertised real property when title to the property was not in Respondent. If the presumption applies, the burden of proof is on Respondent to show that he was not acting as a broker or salesperson.
As a threshold matter, Petitioner failed to satisfy the prerequisite for the presumption. Petitioner failed to show that title to the properties at issue in this proceeding was not in
Respondent when Respondent engaged in the activities at issue in this proceeding. Petitioner argues that an administrative law judge should disregard the legal significance of the steps involved in the transfer of title in the land trust transactions and the contractual rights under the option agreement. However, Petitioner cites no statute, rules, or case law authorizing the undersigned to disregard the legal significance of these transactions.
As previously mentioned, disciplinary statutes such as Section 475.43 are penal in nature and must be strictly interpreted against the authorization of discipline and in favor of the person sought to be penalized. Munch, 592 So. 2d at 1143; Fleischman, 441 So. 2d at 1133; Sunny Seas No. One, 104 So. 2d at
571. In the absence of such authority, the statutes must be construed in favor of Respondent.
RECOMMENDED that the Commission enter a Final Order finding Respondent not guilty of violating Sections 455.228, 475.42(1)(a), and 475.25(1)(e).
DONE AND ENTERED this 22nd day of December, 1999, in Tallahassee, Leon County, Florida.
Filed with the Clerk of the Division of Administrative Hearings this 22nd day of December, 1999.
Herbert S. Fecker, Division Director Department of Business and
Barbara D. Auger, General Counsel Department of Business and
Sunia Y. Marsh, Esquire Department of Business and
Michael R. Riemenschneider, Esquire O'Brien, Riemenschneider, Kancilia
and Lemodidia, P.A.
All parties have the right to submit written exceptions within 15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.
