Findings Of Fact FHFC administers the Multifamily Mortgage Revenue Bond Program (Bond Program) as set forth in Chapter 420, Part V, Florida Statutes, and related administrative rules. Worthwhile timely filed an application in the 1999 Bond Program cycle which was assigned number 99-040 to finance a development called Heritage Apartments in Collier County, Florida. FHFC initially deemed said application to be incomplete for the reasons set forth in a letter dated February 4, 1999. Worthwhile timely filed a Petition for Formal Hearing challenging FHFC's determination that application number 99-040 was incomplete, which Petition was referred to the Division of Administrative Hearings (DOAH) and assigned Case No. 99-1518. Upon further review by FHFC and in consideration of the deposition testimony of FHFC representatives in this cause, the parties stipulate and agree that: Worthwhile's application number 99-040 was not incomplete as initially determined by FHFC; Worthwhile's application number 99-040 is complete and must now be further processed pursuant to appropriate rules and procedures; and If it qualifies after further processing, application number 99-040 is to be funded with the next uncommitted bond proceeds made available to FHFC for allocation.
Recommendation Based upon the foregoing, it is hereby RECOMMENDED that FHFC enter a Final Order which finds and concludes that: Worthwhile's application number 99-040 was not incomplete as initially determined by FHFC; Worthwhile's application number 99-040 is complete and must now be further processed pursuant to appropriate rules and procedures; and If it qualifies after further processing, application number 99-040 is to be funded with the next uncommitted bond proceeds made available to FHFC for allocation. DONE AND ENTERED this 8th day of October, 1999, in Tallahassee, Leon County, Florida. DANIEL M. KILBRIDE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of October, 1999. COPIES FURNISHED: James C. Hauser, Esquire Skelding, Labasky, Corry, Hauser, Jolly & Metz, P.A. 318 North Monroe Street Tallahassee, Florida 32301 David A. Barrett, Esquire Barrett & Pelham, P.A. Post Office Box 930 Tallahassee, Florida 32302-0930 Brad Baker, Executive Director Florida Housing Finance Corporation 227 North Bronough Street, Suite 5000 Tallahassee, Florida 32399-1329 Stephen M. Donelan, General Counsel Florida Housing Finance Corporation 227 North Bronough Street, Suite 5000 Tallahassee, Florida 32399-1329 Michael J. Glazer, Esquire Ausley & McMullen 227 South Calhoun Street Tallahassee, Florida 32301
The Issue The issues for determination in this proceeding are whether Respondents, Samuel T. Henson and DuPont Funding Corporation, committed multiple acts in violation of applicable statutes and administrative rules and, if so, what, if any, penalties should be imposed.
Findings Of Fact Petitioner is the administrative agency charged with responsibility for administering and enforcing the provisions of Chapter 494, Florida Statutes.3 Respondent, DuPont Funding Corporation ("DuPont") is a Florida corporation engaged in the mortgage brokerage business at a single location at 7300 West Camino Real Drive, Boca Raton, Florida 33442. DuPont is registered with Petitioner under registration number HB 592710662. Respondent, Samuel T. Henson, ("Henson"), is the principal mortgage broker for DuPont. Henson is licensed by Petitioner as a mortgage broker pursuant to license number HA 247542864. As the mortgage broker for DuPont, Henson is responsible for his compliance with Chapter 494, Florida Statutes, as well as that of DuPont. Petitioner examined and investigated Respondents in response to five complaints received by Petitioner. The investigation involved events allegedly occurring between January 1, 1989 through August 31, 1990. Misuse And Misapplication Of Deposits The Smith Transaction Respondents failed to refund a deposit in the amount of $1,493.00 to Mr. J. W. Smith (the "Smith transaction"). Mr. Smith deposited $1,493.00 with Respondents to pay the costs of a mortgage applied for by the purchaser of commercial property owned by Mr. Smith. According to the terms of the Mortgage Loan Agreement and Application, the deposit was refundable if Respondents were unable to obtain financing for the proposed transaction. After Respondents were unable to obtain the financing applied for, they refused to refund Mr. Smith's deposit. Mr. Smith owned the Esmeralda Inn in Chimney Rock, North Carolina (the "Inn"). The Inn was listed for sale with Daniel Murr of First Commercial Brokers in Asheville, North Carolina, in the amount of $650,000.00. In October, 1989, Mr. Smith received a full price offer to purchase the Inn from Mr. and Mrs. William C. Robeck. Mr. and Mrs. Robeck were represented by a Mr. Castaldi as the their agent. The terms of the offer required Mr. and Mrs. Robeck to pay $25,000.00 and for Mr. Smith to carry a second mortgage in the amount of $185,000.00. The balance of the purchase price was to be paid in the form of a first mortgage in the amount of $440,000.00. Mr. Smith did not accept the offer of purchase from Mr. and Mrs. Robeck because he considered the amount of the cash invested by the purchasers to be insufficient. Sometime in December, 1989, Mr. Smith received a full price offer to purchase the Inn from Mr. Andrew Okpych. The terms of the offer required Mr. Okpych to pay $100,000.00 and for Mr. Smith to carry a second mortgage in the amount of $200,000.00. The Branch Bank and Trust Company in Asheville, North Carolina agreed to provide a first mortgage in the amount of $350,000.00. Mr. Smith wanted to minimize the amount of his second mortgage. He was advised by Mr. Daniel Murr that Respondents had represented to Mr. Murr that they could obtain a first mortgage for the purchase in the amount of $440,000.00 to finance the Smith-to-Okpych transaction. This financing proposal would reduce the second mortgage held by Mr. Smith to $110,000.00. Mr. Smith authorized Mr. Murr to contact Respondents. Henson contacted Mr. Smith by telephone to discuss the proposed financing in the amount of $440,000.00 on or about December 19, 1989. During that telephone conversation, Henson represented to Mr. Smith that Henson had located a lender which had already approved the needed $440,000.00 loan. Henson refused repeated requests by Mr. Smith to identity the lender. Henson insisted that Mr. Smith sign an agreement to pay the costs of the loan transaction and deposit $1,500.00 with Respondents before Henson would identify the lender which had pre-approved the loan in the amount of $440,000.00. Mr. Smith and Mr. Okpych signed a Mortgage Loan Agreement and Application (the "agreement") with Respondents on January 5, 1990. Mr. Okpych signed the agreement as borrower and Mr. Smith signed as the person responsible for all expenses incurred in connection with the agreement. The agreement was signed by Henson on January 5, 1992, and sent by facsimile to Mr. Smith and Mr. Okpych from the office of Mr. Smith's attorney. Mr. Smith and Mr. Okpych made several changes to the agreement and initialed the changes. One such change made the deposit from Mr. Smith a refundable deposit by deleting the prefix "non-" from the word "non-refundable" in the typed form of the agreement. Mr. Smith and Mr. Okpych sent the modified agreement to Henson by facsimile on the same day. Mr. Smith telephoned Henson on January 5, 1992, to advise Henson that the modified agreement had been sent by facsimile. Henson stated that he had received the agreement and stated that the modifications were acceptable. Henson directed Mr. Smith to wire transfer the $1,500.00 deposit. Mr. Smith wired $1,500.00, less the $7.00 charge for the wire transfer, on January 10, 1990. The wire transfer in the amount of $1,493.00 was sent to the account of Dupont Funding Corporation, account number 3601345943, NCNB, Deerfield Beach, Florida. Henson notified Mr. Smith by telephone on or about January 15, 1992, that he could not procure the needed financing. The reason given by Henson was that the lender did not want to make the loan because the property was located in North Carolina. Henson still refused to identify the lender to Mr. Smith, but suggested that the needed financing may be obtainable from "General Electric." See Exhibit 12 at 24. The next day, Henson telephoned Mr. Smith and stated that the loan was not available from any lender and that the deposit of $1,493.00 would be refunded to Mr. Smith later in the week. After repeated requests and written demands, Mr. Smith's deposit in the amount of $1,493.00 has not been refunded. The Robeck Transaction Respondents failed to refund a deposit in the amount of $2,500.00 to Mr. and Mrs. William C. Robeck (the "Robeck transaction"). Mr. and Mrs. Robeck deposited $2,500.00 with Respondents when the Robeck's applied for a mortgage in the amount of $440,000.00 on October 11, 1989, in their unsuccessful attempt to purchase the Inn from Mr. Smith. When Mr. Robeck questioned whether the deposit was refundable, Henson changed the typed form of the Mortgage Loan Agreement and Application (the "loan application") by deleting the prefix "non-" in the typed word "non-refundable". The modified loan agreement was signed by the Robeck's and Henson. Respondents were unable to obtain financing for the proposed transaction. After the Robecks were unable to obtain financing, Respondents refused to refund the Robeck's deposit. Mr and Mrs. Robeck made an offer to purchase the Inn from Mr. Smith sometime in October, 1989. The offer was rejected, and the Robeck's asked Henson to refund their deposit sometime in January, 1990. Henson refused to refund the deposit and told Mr. Robeck to find another bed and breakfast inn. Mr. Robeck found another bed and breakfast inn for sale in Franklin, North Carolina. He offered to acquire the inn by lease-purchase. His offer was accepted, but Mr. Robeck later found approximately $1,000,000.00 in stolen property on the premises. The owner was arrested, and the lease-purchase transaction was not consummated. Mr. Robeck again requested the refund of his deposit, and Henson again refused the request. Mr. Robeck has never been refunded any portion of his deposit. The Shuster Transaction Respondents failed to refund a deposit in the amount of $2,500.00 to Mr. Sanford Shuster (the "Shuster transaction"). Mr. Shuster deposited $2,500.00 with Respondents when he applied for a mortgage in the amount of $3,500,000.00 on February 8, 1990, to finance the acquisition of an Assisted Care Living Facility ("ACLF"). Henson changed the typed form of the Mortgage Loan Agreement and Application (the "mortgage application") by deleting the prefix "non-" in the typed word "non-refundable". The modified mortgage application was signed by Mr. Shuster and Henson. Mr. Shuster was unable to obtain financing, and Respondents refused to refund Mr. Shuster's deposit. Mr. Shuster made repeated attempts to obtain his refundable deposit from Respondents including several telephone conversations with Henson and two written demands for payment on April 10, 1990, and on June 2, 1990. In every instance, Henson agreed to refund the deposit but never did so. Mr. Shuster and Henson entered into a compromise agreement on September 10, 1990. Pursuant to the terms of the compromise agreement, Henson agreed to pay Mr. Shuster $2,000.00 in full settlement of the $2,500.00 claim by Mr. Shuster. Henson paid none of the $2,000.00 required under the settlement agreement with Mr. Shuster. Mr. Shuster sued Henson in Palm Beach County Court and obtained a Final Judgment against Henson on January 31, 1992, in the amount of $2,058.75. On May 7, 1991, Henson paid Mr. Shuster $100.00 toward the amount due under the Final Judgment, but made no other payments. Mr. Shuster has never received the balance of the deposit owed to him and has a claim pending with the Mortgage Brokerage Guaranty Fund. The Linker Transaction Respondents failed to refund deposits totaling $22,500.00 to Mr. Gerald Linker (the "Linker transaction"). Mr. Linker deposited $22,500.00 with Respondents when he applied for a mortgage in the amount of $1,250,000.00 in May, 1990, to finance the acquisition of an alcohol and drug abuse center (the "center"). Henson obtained a written loan commitment from Nationwide Funding, Inc. ("Nationwide"), on May 23, 1990. Neither Nationwide nor Respondents performed in accordance with the terms of the commitment. Mr. Linker never received his loan and never received his deposits. Mr. Linker's attorney made repeated attempts to have Mr. Linker's deposits refunded to him. Mr. Linker's attorney filed suit in the Circuit Court of the 15th Judicial Circuit in Palm Beach County, Florida, and obtained separate judgments against Henson and Dupont in the respective amounts of $69,023.01 and $69,520.78. Respondents paid none of the $138,543.79 owed to Mr. Linker. Mr. Linker has a claim pending with the Mortgage Brokerage Guaranty Fund. The Barth Transaction Respondents failed to return a refundable deposit in the amount of $10,000.00 to Mr. Andrew J. Barth (the "Barth transaction"). Mr. Barth deposited $10,000.00 with Respondents when he applied for financing in connection with the purchase of the Cardinal Retirement Village in Bradenton, Florida, on November 17, 1989. Mr. Barth was to assume an existing mortgage of approximately $9,800,000.00 in the transaction. Respondents agreed to arrange the assumption. The owners of the Cardinal Retirement Village refused to proceed and Respondents never refunded Mr. Barth's deposit. The agreement between Mr. Barth and Respondents provided in relevant part: The deposit will be refunded no later than thirty (30) days from this date if this real estate and mortgage transaction is not successfully completed and closed. Mr. Barth made repeated attempts to have his deposit refunded to him. In May, 1990, Mr. Barth's attorney negotiated a Pay Back Agreement with Respondents in which Respondents agreed to pay $1,500.00 a month to Mr. Barth to refund the deposit with interest. Respondents paid only $3,000.00 to Mr. Barth. Mr. Barth has never received the balance owed to him for his refundable deposit. Failure To Maintain Escrow Accounts Respondents failed to maintain an escrow account during 1988 and 1989 and failed to place deposits in escrow. Respondents failed to place deposits in escrow for the Smith, Robeck, Shuster, Linker, and Barth transactions. The accounts to which the monies were deposited by Respondents were not escrow accounts. Respondents failed to place deposits from numerous other transactions in escrow. Respondents failed to deposit in escrow the following amounts: an appraisal fee of $250.00 and a credit report fee of $150.00 collected from Mr. Eric Jason prior to closing a mortgage for $101,650.00 on November 30, 1989; an appraisal fee of $250.00 and a credit report fee of $50.00 collected from Francis J. and Barbara A. Lynch prior to closing a mortgage for $50,000.00 on February 5, 1990; a deposit of $2,000.00 in part payment of the brokerage fee collected from Mr. Nicholas A. Paleveda and Ms. Marjorie Ewing prior to closing a mortgage for $356,400.00 on April 20, 1990; a deposit of $350.00 collected from Mr. Richard L. Trombley prior to closing a mortgage for $40,000.00 on November 2, 1990; and a deposit of $350 collected from the Sun Bay Development Corporation prior to closing a mortgage for $292,500.00 on February 6, 1990. Excessive, Duplicate, And Undisclosed Charges Respondents imposed excessive, duplicate, or undisclosed charges in numerous mortgage transactions. The costs itemized and collected from borrowers in these transactions were not supported by actual expenditures. Respondents collected $625.00 from Mr. and Mrs. Ernest L. Sego for an appraisal that cost $250.00. Mr. and Mrs. Sego paid $325.00 for an appraisal report at the time they executed a Mortgage Brokerage Agreement on August 17, 1988, for a mortgage in the amount of $151,000.00. At the closing on April 7, 1989, Mr. and Mrs. Sego were charged an additional $300.00. Respondents collected $50.00 from Mr. and Mrs. Sego for a credit report at the time the Mortgage Brokerage Agreement was executed. At the closing, Mr. and Mrs. Sego were charged an additional $45.00 for a credit report. Respondents underestimated the closing costs for: Mr. Jason in the amount of $590.00; The Lynch's in the amount of $492.50; and Mr. and Mrs. Sego in the amount of $1,140.00. Failure To Disclose Respondents failed to disclose costs incurred by numerous borrowers. Respondents failed to disclose changes in the cost of title insurance which occurred between the time the borrowers signed Good Faith Estimate forms and the time the mortgage transactions closed. The estimated cost for title insurance for the Lynch's was $460.00 while the actual cost was $637.50. The estimated cost of title insurance for Mr. and Mrs. Sego was $200.00 and the actual cost was $263.00. The Mortgage Brokerage Agreement/Good Faith Estimate was not signed by two borrowers in separate transactions. Neither Mr. and Mrs. Knowlton nor Mr. Trombley signed those documents. Respondents failed to disclose payments made to a co- broker in two separate transactions. Mr. Nicholas Cancel was hired by Respondents to process loans. Loan processing is limited to preparing the documentation necessary to close a loan. Mr. Cancel is a licensed mortgage broker who was employed by a broker other than Respondents. Respondents failed to disclose payments made to Mr. Cancel in his capacity as an independent broker in the mortgage loans to the Lynch's and Mr. Jason. Failure To Maintain Books And Records And Failure To Cooperate Respondents failed to maintain books and records at the principal place of business. Respondents maintained only one business location. When Petitioner's investigator visited Respondents' office and asked for the books and records, Henson told the investigator that there were no books and records at the office. Petitioner subsequently served Respondents with a subpoena to produce Dupont's books and records. Respondents produced 57 mortgage files and some banking records. The files produced by Respondents were incomplete. Most contained only brochures. No files were produced on the Shuster and Linker transactions. During the investigation Henson represented to the investigator that he was neither president nor a corporate officer of Dupont. However, Henson repeatedly signed loan application and loan closing documents as president of Dupont including the Smith, Robeck, and Shuster transactions. Henson also entered into numerous co-brokerage arrangements as president of Dupont including arrangements with Mr. Cancel and Ms. Patricia Towers, president of Towers Mortgage Corporation, 6971 North Federal Highway, Boca Raton, Florida 33487. Fraud, Deceit, Misrepresentation, And Gross Negligence Respondents' intent to defraud and deceive the public is evidenced by a consistent pattern and practice of incompetence, gross negligence, misrepresentation, and failure to disclose material facts in multiple transactions over an extended period of time. Respondents knew or should have known that the acts committed by them constituted violations of law. Respondents violations resulted in financial loss to numerous individuals and to the public generally. Respondents failed to comply with agreements voluntarily executed by them and failed to pay amounts due under judgments duly entered against them by Florida courts. Respondents failed to cooperate with state investigators and failed to maintain books, records, and escrow accounts required by law.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that: Petitioner issue a final order revoking the license of Respondent, Henson, and revoking the registration of Respondent, Dupont. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 29th day of September 1992. DANIEL MANRY 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 29th day of September 1992.
Findings Of Fact During 1984 Philip Dennis on his own behalf and on behalf of Medi Fund Inc. negotiated in Florida with William Kickliter for the purpose of arranging a mortgage loan. During those negotiations Respondent Dennis represented to Kickliter that both he and Respondent Medi Fund, Inc., were mortgage brokers licensed by the State of Florida. In his stated capacity as a mortgage broker, Respondent Dennis drafted and entered into an agreement with Kickliter whereby Kickliter would obtain a mortgage loan from Respondent Medi Fund, Inc., for financing an ongoing business. Respondent Dennis signed the agreement between Kickliter and Respondent Medi Fund, Inc., pursuant to which Kickliter gave to Respondent Dennis a refundable advance fee of $1,500 by check made payable to Respondent Medi Fund, Inc. No mortgage loan was ever consummated. When Kickliter made demand on Respondent Dennis for the return of his monies, Respondent Dennis sent to Kickliter a post-dated check for only $850 with a notation on that check that it was allegedly for full payment of the refundable advance fee. When Kickliter deposited that check, the check "bounced." Respondent Dennis then stopped payment on the check. Kickliter's refundable advance fee has never been refunded to him by either Respondent Dennis or Respondent Medi Fund, Inc. In 1983 Respondent Dennis negotiated in Florida with Robert N. Goldstein to secure financing so that Goldstein's company Hospitality Consultants, Inc., could acquire a hotel. Respondent Dennis drafted and presented to Goldstein and Goldstein's partner Thomas Palumbo an agreement between Respondent Dennis and Hospitality Consultants, Inc., whereby Respondent Dennis would seek mortgage funding for the corporation. In that agreement Respondent Dennis designated himself as "the broker", a designation which matched his oral representations to Goldstein that he was a mortgage broker licensed in the State of Florida. Respondent Dennis executed that agreement on March 11, 1983, on his own behalf. In 1985 Respondent Dennis negotiated in Florida with Bryan Miller of Deco Redevelopment Corp. to secure real estate mortgage loan financing for hotels located in Miami Beach. Respondent Dennis on behalf of Respondent Medi Funds Inc., drafted an agreement whereby Respondent Medi Funds Inc. would secure financing for real estate renovation and new construction of a hotel complex to be built in Miami Beach. Respondent Dennis entered into that agreement on behalf of Respondent Medi Fund Inc. Pursuant to, that agreement, Miller paid to Respondent Dennis on behalf of Respondent Medi Funds Inc., the sum of $5,000 as a refundable advance fee. Neither Respondent Dennis nor Respondent Medi Funds Inc. has arranged any mortgage loan to Deco Redevelopment Corp. Furthers the $5,090 Refundable advance fee paid to Respondents Dennis and Medi Fund Inc. has never been refunded. In 1985 Respondent Dennis while in Florida negotiated with Millie Bulkeley of Arizona for mortgage loan financing for a mobile home park in Arizona. Thereafter Respondent Dennis drafted and entered into an agreement with Bulkeley whereby Respondent Medi Fund Inc., would secure real estate financing for her. Pursuant to that agreement Bulkeley deposited into Respondent Dennis's bank account in New York $20,000 as a refundable advance fee. No financing was ever secured for the project by Respondent Dennis or Respondent Medi Fund Inc. and the refundable advance fee has never been refunded. During 1983, 1984, and 1985 Respondent Dennis represented himself as being an officer of Respondent Medi Fund Inc. and misrepresented to persons both orally and in writing that both Respondent Dennis and Respondent Medi Fund, Inc., were mortgage brokers licensed by the State of Florida. During the time period of December 1982 up to and including May 2, 1986, neither Respondent Dennis nor Respondent Medi Fund, Inc., has been a licensed mortgage broker. By Order entered April 16, 1986, in this cause Petitioner was awarded certain costs against Respondent Medi Funds Inc., as a result of Medi Fund, Inc.'s, refusal to engage in discovery. Those reasonable costs are $45 for the attendance of the court reporter, $318.10 for the travel expense incurred by Petitioner's attorney, and $1,275 as an attorney's fee for Petitioner's attorney. The Order of April 16, 1986, also required Respondent Medi Funds Inc. to return to Petitioner the witness fee and mileage fee paid to it before its non-appearance at its scheduled deposition.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED that a Final Order be entered finding Respondents Philip Dennis and Medi Fund, Inc., guilty of the allegations contained within the Cease and Desist Order filed herein ordering Respondents Dennis and Medi Fund, Inc. to forthwith and immediately cease and desist from any further violations of Chapter 494, Florida Statutes, requiring Medi Funds Inc. to return to the State of Florida the witness fee and mileage paid to it pursuant to the April 16, 1986 Order entered herein and requiring Respondent Medi Funds Inc. to pay to the State of Florida the sum of $1,638.10, as further required by the April 16, 1986 Order entered herein. DONE and RECOMMENDED this 29th day of August 1986 at Tallahassee Florida. LINDA M. RIGOT Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 29th day of August, 1986. COPIES FURNISHED: Gerald Lewis, Comptroller State of Florida The Capitol Tallahassee, Florida 32301 Deborah Hoffman, Esquire Thomas E. Glick Esquire Office of Comptroller 401 N.W. 2nd Avenue, Suite 870 Miami Florida 33128 Philip Dennis 2124 Northeast 167 Street North Miami Beach, Florida 33160 Medi Funds Inc., a Florida Corporation c/o Philip Dennis 2124 Northeast 167 Street North Miami Beach, Florida 33160
Findings Of Fact The Respondent has at all times material to this matter been licensed by the Board of Real Estate as a real estate broker-salesman. For approximately the past year, she has been employed as a broker-salesman with Century 21 Realtors in Fort Walton Beach. Previously, for a period of approximately 18 months, she was employed with Kruse Realty, Fort Walton Beach, Florida, in the same capacity. During November, 1979, Mr. and Mrs. L. C. Lyons visited Kruse Realty. The Lyonses were seeking to purchase a lot upon which they could build a house. They were introduced to the Respondent. The Lyonses advised the Respondent that they had been approved for a loan by the Farmers Home Loan Administration (FHLA) for the financing of construction. They advised the Respondent that they would be able to spend only $6,000 for a lot and that the property would need to qualify for FHLA financing. The Respondent told the Lyonses that she had lots available that had been approved for FHLA loans. One of them was located in Wynn Haven Beach, and the other was owned by a Mr. Jack Piediscalzi. The Lyonses visited the Wynn Haven Beach property and decided to purchase a lot. This resulted in a contract for sale being signed by the Lyonses. The Lyonses specifically requested that the contract be made contingent upon their securing financing from FHLA. After the Lyonses executed the contract, Mrs. Lyons' father visited the lot. He observed some low-lying areas that he felt would cause building problems. Mrs. Lyons' father also visited the Piediscalzi property and urged that it would provide a better building site. The Lyonses decided to follow this advice, and they asked the Respondent if they could cancel their contract to purchase the Wynn Haven Beach property, and purchase one of the Piediscaizi lots. The Respondent requested that the Wynn Haven Beach property owner cancel the contract, which he did. Thereafter, the Lyonses entered into a contract to purchase a lot from Mr. Piediscalzi. The contract was executed on November 19, 1973. The Lyonses advised Respondent that they would pay for the lot with cash, but that they would be financing home construction through the FHLA loan. They inquired as to whether the contract should be made contingent upon FHLA approval. The Respondent advised the Lyonses that such a contingency clause would not be necessary because FHLA had already approved loans for construction of houses on the Piediscalzi lots. The day after they executed the contract to purchase one of the Piediscalzi lots, the Lyonses presented a loan approval package to FHLA. The FHLA representative immediately advised the Lyonses that the property would not qualify for FHLA financing because the road on which the lot fronted was merely an easement, not a county road as required by FHLA regulations. The FHLA representative advised the Lyonses that they were the first people to present a proposal for FHLA financing of one of the Piediscalzi lots. Mrs. Lyons called the Respondent later that same day. The Respondent's response was, "Well honey, what are you going to do with two lots?" The Respondent indicated that she would speak to her employer. Later, Mrs. Lyons spoke to Mr. Chamberlin, a real estate salesman who is also employed at Kruse Realty. Mr. Chamberlin advised that FHLA financing could be secured and that he would call her back within three days. He did not call her back in three days, and Mrs. Lyons contacted him. He advised that the property had not been approved, but that he would take steps to accomplish it. Mrs. Lyons also spoke to Mr. Kruse, the owner of Kruse Realty. Time was critical to the Lyonses because their FHLA loan package needed to be approved before available loan funds were distributed to other qualified purchasers. The steps that would need to be taken to secure FHLA financing were never accomplished, and the Lyonses did not secure the financing that they were seeking. Kruse Realty did not offer to compensate the Lyonses in any manner. Mrs. Lyons ultimately turned the property over to her father, who sold it. Mrs. Lyons filed a complaint with the Board of Real Estate, and with the Fort Walton Beach Board of Realtors. Mr. Chamberlin from Kruse Realty contacted Jack Piediscalzi sometime prior to November, 1979, about the prospects of Mr. Piediscalzi subdividing and selling his property. Mr. Piediscalzi decided that he would like to sell the property in parcels, and he signed an exclusive contract with Kruse Realty to handle the sales. Mr. Piediscalzi left details of dividing the property to Kruse Realty. Kruse Realty decided to sell the property through "meets and bounds sales" rather than by subdividing the property into lots as required by local planning and zoning regulations. A road was constructed through the property, and efforts were made to dedicate the road to Okaloosa County. The County did not, however, accept the road. Mr. Piediscalzi dealt primarily with Mr. Chamberlin at Kruse Realty. He did not deal directly with the Respondent. The Respondent was advised by Mr. Chamberlin and Mr. Kruse that they had talked to personnel at FHLA and that the property would qualify for FHLA loans. The Respondent saw two building permits that had been issued for lots on the property. The Respondent inquired of Mr. Kruse whether the property met local subdivision requirements, but she was assured that because it was being sold by "meets and bounds," it was not within subdivision requirements. The Piediscalzi-Lyons transaction was the first transaction in which the Respondent had dealt with an FHLA loan. The Respondent did not know specific FHLA requirements. She was not aware that the road through the Piediscalzi property had not been dedicated to Okaloosa County, nor that such dedication was required. The Respondent ceased dealing with the Lyonses after they advised her that FHLA had not approved their loan. Thereafter, the Lyonses dealt with Mr. Chamberlin and Mr. Kruse. The Respondent sought to cancel the Lyons-Piediscalzi contract, and she returned the $240 commission that she had received for the sale to Kruse Realty in January, 1980. She sought to get Kruse Realty to buy the property back, and she was willing to by up to one-third of it. Her employer was not, however, willing to purchase the property, nor to rescind the contract or refund commissions.
The Issue Whether the Department of Corrections (DOC) acted arbitrarily or illegally in selecting ARC Developmental Companies, Inc. (ARC) as the intended lessee under a proposed lease, Lease No. 700:0606? Whether, as DOC now advocates in its proposed recommended order, DOC should award the lease to LFFO because ARC's proposal is non-responsive? Whether DOC's interests would be best served by starting over?
Findings Of Fact In a single headquarters complex in Tallahassee, DOC has decided to consolidate administrative offices now scattered among various buildings. To that end, DOC's RFP for Lease No. 700:0606 seeks 56,154 square feet of office space by January 1, 1994, and (after other current leases expire) an additional 149,651 square feet of adjoining office space for occupancy on March 31, 1995. The RFP requires that DOC have the right to renew for each of two successive five-year terms, after an initial ten-year term. ARC has an option to purchase land on which it proposes to build all the office space it would lease to DOC. The RFP assumes that the office buildings to be leased do not yet exist, and requires only that "turn key" facilities be available at the times specified in the RFP. LFFO owns one of the buildings housing DOC offices now, and proposes to borrow money at commercial rates to finance construction of additional office space on adjacent land it already owns. After evaluating the competing proposals, DOC concluded that they were both responsive to the RFP, and assigned each points. ARC received a score of 97.66 points and LFFO received a score of 96.66 points. Over the initial ten- year term, ARC's proposal would require DOC to pay $30,175,129.10, while LFFO's proposal calls for payments aggregating $30,718,454.30 over the initial ten-year term. Joint Exhibit No. 4. Problematic Undertaking The RFP calls for some form of monetary assurance that a proposer will contract with DOC, if selected. Specifically, Paragraph IV(L) states: All Proposals shall include a Proposal Security Fee which may be in the form of cash, a Cashier's Check or Proposal Bond, and shall be in the amount of Ten Thousand Dollars ($10,000), payable to the Department of Corrections. The agency reserves the right to reject any security tendered. The Proposal Security fee ties [sic] will be returned with[in] thirty (30) calendar days after the agency and the accepted proposer have executed a written lease. Joint Exhibit No. 1 at 32. The purpose in requiring a security fee or a proposal bond was to satisfy DOC of the proposers' good faith, "that they intended to enter into a contract" (T.72) with DOC, if given the opportunity. LFFO met the security fee requirement with a $10,000 cashier's check, while ARC submitted a bond issued by Highlands Insurance Company of Houston, Texas (Highlands), at the behest of Brown & Root Building Company (Brown & Root). Designated as principal on the bond, Brown & Root and, in the event of Brown & Root's default, Highlands, as surety, are obligated to pay DOC $10,000, on conditions stated in the bond, which, however, could never arise, because Brown & Root did not submit a proposal to DOC. The bond specifies the undertaking: [I]f the Obligee [DOC] shall accept the bid of the Principal [Brown & Root] and the Principal shall enter into a contract with the Obligee in accordance with the terms of such bid, and give such bond or bonds as may be specified in the bidding or contract documents with good and sufficient surety for the faithful performance of such contract and for the prompt payment of labor and material furnished in the prosecution thereof, or in the event of the failure of the Principal to enter such contract and give such bond or bonds, if the Principal shall pay to the Obligee the difference not to exceed the penalty hereof between the amount specified in said bid and such larger amount for which the Obligee may in good faith contract with another party to perform the work covered by said bid, then this obligation shall be null and void, otherwise to remain in full force and effect. Joint Exhibit No. 2. Signed by the president of Brown & Root and an attorney in fact for Highlands, the bid bond submitted with the ARC proposal misidentifies Brown & Root as the bidder for DOC's "State Headquarter Building," a reference to proposed Lease No. 700:0606. Joint Exhibit No. 2. Brown & Root is a general contractor named in ARC's proposal as a member of the "ARC Team." Joint Exhibit No. 2 at 41, and section entitled "Construction Phase Management Plan"; T.72, 239. But ARC is the bidder, the offeror making ARC's proposal, as Mr. Arthur R. Collins, the sole officer, director and shareholder of ARC, has clearly and consistently stated. Deposition of Collins, at 44-45. This is also clear from the four corners of the ARC proposal itself. There is no partnership or joint venture agreement between ARC and Brown & Root. Deposition of Collins, p. 42; T. 59-60, 255. Mr. Collins testified that a letter to ARC from Brown & Root constitutes "a letter agreement" between ARC and Brown & Root, which "essentially gives ARC Developmental Companies all rights to market and represent Brown & Root Building Company specifically as relates to this particular project." Deposition of Collins, p. 44. Otherwise stated, ARC and Brown & Root have an "agreement in principle" (T.239) under which Brown & Root is "responsible for design, build and finance, all three components." (T.240) There are, however, "ongoing negotiations as to some of the details" (Deposition of Collins, p. 44) and the "final terms and conditions are under negotiation," (T.255) or were at the time of the hearing. ARC's proposal did not contain the letter said to embody the agreement in principle between it and Brown & Root, nor did the letter come in evidence at hearing. Apparently nobody has ever signed anything on behalf of ARC purporting to bind ARC to any agreement, even in principle, between ARC and Brown & Root. Whether or not ARC contemplated that Brown & Root would perform all financing, designing and building, it is ARC to whom DOC had to look to accept responsibility to perform as DOC's contractor. The RFP specifies that the successful proposer cannot assign or transfer the contract "or his power to execute such contract" to any person without prior written consent of the agency. Joint Exhibit No. 1, p. 34, IV(T). The RFP also provides that a "transfer shall not be requested prior to completion of the facility and acceptance by the agency." Joint Exhibit No. 1, p. 34, IV(T). DOC would not have accepted a proposal without a security fee or proposal bond. T. 138. DOC concluded that the bid bond furnished with ARC's proposal provided the assurance the RFP sought. T. 138-139. But the bid bond does not assure that DOC will receive $10,000, in the event that ARC refuses to execute a lease, if its proposal is accepted. Although the bid bond represents ARC's effort to fulfill the security deposit requirement set out in paragraph IV(L) of the RFP, (Deposition of Collins at 42, 43), the bid bond does not purport to bind ARC in any way. The bid bond submitted with ARC's proposal makes no mention of ARC Developmental Companies, Inc. Joint Exhibit No. 2; T. 75. While LFFO suffered a detriment in submitting its security deposit: loss of use of $10,000 for a period already lasting several months; and the proposal bond ARC submitted cost it nothing (although Brown & Root presumably paid the premium), it is not clear that ARC enjoyed a material competitive advantage, as a result. But the RFP security requirement also sought to protect DOC's investment of time and money in evaluating proposals it solicited. The security deposit requirement cannot, under DOC policy not called into question here, be waived; and ARC's proposal is not responsive to the requirement. DOC's determination that the bid bond constitutes good security cannot withstand scrutiny. DOC's conclusion that the bond was sufficient was based on the bid bond itself, and on nothing else. T. 138-139. Construing the bid bond to meet the RFP's "earnest money" requirement is an arbitrary distortion of its terms. The purpose of requiring a security deposit or a proposal bond -- to provide the contracting agency some assurance that the successful bidder would in fact enter into a contract with the agency (T.72) -- was frustrated. The bid bond submitted by ARC provides no security whatsoever to DOC that ARC will enter into a contract with the agency. Ability, Financial Resources, History and References Paragraph V(H) of the RFP indicated that an evaluation committee would review all proposals to determine, among other things, the [c]omposition of the group submitting the proposal and their financial resources available to accomplish this project. Joint Exhibit No. 1, pp. 44-5. The RFP also speaks of financial criteria that the proposer itself must meet: S. Qualification of Proposers: Each proposer shall be required, before the award, to show to the complete satisfaction of the agency that he has the necessary facilities, ability and financial resources, to furnish the service and facilities as specified herein in a satisfactory manner, and he may also be required to show past history and references which will enable the agency according to the foregoing requirements and will justify the agency in assessing his the proposal. Joint Exhibit No. 1, p. 34, IV (strike through and emphasis in original). The RFP states that time is of the essence, which may account for the concern it evinces over the financial ability of proposers. ARC has furnished DOC no balance sheet, audited or otherwise. In its proposal, information ARC provided relating to its financial resources consisted of a single credit report dated September 22, 1992, which disclosed only: NO PUBLIC RECORDS OR OTHER INFORMATION IN FILE VER INC 01-13-92, NO CREDIT REFS GIVEN Joint Exhibit No. 2. The testimony at hearing did not establish what financial resources ARC has acquired, if any, since its incorporation last year. ARC is involved with one other project, for which financing is currently being sought (T.249-252), but otherwise has no real estate development experience. T.254. Among things lenders who finance real estate development consider are "the history and the experience of the borrower or borrowing entity, . . . their numbers, . . . their financial capacity . . . what type of equity injection [they] are going to put into the deal, whether it be cash or hard land . . . ." T.153. ARC did not demonstrate its ability to "inject" any equity into this project. Tax-Exempt Financing Proposed ARC's proposal contains a September 18, 1992, letter from the Donaldson, Lufkin & Jenrette Securities Corporation, addressed to Brown & Root, the body of which states in its entirety: Regarding the issuance of tax-exempt debt to finance the proposed facility to be leased to the Florida Department of Corrections, as their state headquarters office building. Donaldson, Lufkin & Jenrette is pleased to participate in the successful development of the proposed project. Based upon current market conditions and the procurement of credit enhancement or an investment grade rating for the issue, we are confident that we can successfully underwrite a public offering of tax-exempt bonds. Joint Exhibit No. 2. This is not a firm commitment, only an undertaking to use "best efforts." Deposition of Shirey, p.24. After receiving the proposals, DOC solicited additional financial information from LFFO and from ARC by letters dated October 19, 1992, which state: The request for proposal stipulated that additional information pertaining to your capabilities to perform the project to our satisfaction may be necessary. The Chief of the Bureau of Finance and Accounting is charged with gathering the necessary information for determining if your group can realistically perform the project. This is considered a pass/fail criteri[on]. Joint Exhibit No. 8. The letters instructed both proposers to "[p]rovide a plan to finance both the construction and subsequent operation of the facility," including detailed information on all financing arrangements, specifically: A description of all financing arrangements (i.e. - debt, equity, lease agreement, etc.). A description of the proposed sources of financing for the construction and operation of the facility. Documentation should include specific commitment statements from financiers. The principal amount of debt to be issued or equity to be committed to finance the project. The annual interest rate for each debt component. A debt amortization schedule. An analysis of projected cash flow for both the construction period and the term of the lease. A description and value of all collateral to be pledged. Joint Exhibit No. 8. DOC anticipated that the proposers would respond with the financing plan they actually intended to use to finance construction of the project. Deposition of Biddy, p. 18; T. 98. In response to DOC's October 19, 1992, letter, ARC submitted a second letter from Donaldson, Lufkin & Jenrette, dated October 22, 1992. Joint Exhibit No. 11. The second Donaldson, Lufkin & Jenrette letter stated, in part: The final amount of the debt will be dependent on the final plan and specifications provided by the contractor and architect and negotiations with the ultimate investor. The final debt amount will be made available prior to the closing. The financing will provide 100 percent of the funds necessary to construct the project. The final interest rate or rates. (See Number 3 above). Debt Ammorization schedule. (See numbers 3 & 4 above). An accompanying Memorandum of Terms summarized some of the RFP requirements, gave a brief description of the property on which ARC has an option, and stated: FINANCING: Construction/Permanent financing will be obtained by selling tax exempt certificates of participation (the "Certificates") in the Lease Agreement. Proceeds from the sale of the Certificates will fund construction and provide permanent financing for the Facility. . . . It is anticipated that the Certificates will be rated or credit enhanced by a policy of municipal bond insurance. SECURITY: Certificate holders will be secured by an undivided interest in payments received pursuant to the Lease. Certificate holders will be additionally secured by a deed on the Property recorded in the name of the trustee on behalf of Certificate holders. Joint Exhibit No. 11. DOC was evidently satisfied with LFFO's response to its letter of October 19, 1992. Joint Exhibit No. 11. Following ARC's October 22, 1992, response to DOC's October 19, 1992 letter, however, DOC wrote ARC requesting still more financial information. DOC's letter stated: Thank you for responding so promptly to our letter of October 19, 1992 concerning the financial viability of the proposal submitted by ARC Development Companies, Inc. However, we do not see in your response the level of detail that is necessary to alleviate the concerns we have. Joint Exhibit No. 14. In response to this letter, ARC wrote DOC a letter dated November 6, 1992. Joint Exhibit No. 15. The response included a cash flow analysis, which assumed a bond issue of $27 million repayable over 20 years, with interest at 8 3/4 percent; along with a resolution from the City of Midway, purporting to authorize the creation of a nonprofit corporation to issue some $29 million worth of revenue bonds to finance the construction of the project (in Tallahassee). Joint Exhibit No. 15. The cash flow analysis assumed $170,000 would be borrowed from some other, unidentified source, and did not indicate how cash flow shortfalls projected for 1994 and 1995 were to be covered. At ARC's October 23, 1992, oral presentation to DOC officials, Mr. Collins emphasized that ARC's proposal was based on tax-exempt financing. Joint Exhibit No. 7, pp. 9, 27, 60, 72-73. ARC's post-submittal correspondence with DOC concerning financial arrangements reiterated reliance on tax exempt financing. Joint Exhibits Nos. 11, 14, 17 and 18. Mr. Collins' testimony at hearing assumed tax exempt financing would be available to ARC to build and operate the proposed headquarters. Contingent Award On December 18, 1992, DOC announced its decision to award Lease No. 700:0606 to ARC, contingent upon ARC's "providing to the Department within 45 days of this notice, and to the Department's satisfaction, sufficient commitments to ensure ARC's ability to finance construction of the project as presented in their proposal." Joint Exhibit No. 16. The December 18, 1992, award letter shows on its face that the Department was not "completely satisfied" with ARC's financing proposal at the time it made the award. Mr. Kronenberger admitted as much in his testimony. T. 146. At hearing DOC's Mr. Kronenberger also testified that the award was made contingent so that DOC could satisfy itself that ARC's proposal did not contemplate a lease-purchase and that tax-exempt financing was appropriate for this project. T. 131-132. The contingent award letter made no reference, however, either to a lease-purchase or to the tax-exempt nature of the proposed financing. Joint Exhibit No. 16; T. 145, 147. Before December 18, 1992, ARC's proposed financing involved the City of Midway's authorizing a nonprofit corporation to issue bonds. Joint Exhibit No. 14. Mr. Collins' testimony at hearing suggested that ARC has now abandoned efforts to involve the City of Midway with financing the project. To allow ARC to substitute another financing proposal at this juncture would afford ARC a competitive advantage over LFFO, and would constitute an arbitrary departure from prescribed procedure. DOC's letters of inquiry during the proposal evaluation process were intended to elicit from the proposers "the financing plan" they actually intended to use. Deposition of Biddy, p. 18; T.98. Allowing ARC 45 additional days to submit an acceptable financing proposal gave it a material competitive advantage over LFFO. ARC could "shop around" for financing as the intended awardee, and not merely as a bidder. "[I]f a developer . . . had an award in hand, he would be in a very advantageous situation to shop [for] the best deal he could get . . . considering rate, term, structure, price, so forth " T.154. Governmental Lessee ARC's proposal to use tax-exempt financing raises "two types of concerns. One is the ability to get the tax opinion and do the deal, and then there's the issue of state law." Deposition of Kubik, p. 50. Unless reputable tax counsel are of the opinion that (possibly imputed) interest paid from lease payments to holders of bonds or certificates of participation sold (to raise the money needed to build DOC's headquarters building) as tax-exempt qualify for tax exemption under the Internal Revenue Code, the paper cannot be marketed as tax- exempt. The purpose of the pertinent Internal Revenue Code provisions is to subsidize state and local governments, not private developers, by allowing governmental borrowing at lower rates. Certain financing arrangements involving private developers may, however, entail issuance of tax-exempt securities where state or local government is, in economic effect, borrowing money, legal technicalities notwithstanding. Deposition of Piemont, p. 40. One such arrangement involves state or local government as a lessee under a lease including an agreement to purchase, so that the governmental entity is "building equity" (T.23) (or, if the facility depreciates, bearing the loss.) Certificates of participation in the stream of lease payments, or bonds to be retired by applying lease payments, are then sold as tax-exempt securities. The test is "that the income derived from the obligations be from the payment of governmental lessees to provide essential function facilities." Deposition of Arnspiger, p. 9 Brown & Root's financial consultant contemplates a lease under which DOC would have the option to purchase the property, after ten years, for "the amount remaining on the indebtedness." Deposition of Arnspiger, p. 14. In the twentieth year, the price "would be a dollar." Id. "For tax purposes the owner of the facility would be the lessee." Deposition of Harris, p. 11. A lease under which a governmental tenant expressly agrees to purchase the premises may be economically equivalent to a lease with an option to purchase at a nominal price so low as to be "irresistible." Florida law limits the circumstances under which state agencies can borrow money and pledge the state's taxing power to repay the debt. T.136. Section 255.25(1)(b), Florida Statutes (1992 Supp.) provides: (1)(b) When specifically authorized by the Appropriations Act and in accordance with s. 255.2501, if applicable, the Division of Facilities Management may approve a lease-purchase, sale-leaseback, or tax-exempt leveraged lease contract or other financing technique for the acquisition, renovation, or construction of a state fixed capital outlay project when it is in the best interest of the state. Specific authorization in an earlier Appropriations Act authorized the Division of Facilities Management to approve a tax-exempt financing technique for acquisition of office space for DOC, but that authorization expired unused. Here the RFP solicited offers by lessors to execute a standard state lease on a form drafted by the Department of General Services and attached as an appendix to the RFP. Under the standard state lease, the lessor retains ownership of the building at all times. The lessee is not obligated to file a form 8038 with the Internal Revenue Service or to monitor for compliance with arbitrage restrictions imposed by Section 148 of the Internal Revenue Code, both of which would be necessary if tax-exempt obligations were sold to finance the building. Deposition of Piemont, pp. 16-22. ARC's proposal amounts to an offer to employ a financing technique for the acquisition and construction of a state fixed capital outlay project that the legislature has not approved. ARC's proposal is not responsive to the RFP because the method of financing the proposal contemplates cannot be accomplished if the parties execute a standard state lease, as contemplated by the RFP.
Recommendation It is, accordingly, RECOMMENDED: That DOC reject ARC's proposal as nonresponsive and consider seeking the necessary approvals to draw an RFP soliciting proposals for a headquarters building that would eventually belong to the State of Florida. DONE AND ENTERED this 5th day of May, 1993, in Tallahassee, Florida. ROBERT T. BENTON, II 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 5th day of May, 1993. APPENDIX Petitioner's proposed findings of fact Nos. 1-6, 8, 11, 13-17, 19-36, 39- 41, 43, 44 and 46 have been adopted, in substance, insofar as material. With respect to petitioner's proposed finding of fact No. 7, DOC's determination of responsiveness was tentative, free-form action. Petitioner's proposed findings of fact Nos. 9, 10, 18, 38, 47, 48, 49 and 52 pertain to subordinate matters. With respect to petitioner's proposed finding of fact No. 12, the undertaking assumed Brown & Root had submitted a proposal. Petitioner's proposed finding of fact No. 37 pertains to an immaterial matter. With respect to petitioner's proposed finding of fact No. 42, the issuance of certificates can defeat tax exemption if certain requirements are not observed. With respect to petitioner's proposed finding of fact No. 45, the distinction between a lease including an agreement to purchase and a lease with the option to purchase is not necessarily dispositive for tax purposes. With respect to petitioner's proposed findings of fact Nos. 50 and 51, ARC's proposal contemplates a lease with an option to purchase. With respect to petitioner's proposed finding of fact No. 53, Mr. Piemont testified that one of the requirements for "on behalf of" financing "is that the governmental entity gets actual ownership." Deposition of Piemont, p. 41. Respondent's proposed findings of fact Nos. 1-11, 13, 14, 16, 17, 18, 20, 23, 25, 26, 27, 28, 30, 37, 38, 44-49, 58, 60, 64 and 65 have been adopted, in substance, insofar as material. With respect to respondent's proposed finding of fact No. 12, the exact cause of the differential was not proven. Respondent's proposed findings of fact Nos. 15, 32-36, 39-42, 51, 61, 62, 71, 72, 73 and 74 pertain to subordinate matters. Respondent's proposed findings of fact Nos. 19, 21, 22, 43, 63, 75 and 76 have been rejected as contrary to the weight of the evidence. With respect to respondent's proposed findings of fact Nos. 24 and 29, DOC witnesses testified that absent a bond the proposal would have been rejected as non-responsive; the bond ARC submitted was the equivalent of no bond at all. With respect to respondent's proposed finding of fact No. 31, the award letter shows on its face DOC's misgivings about ARC's ability to finance the project. With respect to respondent's proposed findings of fact Nos. 50, 52--57, 67, 68, 69 and 70 the proposed findings are correct only in the sense that "purchase", "ownership", and the like are understood to mean "for tax purposes." With respect to respondent's proposed finding of fact No. 66, if a government entity is lessee, a non-governmental lessor may issue certificates of participation in the lease payments. Intervenor's proposed findings of fact Nos. 1-4, 7, 9, 10, 13, 14, 19, 21, 23, 26 and 28 have been adopted, in substance, insofar as material. With respect to intervenor's proposed finding of fact No. 5, it is not clear what Brown & Root's contractual obligations are. With respect to intervenor's proposed finding of fact No. 6, the bond does not constitute an offer or proposal. Intervenor's proposed findings of fact Nos. 8 and 25 have been rejected as contrary to the weight of the evidence. Intervenor's proposed findings of fact Nos. 11, 12, 15, 16, 17, 22, 29, 30 and 31 pertain to subordinate matters. With respect to intervenor's proposed findings of fact Nos. 18 and 20, ARC's financing proposal was non-responsive, whether or not such an approach might be viable, if responsive to the RFP and otherwise lawful. With respect to intervenor's proposed finding of fact No. 24, insofar as it is not predicated on hearsay, there was no showing that any rating agency, insurer or bond fund is aware of applicable Florida law. With respect to intervenor's proposed finding of fact No. 27, what is required for tax purposes does not depend on whether the lessee has a legal right to forgo the purchase. COPIES FURNISHED: M. Christopher Bryant, Esquire Oertel, Hoffman, Fernandez & Cole, P.A. Post Office Box 6507 Tallahassee, FL 32314-6507 Stephen Ferst, Esquire Florida Department of Corrections 2601 Blair Stone Road Tallahassee, FL 32399-2500 Martha Harrell Chumbler, Esquire Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. 215 South Monroe Street, #500 Tallahassee, FL 32301 Harry K. Singletary, Jr. Secretary Department of Corrections 2601 Blair Stone Road Tallahassee, FL 32399-2500 Louis A. Vargas, Esquire General Counsel 2601 Blair Stone Road Tallahassee, FL 32399-2500
The Issue The following issues are presented for disposition in this proceeding: The effect, if any, of the repeal of Section 494.05, F.S. prior to the filing of the administrative complaint. Whether Respondent committed the violations of Chapter 494, F.S., with which he is charged. What disciplinary action, if any, should be taken against Respondents mortgage broker's license.
Findings Of Fact Robert F. Potts is a licensed mortgage broker, having been issued license number HB0011700 by the Department of Banking and Finance (Department). At the time of hearing his license was in inactive status. Potts incorporated Florida Mortgage Equity Corporation (FMEC) in December 1983. Prior to that time he had worked as a mortgage broker for several companies, including State Capitol Corporation. When employed by State Capital Corporation Potts solicited investors for "equal dignity mortgages". State Capital's investment program offered eighteen percent interest per annum for a fixed period, generally five years. The Department investigated State Capital Corporation in 1982, and filed suit against the corporation, its officers, directors and several named employees, charging them with violations of the Securities Act and Mortgage Brokerage Act. The case was resolved with stipulations for final judgment, and Final Judgment was entered on April 11, 1983. Potts was not part of the investigation or suit. He left State Capital in late 1983 because he felt uneasy with the company. Around the time he left State Capital and incorporated FMEC, Potts solicited individuals with whom he had dealt at State Capital. /1 He sent a form letter on FMEC stationary, including the notation, "Robert F. Potts Licensed Mortgage Broker", as part of the printed letterhead. The letter informed potential investors of his new venture: * * * As you can see, the company is Florida Mortgage Equity Corporation, address and phone listed below. I [sic] pay you an interest check monthly, based on the rate of 18%. All investments are secured with property which is located in the Central Florida area. The terms of investment and amounts are to be discussed individually along with other pertinent information. (emphasis added) * * * (Petitioner's Exhibit 11) When individuals invested in FMEC, they were given a "Trust Account Deposit Receipt", reflecting the amount of deposit and stating that the deposited funds were to be used for purchase of a bond earning 18% for a fixed term, generally five years. The trust deposit receipt also stated that the investor would receive the following documents in approximately forty-five (45) days: - A copy of the Florida Mortgage Equity Corporation Bond. - Verification of full insurance on all corporate properties. - Copy of Appraisal on all corporate properties. - Copy of Financial Statement on Florida Mortgage Equity Corporation. (Petitioner's Exhibit #12) Approximately thirty investors invested in excess of $381,000 in FMEC. (Admitted in Response to Notice dated September 2, 1987.) With the exception of a Potts family friend and one individual referred by another investor, all FMEC's investors were people with whom Potts had recently had business through his mortgage broker activities at State Capital. Five of the investors testified at the final hearing. None had extensive investment experience and most were elderly retired individuals. None received the documents listed in the trust account deposit receipt except for the bond, but they were unconcerned so long as the monthly interest payments were being sent. When one investor inquired about the documents, he was asked to wait until Potts got a computer and could get up to date. He never asked again. Although the FMEC letterhead and Potts' business cards indicated that he was a licensed mortgage broker, Potts was not actually selling mortgages through that company, in contrast to his activity through State Capital. This distinction was lost on his unsophisticated investors, as the schemes both promised the same high yield for the same fixed period. The term, "mortgage", was a prominent part of the company name. He touted his status as a licensee, and the investors had seen his mortgage license when he visited their homes under the auspices of State Capital. To these individuals, Potts' promises of security were backed by his professional license. Potts' activity with FMEC consisted in soliciting funds from investors. These funds were then invested in a separate corporation, Roundtree Development Corporation. In return for its investments in Roundtree, FMEC received an unsecured corporate bond paying eighteen percent interest. The interest was paid back to FMEC's investors. In addition, Potts received a ten percent commission from Roundtree. Potts met Michael Deriemaecker, the president and sole director of Roundtree, in 1982 or early 1983. He learned that Deriemaecker was successfully involved in condominium conversions. After a series of casual meetings over a period of months, Potts decided to "join forces," in his words, with Deriemaecker. Potts never considered placing his investors' money in another investment. Potts felt that Deriemaecker was honest and successful in his ventures and Potts did not consider himself knowledgeable in real estate. Roundtree purchased the properties and conducted the actual work of development and renovation; hired and paid the contractors and completed the projects. Potts, through FMEC, raised the funds. Potts mentioned Roundtree Development Company to some investors, but did not explain to them the relationship between the two companies. The investors understood that their funds were being used for certain real estate projects. At least one investor, J. Daniel Johnson, thought he was supposed to get a mortgage for his investment. Another investor, Evelyn Foley, did not know the difference between a mortgage and a bond but had a clear understanding that her funds were going to be invested in nursing homes, condominiums and apartment buildings - property that was being liquidated - and that the property would be repaired and sold at a profit. The Department's investigation of Potts and FMEC included a review of subpoenaed bank records. These were incomplete, according to Investigator Alice Hampton, as some of the bank's microfilm was faulty. Ms. Hampton determined from the available bank records that approximately $169,450 was disbursed to Roundtree Development Corporation from investor monies in FMEC's accounts from 1983 to 1986. Bonds supplied to Ms. Hampton by Potts' attorney in response to a subpoena indicated that Roundtree/Deriemaecker received $285,000 from FMEC from September 1983 through October 1984. In an interview with Ms. Hampton, Deriemaecker said that Roundtree received approximately $236,000 from Potts/FMEC. At the hearing, Potts said he did not know exactly how much he loaned Deriemaecher. Michael Deriemaecher did not testify at the hearing. However, the account of his interview on April 14, 1987, found in Ms. Hampton's Report of Investigation (Petitioner's Exhibit #9), is consistent with, and corroborates Potts' testimony with regard to the relationship of the two companies, the use of the funds, and the fact that Roundtree stopped making payments to FMEC in January 1985, when a series of projects failed. By April 1986, all interest payments by FMEC to its investors ceased. No payments have been made since that time on principal or interest. Potts' claim that his investors assumed the risk of a risky venture and they got what they bargained for, both oversimplifies and misconstrues the facts. He was aware of the circumstances of the individuals he solicited; he had been to their homes as an employee of State Capital and knew of their financial status, their ignorance and their demonstrated eagerness to supplement their retirement incomes. He falsely promised that the investments would be secured, when they were not; he withheld material particulars of the relationship between FMEC and Roundtree; and he misused the funds of his investors by his improvident and reckless release of their money to Roundtree.
Recommendation Based on the foregoing, it is, hereby RECOMMENDED: That Robert F. Potts be found guilty of violations of Section 494.05(1)(a), (b), and (c) and 494.05(2), F.S. (1985) and that his mortgage broker's license be revoked. DONE and RECOMMENDED this 21st day of April, 1988, in Tallahassee, Florida. MARY CLARK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 21st day of April, 1988.
Findings Of Fact At all times relevant hereto, respondent, Toledo Realty, Inc. (TRI), was a corporation registered as a real estate broker having been issued license number 0133053 by petitioner, Department of Professional Regulation, Division of Real Estate (Division or petitioner). Respondent, Ramiro J. Alfert, holds real estate broker license number 0223005 also issued by petitioner. Alfert, who has been a broker for eleven years, was licensed and operating as a qualifying broker and officer for TRI when the events herein occurred. The firm is located at 7175 Southwest 8th Street, Suite 210, Miami, Florida. Approximately three years ago, the Federal National Mortgage Association (FNMA) began foreclosing on a number of residential properties on which the owners had defaulted. Wishing to dispose of these repossessed properties in an expedited manner, FNMA selected at random a number of brokers in the Miami area who were given exclusive listings and agreed to advertise the properties, and take such other steps as were necessary to make a quick sale. Futrell Realty (Futrell) in Kendall, Florida was one such broker, and it had the exclusive listing on the two properties relevant to this proceeding. According to established FNMA procedure, a broker who obtained an offer on a FNMA property was obliged to send the original contract to the listing broker who then mailed it to FNMA area headquarters in Atlanta, Georgia. Marie J. Pardo was a salesperson for TRI, having worked there for almost six years. Pardo represented two potential buyers, Lazara Rouco and Artemia Delgado, an unmarried couple, who were interested in purchasing a FNMA property at 794 Southwest 97th Court Circle, Miami. On March 19, 1986, Pardo prepared a purchase/sales contract on behalf of Rouco and Delgado in which the couple offered to buy the property for $65,000. A $4,000 deposit was given by Rouco to Pardo and then placed in TRI's trust account. In accordance with established procedure, the original contract was sent to Futrell which forwarded it by express mail to FNMA in Atlanta. Four days after the contract was executed, Pardo was advised by Rouco that she and her boyfriend had separated, and she could no longer afford such an expensive house. But by now, the offer had been accepted by FNMA, and Rouco's $4,000 deposit was at risk. In an effort to save Rouco's deposit, Pardo, with FNMA's approval, secured another buyer for the property, and had Rouco assign the contract to the new buyer. The house was thereafter sold by FNMA to the new purchaser on an undisclosed date. Pardo did not advise Alfert or other TRI personnel that this action had been taken. Knowing that Rouco still wished to buy a home, but one that was less expensive, Pardo obtained Rouco's agreement for TRI to retain the $4,000 deposit pending efforts to find another property. In June or July, Pardo located another FNMA property at 100 Southwest 110th Avenue, unit 138, Miami. Because Pardo considered Rouco to be a credit risk, Pardo decided to have Rouco prequalify for a loan before a formal contract was submitted to FNMA. Accordingly, Pardo obtained (presumably from TRI files) another FNMA contract executed on June 10, 1986, by three buyers (Julio Ugarto, and Patricia and Ernesto Duarte) on a different FNMA property. She made a copy of that contract, scratched out the existing names, address and price, and inserted a new price ($47,500), address and Rouco's name. The altered contract was dated July 10, 1986. Although Pardo showed Alfert a copy of the contract that day, he did not notice anything unusual about it, and sent a letter to the mortgage company confirming that TRI had an escrow deposit of $4,000. Pardo stated she did not disclose the alterations to Alfert since she feared being fired if respondents learned of her actions. Pardo sent a copy of the altered contract to a mortgage broker friend to see if Rouco could qualify for a loan. Before she heard from the lender, Pardo left Miami in early September for a three-week vacation in the Dominican Republic. She asked another salesman with whom she shared a desk, Carlos Cachaldora, to hold the contract while she was gone. Cachaldora was a long-time employee of TRI, having worked there for some twelve or thirteen years. The two had worked as "partners" for four years with Pardo securing the client and Cachaldora doing the follow-up work. Although Pardo told Carlos about the alterations, Carlos did not advise Alfert or any other TRI employee of Pardo's actions. At hearing, Paido stated she did not know who sent the altered contract to FNMA but "believes" it was Carlos. However, Carlos denied mailing the contract to FNMA, and testified he received it in early September. Since the evidence shows that FNMA received the contract prior to September, it is found that Pardo mailed the contract to FNMA in July or August without advising Futrell or respondents. By fortuitous circumstances FNMA happened to receive from Futrell a validly executed contract on the same property at 100 Southwest 110th Avenue. This contract and the altered July 10 contract were sent to the FNMA attorney in Miami for review in preparing the closing documents. When FNMA's attorney began checking the documents, she noted there were some discrepancies in the two contracts and brought this to the attention of FNMA. Thereafter, a FNMA area supervisor in Atlanta, Paul Buechele, compared the July 10 contract with the other contract and noted that the names on the contracts did not match, that the July 10 contract had the initials of a FNMA employee who no longer worked at FNMA, and that he did not have the original July 10 contract in his files. Buechele telephoned Alfert on Friday, September 5 and briefly told him he had a "problem," and followed up with a letter the same day advising that FNMA "(had) no record of this sales contract," and for Alfert to express mail the original within 48 hours or else FNMA would "consider any such contract null and void." Although Buechele suspected the second contract might be an altered document or a forgery, he did not tell this to Alfert. During their conversation, Alfert looked in the office file, but could not find the original contract. He then advised Buechele that he would have to check with the salesman involved with the sale and get back in touch after he learned what had happened. There were no further communications between the two. The following Monday, Alfert met with Cachaldora who told Alfert he thought the original copy had been sent to FNMA and it must have been misplaced. Alfert was not overly concerned since it was not unusual for the selling broker to have only a copy of a contract in its files, particularly since the listing broker is given the original on FNMA transactions. At no time did Carlos advise Alfert that the July 10 contract was an alteration of the June 10 contract. Carlos telephoned Buechele the same day and advised him TRI had a copy, but no original, of the contract, and it was being express mailed that day to FNMA in Atlanta. On September 11, 1986, Rouco wrote TRI a letter requesting the immediate return of her $4,000 deposit because she had just been advised she could not qualify for a loan. Alfert mailed her a refund check the same day. He gave no further thought to the matter since he felt the contract at that point was "terminated." This was because Rouco had requested a return of her deposit, and more than forty-eight hours had passed since receiving Buechele's letter. On December 2, 1986, a Division investigator visited Alfert to discuss the July 10 contract. His visit was prompted by a complaint from Buechele about the altered contract. For the first time, Alfert learned what Pardo had done. Alfert immediately sent her written notice that she was fired. He also advised the Division that she was no longer an employee of TRI. Cachaldora, who had worked for TRI for some twelve years, also left TRI a few months later, albeit voluntarily. He was not fired because Alfert considered Pardo, and not Cachaldora, to be the guilty party. TRI is a relatively large realty office having three brokers and approximately seventy-five salesmen. Alfert holds the position of manager and has biweekly meetings with sales personnel to go over office procedures and to discuss sales. According to office procedure, Alfert is, whenever practicable, supposed to review all contracts before they are presented or mailed. This advice was conveyed to Pardo and Cachaldora but they did not follow office procedure. Except for the activities of Pardo and Cachaldora, there is no evidence that any other employee was involved in the Rouco matter.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondents be found not guilty of violating Subsection 475.25(1)(b), Florida Statutes (1985), as alleged in the administrative complaint. DONE AND ORDERED this 7th day of December, 1987, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 7th day of December, 1987.
Findings Of Fact On November 15, 1976, the Outrigger Club, Inc., a Florida corporation, through its president, Ervin Freeman, and its Secretary, Joan Dimon, executed a warranty deed conveying all right, title and interest, in and to certain property located at Northeast 135th Street and Biscayne Boulevard, North Miami, Florida, to Petitioner, Biscayne South, Inc. (hereafter Biscayne South), a Florida corporation. The warranty deed was recorded with the Clerk of the Circuit Court of Dade County, Florida, on November 16, 1976. On November 22, 1976, Biscayne South executed a mortgage deed in favor of Fidelity Mortgage Investors, a Massachusetts business trust, as a second mortgage on the same parcel of land to secure the payment of a promissory note in the principal sum of $1,500,000.00 which note was made by Outrigger Club, Inc., on the same date in favor of Fidelity Mortgage Investors. On November 22, 1976, Outrigger Club, Inc., as the "borrower" executed a future advance agreement with Fidelity Mortgage Investors as "lendor". The future advance agreement provides for the advancement of the sum of $1,500,000.00 to be secured by a prior mortgage dated October 27, 1972, executed by Outrigger Club, Inc., in favor of Fidelity Mortgage Investors, which mortgage provided for future advances. On November 22, 1976, a construction loan and disbursement agreement was executed by the parties thereto which provided that the $1,500,000.00 advance be paid to Miami National Bank as disbursement agent for the benefit of Biscayne South. On November 23, 1976, the mortgage deed and the future advance agreement were recorded in the public records of Dade County, Florida, and on that same date, the warranty deed was rerecorded in the public records of Dade County, Florida. Because the 1.5 million dollars was paid to Miami National Bank to be disbursed for future construction work on a draw-down basis, Outrigger Club, Inc., the grantor, never received the 1.5 million dollars. The warranty deed provides in paragraph 9 thereof that the conveyance is subject to: a second mortgage wherein the Outrigger Club Inc., is mortgagor and the trustees of Fidelity Mortgage Investors, a Massachusetts business trust, is mortgagee, dated the day of November, 1976, which said mortgage is given as additional collateral for payment of certain sums as provided under a settlement and release agreement between the Outrigger Club, Inc., a Florida corporation, and Lawrence F. Lee, Jr., and others as trustees of Fidelity Mortgage Investors, a Massachusetts business trust dated the 16th day of January, 1976. Neither the Department of Revenue nor Biscayne South have introduced evidence to establish that such a mortgage in fact exists or if it did, the value of such mortgage. The only mortgage in evidence is Respondent, Department of Revenue's Exhibit 2, which shows Biscayne South as mortgagor rather than the Outrigger Club, Inc., as recited in the warranty deed. However, the future advance agreement introduced as Respondent's Exhibit No. 3, establishes the existence of a mortgage encumbering the subject property in which the Outrigger Club, Inc., is mortgagor and Fidelity Mortgage Investors is mortgagee. Such mortgage is dated October 27, 1972, and not dated with the month of November, 1976, as recited in paragraph 9 of the warranty deed. As recited in the future advance agreement, the mortgage of October 27, 1972, secured an indebtedness of $7,214,000.00. The mortgage provided that future advances could be made to Outrigger Club, Inc., not to exceed in the aggregate $16,500,000.00. The future advance agreement provides that an additional advance of $1,500,000.00 is to be made to Outrigger Club, Inc., thereby increasing the indebtedness represented by the October 27, 1972, mortgage to the aggregate sum of $8,715,000.00. In other words, the buyer of the property sought to borrow an additional 1.5 million dollars. The lender, in order to achieve priority of lien to secure its loan, treated the funding as an advance against a preexisting mortgage originally binding the seller, but then delivered the 1.5 million dollars directly to Miami National Bank for the benefit of the buyer. Accordingly, the seller never received the proceeds of the loan but rather participated in a "book transaction" for the benefit of the buyer and the lender.
