The Issue The issue in Case No. 90-4722 was whether B & B Mortgage Equity, Inc. was entitled to licensure as a mortgage broker in the State of Florida. As discussed in more detail below, B & B Mortgage Equity subsequently withdrew its application for licensure and that case is now moot. The issue in Case No. 90- 6577 is whether Respondents committed the offenses alleged in the Amended Administrative Complaint filed in that case, and, if so, what disciplinary action should be imposed.
Findings Of Fact At all times pertinent hereto, B & B Investors was registered with the Department as a mortgage broker pursuant to Chapter 494, Florida Statutes. Until June 15, 1990, the business address for B & B Investors was 1481 N.W. 7th Street #1, Miami, Florida 33125. B & B Investors' registration number is HB 592369518. On or about July 5, 1990, B & B Investors filed a petition for relief under the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Florida, Case No. 9090-14587-SMW. Yanks was the president and principal mortgage broker for B & B Investors until May 10, 1989. Yanks is a licensed mortgage broker in Florida having been issued license number was 262788177. He has been licensed since 1980 or 1981. There is no evidence of any prior disciplinary action against him or B & B Investors. At all times pertinent hereto, Yanks was also the President of B & B Equity. B & B Equity has never been registered pursuant to Chapter 494, Florida Statutes. Until June 15, 1990, the business address for B & B Equity was also 1481 N.W. 7th Street #1, Miami, Florida 33125. At all times pertinent hereto, Hernandez-Yanks was married to Yanks and was the Vice President and Secretary of B & B Equity. Hernandez-Yanks is an attorney, but she has never been licensed pursuant to Chapter 494, Florida Statutes. On or about March 15, 1990, Hernandez-Yanks filed a Petition for Relief under the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Florida, Case No. 90-11654-BKC-AJC. On or about January 1, 1990, B & B Equity filed an Application for Registration as a Mortgage Brokerage Business (the "Registration Application"). Paragraph 6 of the Registration Application stated in part: List all officers, directors, partners, joint-ventures, and ultimate equitable owners. Ultimate equitable owner means natural person who owns 10 percent or more of applicant. NAME ADDRESS TITLE Barry Yanks 1481 NW 7 St. Pres. Ana Hernandez-Yanks 1481 NW 7 St. VP/Scty Yanks was designated as the principal mortgage broker on the Registration Application. The Department denied the Registration Application by notice dated June 4, 1990. CALVARY CHAPEL TRANSACTION At the time of the hearing in this matter, Marie Hall was 66 years old. She was last employed in 1988 by the Broward County School System as an adult vocational education instructor teaching students how to operate sewing machines. Her husband, the late Reverend Arthur Hall, died on March 22, 1988, at the age of 75. Because of health problems, he had been unable to work since 1962. The late Reverend Hall had very little education. Prior to the transactions involved in this case, the only other real estate deal in which the late Reverend and Mrs. Hall had been involved was the purchase of their home many years ago. In the summer of 1987, the late Reverend and Mrs. Hall sought to purchase Mount Bethel Baptist Church (the "Church"). To assist in their effort to purchase the Church, the Halls contacted Reverend Frank Lloyd. Reverend Frank Lloyd was the pastor of Hope Outreach, Church of God in Christ and the Chairman of the State of Florida Prison Ministry. Reverend Lloyd was also engaged in a consulting business through a company called Professional Proposal and Financial Consultants, Inc. ("PPFC"). In the summer of 1987, the Halls entered into an agreement with PPFC pursuant to which they paid PPFC $800 for PPFC's assistance in securing a loan of $250,000 to purchase the church. The agreement called for an interest rate of approximately 11 3/4 percent. The Halls deposited a total of $15,000 in escrow with Reverend Lloyd and/or PPFC. At the time the first $10,000 was deposited with PPFC, the parties entered into an agreement which provided as follows: ...This money is not to be used for down payment, or services rendered. It is to be escrowed only. At the closing of the loan this entire amount is to be returned to Elder Hall or his designate. If in the event no loan is secure [sic] all funds is [sic] to be returned to Elder Arthur Hall, President Calvary Chapel Church of God in Christ or his designate. Reverend Lloyd attempted to obtain a mortgage for the Halls from several companies including Ft. Lauderdale Mortgage and Horizon Development Mortgage ("Horizon"). The Halls decided not to pursue a loan from Horizon because Horizon wanted a non-refundable $3,000 up-front fee. There was also some question whether either company would handle a loan for a church. Reverend Lloyd introduced the late Reverend and Mrs. Hall to Yanks because Reverend Lloyd knew that Yanks had successfully obtained loans for other churches. The Halls met with Yanks on a couple of occasions in late 1987 and early 1988. Other members of the Hall's congregation attended some of these meetings. During those meetings, the need for some of the other church members to sign on the loan and/or pledge additional collateral was discussed. Yanks advised the late Reverend and Mrs. Hall that he might be able to secure a loan for them to purchase the Church, but the amount of the loan would be smaller and the interest rate would be higher than they had anticipated in their agreement with PPFC. Yanks did not require an up-front loan application fee. On January 14, 1988, the late Reverend and Mrs. Hall met with Reverend Lloyd and Yanks at the office of B & B Investors in Miami. As noted above, the Halls were initially seeking a loan of $250,000. During the January 14, 1988 meeting, Yanks advised the representatives of Calvary Chapel that he could arrange a loan of $162,000 at 17 percent if additional collateral was provided. At the January 14 meeting, the late Reverend and Mrs. Hall executed a mortgage loan application (the "Loan Application") with B & B Investors. The Halls executed the Loan Application on behalf of Calvary Chapel Church of God in Christ, Inc. (hereinafter Calvary Chapel). Yanks executed the Loan Application on behalf of B & B Investors. The Loan Application was for a $162,000 loan and stated that the loan origination fee would be $4,860.00 and the loan discount fee would be $4,860.00. The Loan Application did not indicate when those fees would be due or to whom they would be paid. The Loan Application noted that there would be an appraisal fee of $600.00 and attorneys' fees of $750.00. The evidence established that, in the mortgage brokerage business, a loan origination fee is often considered synonymous with a broker's fee. The origination fee is traditionally charged at closing. However, the agreement between a mortgage broker and a client determines when the mortgage broker is entitled to his fee. In certain circumstances, a mortgage broker may be entitled to payment upon obtaining a firm commitment for a loan irrespective of whether the loan closes. Although there was no statutory or rule requirement at the time of this transaction, it was customary in the industry for a mortgage broker to set forth in writing the terms as to when he is to be paid. The Application in this case did not state when the fees were to be considered as earned. The Loan Application also provided in part: If the above commitment or a commitment in an amount and/or upon terms acceptable to the undersigned is obtained and said mortgage loan is not closed because (I)(We) have not fulfilled our part of this agreement. (I)(We) agree to pay $ , the application deposit being a part, for obtaining said commitment. If an acceptable commitment is not obtained, the mortgage application deposit will be refunded, except $ to cover expenses actually incurred. A loan discount fee is the cost to the lender to discount the interest rate on a mortgage loan for sale in the secondary market. The discount fee is owed to the lender or investor and was collected at closing. A broker is not entitled to a loan discount fee. Yanks tries to ignore the terminology used in the Loan Application he prepared and claims that all parties knew that he and/or B & B Investors would receive both the loan origination fee and loan discount fee. He contends that he explained to the late Rev. Hall and Mrs. Hall that the loan origination fee and the loan discount fees were fees that would be paid to him when he arranged a firm commitment for a loan at the agreed upon terms. However, the more persuasive evidence established that the late Rev. Hall and Mrs. Hall did not understand that the loan origination fee and/or discount fee would be paid to Yanks irrespective of whether the loan actually closed. Moreover, Yanks has provided no credible explanation as to why he would ever be entitled to receive the loan discount fee. At the January 14, 1988 meeting, Yanks orally arranged a deal with Alan Greenwald, a private investor with whom Yanks had worked in the past, to fund a $162,000 loan at 17 percent. At the time of this transaction, there was no statutory requirement that loan commitments be made in writing. No written confirmation of the commitment was provided even though it was common in the industry for commitments to be given in writing in order to bind the lender to the transaction and to provide evidence of the terms of the commitment. The only written evidence of the loan commitment is a letter from Yanks to the attorney for Alan Greenwald. That letter states that Mr. Greenwald had asked for additional collateral. During the January 14, 1988 meeting, the late Rev. and Mrs. Hall agreed to put up their house as additional collateral. In addition, two other members of the congregation who were present at the meeting, Effie Davis and Cleveland Foreman, agreed in principal to permit a mortgage to be placed on their houses as additional collateral to secure the loan. Yanks contends that, as a result of his efforts in securing a commitment from Alan Greenwald as noted above, he was entitled to receive the loan origination fee and loan discount fee set forth in the Loan Application. After the January 14, 1988 meeting, Rev. Lloyd released to Yanks $10,000 of the $15,000 that he had been holding in escrow for the late Rev. and Mrs. Hall. The $10,000 check was made payable to B & B Investors. The $10,000 was not placed in an escrow or trust account upon receipt. Yanks apparently arranged for $1,000 of the money to be paid to Debbie Landsberg, the attorney for Alan Greenwald, as an advance on the legal fees and costs that were expected to be incurred in closing the transaction. At the time the $10,000 was transferred to B & B Investors, all of the parties to the transaction expected the loan to close and no one contemplated or anticipated that the loan would not go through. While both Yanks and Rev. Lloyd claim that the late Rev. Hall approved the release of the $10,000 as payment to Yanks for services in securing a commitment from Alan Greenwald, this testimony is rejected as not credible. The more persuasive evidence clearly established that at no time did the late Rev. and Mrs. Hall understand that if the loan did not close Yanks would keep the $10,000. After the January 14, 1988 meeting, the parties initiated the steps necessary to close the deal. These efforts were complicated by the illness of the attorney for the seller, the marriage of the attorney for the lender and the difficulty in locating the abstracts for the properties involved. Moreover, a number of title deficiencies regarding the Church were discovered and had to be corrected. The arrangements for financing the purchase of the Church changed several times. Initially, the Seller had indicated that it would take back a second mortgage for $50,000 in order to facilitate a closing. However, as the parties got closer to closing, the Seller changed its mind regarding the second mortgage. Ultimately, in September of 1988, the Seller agreed to take back a second mortgage of $35,000. Sometime during the summer of 1988, Greenwald reduced to $110,000 the amount he was willing to lend on the deal. That amount was to be secured solely by the Church property. Yanks claims that he arranged for another investor to lend between $40,000 to $45,000 with the residences of certain congregation members, including the Halls, Effie Davis and Cleveland Foreman, serving as collateral. These modifications were never memorialized in writing. As preparations for a closing proceeded, it became apparent that Effie Davis' house could not be used as security for the loan. While there is conflicting evidence as to why Effie Davis' house could not be used for additional collateral, the more persuasive evidence indicates that the presence of one or more existing liens on the property rendered it of minimal value as additional collateral. As a result of the inability to use Ms. Davis' house as part of the collateral for the loan, Yanks advised Calvary Chapel that the amount of the loan would have to be decreased from $162,000 to $150,000. Yanks also advised Calvary Chapel that an additional cash deposit of $14,000 was necessary to demonstrate to the lender that sufficient funds were available to conclude the deal. The additional money was paid in two parts. On or about August 23, 1988, Calvary Chapel paid $10,000 to the Ana-Hernandez-Yanks Trust Account. Shortly thereafter, on or about September 1, 1988, Calvary Chapel paid an additional $4,000 to the Ana Hernandez-Yanks Trust Account. These sums were received by Ana Hernandez-Yanks in trust as the attorney for the B & B Investors. No written escrow agreement was executed. No written amendment to the Loan Application was provided to reflect the new terms for the anticipated loan nor was there any written commitment letter. As noted above, the late Rev. Hall died in March of 1988. Reverend Phillip Hall, the son of the late Rev. Hall, was appointed the pastor of Calvary Chapel in April of 1988. At the time of his appointment, Rev. Phillip Hall was living in Nashville. He commuted between Nashville and Fort Lauderdale for a while before moving to Fort Lauderdale on July 31, 1988. Yanks suggests that the Reverend Philip Hall did not like the deal his parents had entered into and refused to honor it. More specifically, Yanks contends that Calvary Chapel and the seller made alternate arrangements for the sale of the property in order to avoid paying him. The evidence does not support such a conclusion. The Seller was obligated to provide clear title before the sale could close. The evidence established that the Seller was never able to provide all of the documents necessary to clear title. There is no persuasive evidence that Calvary Chapel failed to meet its obligations under the contract to purchase the Church. Instead, it appears that Calvary Chapel did everything in its power to go through with the transaction. Sometime in the fall of 1988, the seller, Mount Bethel Baptist Church, rescinded the contract to sell the Church. At some point thereafter, Calvary Chapel began occupying the Church under a lease/purchase arrangement, the terms of which have not been established in this case. As noted above, there is no persuasive evidence that the Rev. Phillip Hall and/or Calvary Chapel conspired to cheat Yanks out of his fees. In any event, even if Calvary Chapel decided for economic reasons not to go forward with the loan that Yanks was trying to arrange, it is concluded that neither Yanks nor B & B Investors had the contractual right to retain any of the money that had been advanced. After the deal failed to close, Rev. Lloyd returned to Calvary Chapel the remaining $5,000 he had been holding in escrow for the Halls. By letter dated September 19, 1988, Holly Eakin Moody, an attorney for Calvary Chapel, wrote to Yanks demanding the return of all the money that had been advanced. The letter stated: Please be advised that I have been retained by Calvary Chapel Church of God in Christ, Inc., to begin the appropriate legal action against you and your wife, Ana Hernandez-Yanks, for return of my clients [sic] escrow funds in the amount of $24,000. On or about December 24, 1988, Hernandez-Yanks tendered a check in the amount of $14,000 to Calvary Chapel. On the back of the check, the following release language was written: Full and Final Settlement of all claims against B & B Mortgage and Barry Yanks or Ana Hernandez- Yanks. Hernandez-Yanks wrote a letter dated February 7, 1989 to Holly Eakin Moody stating in part: Please be advised that as per your client's request, on December 24, 1988 I mailed them my trust account check in the amount of $14,000. I have checked numerous times with the bank and said check has not been presented for payment. I am hereby depositing said monies with the Registry of the Court. If you should have any questions, please contact me. It does not appear that Hernandez-Yanks ever deposited any money in the Registry of the Court in accordance with that February 7 letter. By letter dated March 14, 1989, Holly Eakin Moody returned the check containing the accord and satisfaction language to Hernandez-Yanks and reiterated a demand for a return of the entire $24,000. Ultimately, Hernandez-Yanks paid Calvary Chapel $14,000 by check dated March 6, 1990 on account number 020051156008 at the TransAtlantic Bank. A review of the bank records indicates that the $14,000 advanced by Calvary Chapel to B & B Investors in late August and early September of 1988 was not held in escrow. On or about September 1, 1988, $10,000 was deposited in the trust or escrow account of Hernandez-Yanks at Continental Bank (the "Continental Trust Account"). An additional $4,000 was deposited in the Continental Trust Account on or about September 6, 1988. On or about October 4, 1988, the Continental Trust Account was closed with a closing balance of or about $13,553.06. On or about October 4, 1988, Hernandez-Yanks opened a trust or escrow account at Ocean Bank (the "Ocean Trust Account"). The beginning balance of the Ocean Trust Account on or about October 4, 1988, was $13,000. On or about December 7, 1988, the balance in the Ocean Trust Account was $2,437. On or about December 15, 1988, Hernandez-Yanks opened a trust or escrow account at United National Bank (the "United Trust Account"). On or about January 19, 1990, the cash balance in the United Trust Account was $2,236.29. On or about January 5, 1990, Hernandez-Yanks opened a trust or escrow account at TransAtlantic Bank (the "TransAtlantic Trust Account"). The beginning balance of the TransAtlantic Trust Account on or about January 5, 1990, was $10,000. By check dated March 6, 1990, Calvary Church was paid $14,000 from the TransAtlantic Trust Account. There is no evidence that Yanks, Hernandez-Yanks and/or B & B Investors had any other escrow accounts. Based upon the foregoing, it is concluded that Yanks failed to ensure that monies received in trust were properly placed in escrow in a transaction wherein he acted as a mortgage broker. Moreover, Yanks failed to ensure that the $14,000 received by Hernandez-Yanks was returned expeditiously to Calvary Chapel. Yank's explanation that he does not tell his wife, who is an attorney, "how to run her business" does not excuse his failure to ensure that money placed in escrow with his company was promptly returned when the transaction was terminated. Yanks refused to repay any of the remaining $10,000 that was paid to B & B Investors claiming that he was entitled to keep the money as fees earned for processing a mortgage commitment from Allan Greenwald. As set forth above, the contention that the late Rev. Hall authorized payment in full of Yanks' fees is rejected as not credible. The more persuasive evidence established that the principals of Calvary Chapel did not understand that Yanks and/or B & B Investors were to be paid their fee even if the loan did not close. Since there was no agreement specifying when Yanks was to be paid, he had no legal right to retain the $10,000. Arguably, Yanks was entitled to some reimbursement for the expenses he incurred, including perhaps the $1,000 he supposedly paid to the investor's attorney. However, the evidence clearly established that Yanks was not entitled to retain the entire $10,000. 52 After the Department began its investigation of this case, Yanks offered to repay the loan discount fee of $4,860 to Calvary Chapel. As of the date of the hearing, Yanks was still refusing to repay the $4,860 loan origination fee which he claims he has earned. While Yanks' claim to the $10,000 was legally insufficient and should have been recognized as such, the evidence did not establish that Yanks was attempting to defraud the Halls and/or Calvary Chapel. There were clearly some misunderstandings between the parties. Many of these problems could have been avoided if Yanks had properly documented his fee arrangement in writing. Yanks spent a good bit of time trying to put the deal together and felt slighted when the transaction he structured fell apart, especially when Calvary Chapel ended up occupying the Church anyway. Yanks overreacted in his attempts to obtain compensation for his services. The evidence was insufficient to establish that his actions should be characterized as fraudulent. VAZQUEZ-CASTILLO TRANSACTION In approximately mid-December of 1988, Ana Vazquez began working for Yanks. Vazquez was hired by Yanks to assist in the processing of mortgages. Prior to becoming employed by Yanks, she had little experience in real estate transactions. Vazquez was employed by Yanks for only about two or three weeks. Thereafter, she was employed by Hernandez-Yanks as a secretary. Both Yanks and Hernandez-Yanks occupy space in the same building. As noted above, Hernandez- Yanks is an attorney. On or about February 27, 1989, Pura Castillo entered into a contract (the "Sales Contract") with Vazquez for the purchase of a condominium owned by Vazquez and located in Dade County, Florida, at 7440 Harding Avenue, Unit 301, Miami Beach, Florida (the "Condominium"). The sales price was $70,000. Pursuant to the Sales Contract, Vazquez was to convey title free and clear of all encumbrances, by a good and sufficient Warranty Deed. "Free and clear of all encumbrances" meant that the title being transferred from Ana Vazquez to Pura Castillo was not to be encumbered by any mortgages, judgments or other liens. The Sales Contract was not made contingent upon Pura Castillo obtaining new financing. The relationship between Ana Vazquez and Pura Castillo is not entirely clear. They were obviously well acquainted with each other. The evidence suggests that Pura Castillo's common law husband, Joseph Hardisson, was a close friend of the father of Ana Vazquez. While Pura Castillo and Joseph Hardisson were visiting with Vazquez, they began discussing the possible purchase of the Condominium by Pura Castillo. Yanks first learned about the possible sale of the Condominium to Pura Castillo when Vazquez asked Hernandez-Yanks to represent her. Hernandez-Yanks indicated that she would represent Vazquez in the sale. Vazquez also requested Yanks' assistance in obtaining a loan for Pura Castillo. Yanks advised Vazquez that he did not process loan applications for employees. He suggested that she contact one of the mortgage lenders with whom he did business. Vazquez contacted one such company, Inter-Mortgage Corporation, and obtained a loan application package. Shortly thereafter, a loan application was submitted with InterMortgage Corporation in the name of Pura Castillo. The circumstances surrounding the completion and submittal of that loan application are not entirely clear nor are they necessarily pertinent to this proceeding. The evidence did establish that the loan application contained some false information regarding Pura Castillo's residence and employment. InterMortgage contacted Yanks' office and advised that there were some problems with the application. Vazquez went to InterMortgage's office and retrieved the application. The evidence did not establish that Yanks was aware of the filing of the application with InterMortgage and/or that he knew the application contained any false information. It appears that a similar application with false information may also have been filed with another lender, Dixie Mortgage. There is no indication that Yanks was aware of the filing of this application and/or that he knew it contained false information. The Condominium was subject to a $42,000 mortgage from Standard Federal to Vazquez (the "Standard Federal Mortgage"). The Standard Federal Mortgage was a typical Fannie Mae mortgage and included a commonly used due-on- sale clause in Clause 17. That clause provided for a default by the borrower upon sale of the property unless the mortgagee had consented to the assumption of the mortgage by the purchaser. There were no federal or state laws in existence at the time prohibiting the enforceability of Clause 17. Vazquez had a contract to purchase another home which was contingent upon the sale of her Condominium. Thus, she was under some time pressure to close the sale of the Condominium. When it became apparent that a quick loan could not be arranged for Pura Castillo, Ana Vazquez turned to Yanks for advice. While there is conflicting evidence as to the discussions that took place, the more persuasive evidence established that Yanks agreed to structure a deal that would enable Ana Vazquez to sell the Condominium to Pura Castillo. As discussed in more detail below, Yanks structured a complicated and confusing arrangement whereby Pura Castillo was to make her monthly payments to B & B Equity, which was to play the role of a servicing agent and distribute the payments to the first mortgagee, Standard Federal. While Yanks now claims that after the Standard Federal Mortgage payment was made, the remainder of the monthly payments received by B & B Equity were going to be paid to Vazquez, there is no written agreement confirming this arrangement. It is the usual practice in the industry for mortgage brokers to determine whether there are outstanding mortgages on the property to be sold and to see to it that an existing mortgage is paid off or otherwise taken care of at the time of closing. It is the responsibility of the mortgage broker to contact the institution holding the mortgage to find out if it is assumable. If an existing mortgage has a due-on-sale clause, the mortgage broker would characteristically contact the first lien holder and get an estoppel letter to determine the balance of the loan. The mortgage broker might also seek a waiver from the lender so that the sale could be made without paying off the loan. Without such a waiver, a due-on-sale clause would entitle the original lender to declare the entire original loan due upon sale of the property. Yanks never obtained an estoppel letter or a waiver of the due-on-sale clause from Standard Federal. While Yanks claims that he contacted various persons regarding the enforceability of due-on-sale clauses, he never contacted Standard Federal about the specific clause in its mortgage to Vazquez. There is conflicting evidence regarding the discussions between Yanks and Vazquez regarding the structuring of the transaction. It is clear that Vazquez was more concerned with concluding the transaction rather than understanding the intricacies of it. As discussed in more detail below, the transaction structured by Yanks included several unexplained and/or inappropriate charges. In addition, the loan documentation was confusing and sometimes conflicting and/or contradictory. Vazquez indicated to Yanks that Pura Castillo was prepared to go forward with the sale and a closing was scheduled for June 16, 1989. In preparation for the closing of the sale of her condominium, Vazquez incurred several expenses. On or about March 31, 1989, she paid $275 to have the condominium appraised. On or about April 5, 1989, Vazquez paid $200 to National Title Abstract Company for an update of the abstract. On or about June 15, 1989, she paid $150 to Ticor Title Co. She also paid for a credit report on Pura Castillo. On June 16, 1989, Pura Castillo arrived at the office of Yanks and B & B Investors at 1481 N.W. 7th Street, Miami, Florida, to close on the purchase of the Condominium in accordance with the Sales Contract. Yanks and/or Hernandez- Yanks prepared the closing documents used at the closing. Much of the closing was conducted in Spanish. Yanks is not fluent in Spanish. Hernandez-Yanks, who speaks Spanish, acted as the closing agent and remained throughout the process. Yanks and Vazquez were in and out of the room throughout the closing. During the closing, Pura Castillo was told that B & B Equity was going to be the lender for the transaction. Pura Castillo inquired whether it was necessary for her to have her own attorney. Hernandez-Yanks replied that she could represent all parties and that it was not necessary for Pura Castillo to have her own attorney. At the closing, Pura Castillo presented cashiers checks for $5,800, $7,250 and $5,900 all made payable to the order of Ana Hernandez-Yanks, Trust Account. In addition, either Yanks or Hernandez-Yanks was given a check from Parker Realty in the amount of $2,800 which was the balance of the $7,000 deposit after payment of the $4,200 real estate commission. From the $21,750 brought to the closing, $14,000 was disbursed to Ana Vazquez. As noted above, Vazquez had already paid for the abstract, appraisal and credit report. In addition, as part of her mortgage payment, she had contributed approximately $1,281 to an escrow for taxes and insurance for which she was entitled to be reimbursed. Thus, the net cash that she received from the closing was less than $12,000 from the sale of a $70,000 condominium with a $42,000 mortgage. At the closing, Vazquez executed an "Agreement for Deed" in favor of Pura Castillo. An agreement for deed is a conditional sales contract pursuant to which a seller agrees to sell property to a buyer over a period of time. The seller retains the legal ownership of the property until the full consideration for the purchase is paid. After all the conditions have been met, the seller delivers a deed conveying ownership of the land to the buyer. The Agreement for Deed in this transaction provided as follows: That if said Buyers shall first make the payments and perform the covenants herein mentioned on their part to be performed, the said Sellers hereby covenant and agree to convey and assure to the Buyers or their heirs or assigns, in fee simple, clear of all encumbrances whatever, by good and sufficient Warranty Deed...[the condominium] And the Buyers hereby covenant and agree to pay to the Sellers the sum of $70,000 to be paid as follows: $19,073.12 cash in hand, the receipt of which is hereby acknowledged, and $704.32 or more per month on or before the 16th day of each and every month after the date of this instrument, to be mailed to the Sellers' address given herein, with interest at the rate of 11 percent, per annum on the whole sum remaining from time to time unpaid,... Arguably, the Agreement for Deed required Pura Castillo to make monthly payments to Vazquez of $704.32 plus interest on the outstanding balance. However, at the closing, Yanks provided Pura Castillo with a letter which explained that her monthly payments of $704.32 included $499.97 for principal and interest, $142.35 for real estate taxes and $62 for insurance. At the closing, Pura Castillo executed a mortgage (the "Mortgage") in favor of B & B Equity as mortgagee. The Mortgage stated that it secured an indebtedness of $52,500 and a promissory note for that amount was executed by Pura Castillo to B & B Equity at the closing. The Mortgage was similar in form and content to a Fannie Mae or a Freddie Mac mortgage form, except it included some additional provisions stating that it was a "Wraparound Mortgage." A wraparound mortgage is a financing device that is sometimes used when a seller of a piece of property agrees to take back and finance a portion of the difference between an existing first mortgage which is not being assumed or satisfied and the sales price for the property. Typically, the mortgagor on the first mortgage is the seller of the property and the mortgagee on the wraparound mortgage. The wraparound mortgage becomes a second or other junior mortgage behind the existing mortgage. The mortgagee of the wraparound mortgage agrees to continue making payments on the existing primary mortgage, at least so long as payments are made under the wraparound mortgage. Page 8 of the Mortgage included the following language: This is a Wraparound Mortgage. This wraparound mortgage is a second mortgage. It is inferior to certain mortgage [sic], herein called the first mortgage which covers the above described property at the time of execution of this wraparound mortgage. The wraparound mortgagee shall be excluded from any terms or conditions of the prior mortgagees. The wraparound mortgagee's obligation to pay the prior mortgages is limites [sic] to funds received from the wraparound mortgagor. For a number of reasons, the use of a wraparound mortgage in this transaction was totally inappropriate. The first page of the mortgage included a number of warranties including the following: The mortgagor hereby covenants with and warrants to the Mortgagee that the Mortgagor is indefeasibly seized with the absolute and fee simple title to said property. This warranty is inconsistent with the ownership interest that the Mortgagor, Pura Castillo, had as a result of this transaction. Pura Castillo's only claim to title was via the Agreement for Deed and she was not indefeasibly seized with the fee simple title. As noted above, the Mortgage states that it secures an indebtedness of $52,500 and a promissory note (the "Note") for that amount was executed by Pura Castillo to B & B Equity at the closing. That Note required Pura Castillo to make payments directly to B & B Equity. However, the Agreement for Deed calls for Pura Castillo to make payments to Vazquez. Moreover, Pura Castillo signed the Note obligating herself to make payments on a $52,500 indebtedness to B & B Equity even though the Standard Federal Mortgage was not satisfied and had a remaining balance of $42,000. In other words, the result of this transaction, at least as it appeared on the public records, is that a $70,000 condominium was encumbered by two separate mortgages (the Standard Federal Mortgage and the "Wraparound Mortgage") securing separate promissory notes totalling more than $94,000. At no time prior to or during the closing did Yanks or Hernandez-Yanks explain to Pura Castillo that an Agreement for Deed was being utilized in this transaction and that she would not obtain full legal title until all of the mortgages were paid off. Furthermore, neither Yanks or Hernandez-Yanks explained to Pura Castillo that the mortgage she signed in favor of B & B Equity was a wraparound second mortgage. While Yanks contends that Pura Castillo had plenty of opportunity to review the documents and ask questions regarding them, she was clearly an unsophisticated buyer who was incapable of deciphering the confusing and ambiguous documentation for this clumsily crafted transaction. In sum, the use of an agreement for deed and a wraparound mortgage in the same transaction was redundant, confusing and illogical. Moreover, Yanks' efforts in this transaction clearly violated the due-on-sale clause (Clause 17) in Standard Federal's existing first mortgage. The Department has suggested that the transaction was a calculated fraud with some undefined goal. After considering all the evidence, the transaction can more accurately be described as an awkward attempt at creative financing which included a number of hidden and inappropriate charges for the benefit of Yanks and/or B & B Equity. Yanks contends that Vazquez was desperate to close the sale and authorized him to proceed with whatever financing he could arrange so long as she netted $14,000 from the sale. He claims that she agreed to the wraparound mortgage as the only way to proceed with the deal under the circumstances. Under this arrangement, he contends that B & B was authorized to retain any additional proceeds as compensation for serving as a servicing agent on the wraparound mortgage. Even if this explanation is accepted, there are a number of problems with the actions of Yanks and B & B Equity in this transaction. First of all, there was no written servicing agreement setting forth the obligations of the servicing agent nor is there any delineation of the amount of money to be paid for servicing the wraparound mortgage. Moreover, the Agreement For Deed and the Promissory Note call for Pura Castillo to make payments of slightly more than $700 per month. These payments exceed the monthly payments due under the Standard Federal Mortgage. However, there is no written delineation of how the additional payments received each month were to be disbursed. Finally, the servicing arrangement was never explained to Pura Castillo and the documentation for the transaction was very confusing and often contradictory. There is no closing statement for the transaction that accurately reflects all of the disbursements made from the proceeds of the closing. Petitioner's Exhibit 23 is a closing statement signed by both Vazquez and Pura Castillo and purports to delineate certain expenses paid from the proceeds of the sale. Petitioner's Exhibit 7 is an unsigned closing statement which Yanks contends he prepared for use at the closing of the loan. He claims that, after the closing, he found out that Vazquez substituted Petitioner's Exhibit 23 for the closing statement that he intended to be used because she thought it more accurately depicted the fees as she had discussed them with Pura Castillo. This explanation is rejected as not credible. Petitioner's Exhibit 23 was the only closing statement signed by both the buyer and seller. As noted above, Vazquez was in and out during the closing. Hernandez-Yanks was present throughout the closing. The more credible evidence established that Petitioner's Exhibit 23 was the closing statement presented at the closing and executed by the participants. Neither closing statement accurately explains how all of the funds from the sale were disbursed. Thus, it is impossible to determine conclusively how much money Yanks and/or B & B Equity received from the closing. Both statements include some charges which are inappropriate or questionable. Furthermore, it is clear that Yanks and/or B & B received more than either statement indicated. Both closing statements reflect a payment of $600 for title insurance. However, the evidence established that no title insurance policy was ever issued. Vazquez paid for a title insurance commitment prior to the closing. Such a commitment is typically issued by a title insurance company prior to a real estate transaction and is a contractual agreement by the title insurer to issue a policy of title insurance upon compliance with certain terms and conditions. The actual title insurance policy is not issued until after the transaction has closed. The title insurance policy, not the commitment, insures the main insured against certain defects in title. The $600 charge for title insurance reflected on both closing statements was totally inappropriate in this case since no title policy was ever issued. Petitioner's Exhibit 23 includes a number of charges assessed to the buyer which were wholly inappropriate to this transaction. For example, the closing statement included a $500 charge for FNMA underwriting. This fee is charged by the institution underwriting a mortgage loan for compliance with Fannie Mae guidelines. Since the Mortgage in this case was clearly not intended to be sold to a Fannie Mae pool, the FNMA charge was not appropriate. Similarly, the closing statement included a $250 charge for a warehouse fee. This is a fee paid to institutions to cover the cost of a warehouse line of credit and is totally inapplicable to the transaction involved in this case. The closing statement also included a photo fee of $25, a lender's inspection fee of $150 and a survey fee of $225. There is no indication that any photos were taken, an inspection was conducted or a survey was prepared. Petitioner's Exhibit 23 also included a loan origination fee of $1,375 and brokerage fees of $1,575. Petitioner's Exhibit 7 included a lump sum brokerage fee of $5000, but did not include any of the other charges listed in this paragraph. There is no dispute that Yanks and/or his firm were paid mortgage brokerage fees out of the proceeds of the closing. These fees are reflected on both of the closing statements (Petitioner's Exhibits 7 and 23). A mortgage broker is paid a fee to negotiate a mortgage loan transaction for another party. In other words, he is retained to find a lender for a potential borrower. Under a mortgage servicing agreement, the servicer is paid a fee to handle the collection and disbursement of payments on a mortgage loan. Any fees paid for servicing a loan should be separately itemized and disclosed. It is not appropriate for a person who is to service a loan to receive what has been disclosed as a broker fee. Irrespective of which closing statement is deemed authentic, the evidence established that Yanks and/or B & B Equity received significantly more money from the closing than was reflected on either closing statement. As indicated above, $21,750 cash was presented at the closing, of which $14,000 was paid to Vazquez. According to Petitioner's Exhibit 7, there was $6,123.35 in closing costs (including a $5,000 brokerage fee). Thus, there is at least $1,626.65 in cash that is not reflected on the closing statement. Yanks contends that Vazquez told him to keep this money in return for servicing the loan. This contention is rejected as not credible. Similarly, Petitioner's Exhibit 23 indicates closing costs of $6,379 (including the charges in paragraph 89 above). Thus, there is $1371 unaccounted for. Moreover, it is clear that Yanks and/or B & B received in excess of $6,500 which is not readily discernible from the face of the closing statement. Subsequent to the closing, B & B Equity received at least five monthly payments of $704.32 on the Wraparound Mortgage from Joseph L. Hardisson, the common law husband of Pura Castillo. B & B Equity apparently distributed some of these funds in accordance with its claimed role of "servicing agent." However, on at least one occasion in late 1989, a check issued by B & B Equity to pay the Standard Federal Mortgage was returned for insufficient funds. In addition, a check issued by B & B Equity in the amount of $700 to Ana Vazquez in December of 1989 bounced. At some point in late 1989 or early 1990, Pura Castillo became concerned when she learned that the Standard Federal Mortgage had not been paid off. In January or February 1990, Pura Castillo and her husband came to Florida and attempted to contact Yanks regarding the transaction and the irregularities surrounding it. Ultimately, Pura Castillo filed a complaint with the Department and also filed a civil suit in Circuit Court seeking cancellation of the Mortgage and the issuance of a warranty deed in her favor. On April 17, 1990, Vazquez executed a warranty deed to Pura Castillo. Vazquez states that she felt obligated to convey all of her interest in the property to Pura Castillo in view of the confusing and unfair circumstances surrounding the initial transaction. On October 23, 1990, Yanks and B & B Equity entered into a Settlement Agreement with Pura Castillo pursuant to which they paid Pura Castillo $12,000 and the wraparound mortgage was cancelled of record. The Settlement Agreement also resulted in the dismissal of the civil suit and called for Pura Castillo to withdraw her complaint filed with the Department. Despite this withdrawal, the Department has chosen to proceed with this administrative action.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that: A Final Order be entered finding Respondents B & B Investors, Yanks and Ana Hernandez-Yanks guilty of the violations alleged in Counts I, II, III, and IV of the Amended Administrative Complaint, finding them not guilty of Count VI and imposing an administrative fine of $5,000 which should be payable jointly and severally. Yanks and B & B Investors should also be required to repay $9,000 to Calvary Chapel within 30 days after the rendition of the Final Order. Failure to repay this sum should be a basis for the imposition of additional penalties, including revocation. The mortgage brokerage licenses of Yanks and B & B Investors should be suspended for one (1) year for their actions in connection with the Calvary Chapel transaction. A Cease and Desist Order should also be entered against Ana Hernandez- Yanks prohibiting her from any future violations of Chapter 494, Florida Statutes, from engaging in any act within the jurisdiction of the Department pursuant to Chapter 494, Florida Statutes, and from being an ultimate equitable owner of a business license pursuant to Chapter 494, Florida Statutes. The facts surrounding her trust account should be reported to the Florida Bar for investigation. A Final Order should also be entered finding Yanks, Hernandez-Yanks, and B & B Equity guilty of the violations alleged in Counts VIII, IX, and XI, finding Yanks and B & B Equity guilty of the violations alleged in Counts XII and finding Hernandez-Yanks guilty of violations alleged in Count XIII of the Amended Administrative Complaint. The Final Order should find the Respondents not guilty of the violations alleged in Counts X and XIV. Based upon the foregoing, the Department should impose an administrative fine of $5,000. The mortgage brokerage license of Yanks should be suspended for a period of three years to run consecutively with the suspension issued in connection with the Calvary Chapel transaction. Respondents should also be required to repay $6,040.12 to Ana Vazquez for inappropriate and undisclosed charges made at the closing. The collection of all fines and/or assessments against Ana Hernandez- Yanks and/or B & B Investors should be suspended pending approval of the Bankruptcy Court. In view of the Voluntary Dismissal filed on November 9, 1993, the Final Order should formally dismiss the Application Case. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 18th day of August 1994. J. STEPHEN MENTON 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 18th day of August 1994.
The Issue The central issue in this case is whether the Respondents are guilty of the violations alleged in the Amended Administrative Complaint; and, if so, what penalty should be imposed.
Findings Of Fact Based upon the testimony of the witnesses and the documentary evidence received at the hearing, I make the following findings of fact: The Department of Banking and Finance, Division of Finance, is charged with the responsibility of administering the provisions of Chapter 494, Florida Statutes. At all times material to the allegations in this case, Diko Investments, Inc. ("Diko") conducted business as a mortgage broker in Palm Beach County, Florida. At all times material to the allegations in this case, Dieter Kolberg ("Kolberg") was an officer, director, and acted as principal mortgage broker for Diko. Kolberg passed the mortgage broker's examination on May 28, 1985. Diko was issued a license as a mortgage broker with Kolberg as its principal broker on June 26, 1985 (license NO. HB-16568) Prior to May 28, 1985, Diko ran advertisements soliciting investors for mortgage opportunities. These ads included Kolberg's home telephone number. Prior to May 28, 1985, Kolberg/Diko entered into a business relationship with Michael D. Cirullo, a licensed mortgage broker, to "co-broke" mortgage transactions. Pursuant to their agreement, Cirullo represented the borrower/mortgagor while Kolberg obtained and represented the lender/mortgagee. Kolberg and Cirullo solicited and negotiated at least two loans prior to May 28, 1985. Kolberg acted in expectation of being paid as a mortgage broker. Cirullo remitted 50 percent of the commissions earned on these transactions to Diko. Diko stationery included the phrase "Licensed Mortgage Bankers." Neither Diko nor Kolberg has been licensed as a "mortgage banker." In August and September of 1985, investors, Marcel and Ida Barber, responded to a Diko advertisement which offered a 16 percent interest mortgage loan secured by prime residential real estate. The Barbers were interested in a safe, high interest yielding investment and requested more information from Diko. On September 23, 1985, Kolberg wrote to the Barbers to outline the following business policies of Diko: The first objective of the Diko lending program was "The Safety of the Investor's Capital." Any investment was to be secured by a mortgage on prime residential real estate clear of all liens with the exception of a first mortgage where a second mortgage would be given. Investors would be issued mortgagee title insurance to insure against loss due to defects in title to the mortgaged property. Investors would be issued fire and hazard insurance to cover any losses in the event of fire or storm. Subsequent to the receipt of the aforesaid letter, the Barbers decided to invest $25,000 in a mortgage through Diko/Kolberg. This initial transaction proceeded satisfactorily and the objectives addressed in paragraph 10 above were met. In late December, 1985, the Barbers advised Kolberg that they would be willing to invest an additional $50,000 in early January, 1986. The Barbers expected the transaction to be handled in the same manner as their prior investment through Diko. After reviewing two or three loan proposals, the Barbers chose to invest in a loan to Tony Medici/Automatic Concrete, Inc. The loan was to be secured by a second mortgage on property at 713-717 "L" Street, West Palm Beach, Florida. The "L" Street property consisted of a 24-unit apartment complex and an adjacent laundry facility. Kolberg accompanied the Barbers to view the property. During discussions with the Barbers regarding the proposed investment, Kolberg made the following false material representations: That the property had a high occupancy; That rental payments were guaranteed or subsidized by a government program; That the asset-to-debt ratio for the property was acceptable; and That a proposed expansion of the laundry facility would further enhance the security of the loan. Financial statements of the borrower (Medici/Automatic Concrete, Inc.) did not include all obligations against the "L" Street property. Diko/Kolberg did not give the Barbers an accurate or complete statement of the financial condition of the "L" Street investment. Kolberg knew the information on the statement was incomplete. Diko/Kolberg did not disclose to the Barbers the high rate of crime in the area which compromised the security of the "L" Street investment. Kolberg knew of the crime problem in the area. Diko/Kolberg did not disclose to the Barbers that foreclosure proceedings had been instituted against the "L" Street property. Kolberg knew of the foreclosure action as well as the delinquency on other obligations. Kolberg did not disclose to the Barbers that he represented, as trustee, a Kolberg family company which would directly benefit from the Barber loan. The Barber loan would satisfy a mortgage held by Kolberg, as trustee, on the subject property, which mortgage was in default and in the process of foreclosure (the Ropet Anlagen foreclosure). Kolberg did not disclose to the Barbers that another mortgage held on the "L" Street property (David Marsh loan) was also in default. A subordination agreement was required to be executed by Marsh in order for the Barber/Medici loan to close. Marsh agreed to subordinate his mortgage position for approximately $3,000 in arrear payments. Marsh was owed approximately $125,000 but chose to subordinate because by doing so he was able to recoup a small amount of what he considered a lost investment. Kolberg knew of Marsh's situation and did not advise the Barbers. The Barber loan to Medici/Automatic Concrete, Inc. closed on January 18, 1986. The Barbers delivered a check for $53,000 payable to the title company chosen by Diko. Neither Diko nor Kolberg gave the title company, Manor Title, closing instructions to protect the lenders' interests. Kolberg did, however, instruct the title company to list expenses relating to the Ropet Anlagen foreclosure against the Medici loan. Proceeds from the closing, in the amount of $50,000 were paid to Kolberg, as trustee for "Ropet Anlagen," and deposited to an account by that name. The name "Ropet Anlagen" translates to "Ropet Investments." Kolberg handles all transactions for this Kolberg family company in the United States. (Kolberg has two sons, Robin and Peter, from a former marriage. The name "Ropet" may derive from their names.) Kolberg's former wife, Patricia Kolberg, owns an interest in Ropet Anlagen. Regular monthly payments were made by Kolberg to Patricia Kolberg on a Ropet Anlagen account. Many of the checks drawn on the Ropet Anlagen account were for personal expenses of Kolberg or his business. The first mortgage on the "L" Street property was 45 days overdue on January 13, 1986. Kolberg knew of this delinquency but did not advise the Barbers. To the contrary, Diko gave the Barbers an estoppel notice from a prior closing showing the first mortgage to be current. The first mortgagee ultimately foreclosed its mortgage and the Barbers lost their entire investment. The Barbers did not receive a fire and hazard insurance policy to cover losses in the event of fire or storm for the "L" Street property. The Barbers did not receive a mortgagee title insurance policy until March, 1986, by which time the first mortgage was further in default. Additionally, the mortgagee policy disclosed a financing statement and a collateral assignment of rents recorded prior to the Barbers' mortgage.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Department of Banking and Finance, Office of the Comptroller, enter a Final Order revoking the mortgage broker license issued to Dieter Kolberg and Diko Investments, Inc. DONE and RECOMMENDED this 30th day of November, 1987, in Tallahassee, Florida. JOYOUS D. PARRISH 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 30th day of November, 1987. APPENDIX Rulings on proposed Findings of Fact submitted by Petitioner: Paragraphs 1, 2, 3, 4 and 5 are accepted. Paragraph 6 is accepted; however, Kolberg's interest when financing with funds he controlled was only on a temporary, interim basis. The activities were conducted with Diko to receive a commission, therefore requiring a license. Paragraphs 7-15 are accepted. Paragraph 16 is accepted to the extent addressed in findings of fact paragraphs 12, 13. Paragraphs 17-18 are accepted to the extent addressed in findings of fact paragraphs 14, 18, 22. Paragraphs 19-27 are accepted. Paragraph 28 is rejected as immaterial and unnecessary. Paragraphs 29-42 are accepted. The detail of Petitioner's finding is unnecessary to the conclusions reached herein. Paragraphs 43-45 are accepted but unnecessary. Paragraph 46 is accepted. Paragraph 47 is rejected as unnecessary and immaterial. Paragraphs 48-52 are accepted. Paragraph 53 is rejected as unnecessary. Paragraph 54 is accepted. Paragraph 55 is accepted to the extent found in findings of fact paragraphs 20, 21. Paragraphs 56-57 are accepted. Paragraph 58 is accepted to the extent addressed in finding of fact paragraph 21. Paragraphs 59-63 are accepted but unnecessary. Paragraphs 64-65 are accepted. Rulings on proposed Findings of Fact submitted by Respondents: Paragraph 1 is accepted. Those portions of paragraph 2 which set forth Respondent's dates of testing and licensure are accepted, the balance is rejected as an erroneous conclusions of law. Paragraph 3 is rejected as contrary to the weight ofevidence. Paragraph 4 is accepted but irrelevant to the issue. Paragraph 5 is rejected as the transaction was solicited with Kolberg's company, Diko, participating as a mortgage broker. Paragraph 6 is accepted but irrelevant to the issue. Paragraph 7 is rejected as contrary to the weight of theevidence and law. Paragraph 8 is accepted but does not mitigate, as a matter of law, Respondent's improper useage of the phrase. Paragraphs 9-11 are accepted; however the detail of thefindings is unnecessary and immaterial to the issues of thiscause. Paragraphs 12-14 are accepted to the extent addressed in findings of fact paragraphs 12, 13 the balance is rejected as unnecessary and immaterial. Paragraph 15 is rejected as unnecessary, relevant portions having previously been addressed. Paragraph 16 is accepted. Paragraph 17 is accepted but is unnecessary. Paragraph 18 is rejected to the extent it qualifies Barber as a "Sophisticated Investor." The record is clear Mr. Barber was experienced in the laws of France; however, he relied on Kolberg completely as to both transactions which took place in Palm Beach. Moreover, Mr. Barber's useage and understanding of the English language was suspect. He could hardly be considered a "sophisticated investor" in light of the total circumstances. Paragraph 19 is rejected as contrary to the weight of the evidence. Paragraph 20 is accepted to the extent addressed in finding of fact paragraph 13, the balance is rejected as contrary to the weight of evidence. Moreover, it is found that the only times of capacity occupancy (which were limited) were due to temporary, transient, undesirable tenants who may have directly affected the crime problem. Paragraph 21 is accepted. Paragraph 22 is rejected as contrary to the weight of evidence. Paragraphs 23-24 are rejected as contrary to the weight of evidence. Paragraph 25 is accepted but is unnecessary. The crime problem was there prior to closing and was undisclosed to Barber. That it worsened after closing only assured the disclosure should have been made. Paragraphs 26-35 are rejected as contrary to the weight of the evidence. Many of the facts asserted here are based on testimony given by Kolberg. Respondents presume that testimony to be truthful, accurate, and candid. I found the opposite to be true. Paragraph 36 is accepted but does not mitigate Respondents' responsibilities to have completed the items at closing. Paragraph 37 is accepted with same proviso as above paragraph 36, ruling #22). Paragraphs 38-39 are rejected. See ruling #21. Paragraph 40 is accepted. Paragraph 41 is accepted but see findings of fact paragraph 21 as to Kolberg's useage of Ropet funds for personal expenses. Paragraphs 42-43 are rejected as contrary to the weight of the evidence. COPIES FURNISHED: Lawrence S. Krieger, Esquire 111 Georgia Avenue, Suite 211 West Palm Beach, Florida 33401 Keith A. Seldin, Esquire 1340 U.S. Highway #1, Suite 106 Jupiter, Florida 33469 Honorable Gerald Lewis Comptroller, State of Florida Department of Banking and Finance The Capitol Tallahassee, Florida 32399-0350
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.
Findings Of Fact Respondent William H. Hughes was adjudicated guilty of perjury and sentenced on November 11, 1993. This adjudication was at least peripherally related to a mortgage loan he brokered which had closed on June 21, 1989. Mr. Hughes was deposed concerning the loan on December 20, 1991, in which deposition he lied. He was indicted on May 27, 1993 and pled guilty to perjury on September 3, 1993. At all times material, William H. Hughes held individual mortgage broker license number MB 262740745. He is a Respondent herein because he was convicted of perjury. DBF was immediately notified concerning Mr. Hughes' perjury conviction. The agency did not file its amended disciplinary action until July 22, 1994. It may be inferred that there was an original complaint to amend, but its date is not of record. The agency's chief witness testified that the agency did not do an immediate field audit of Mr. Hughes' business upon notification, did not file an immediate cease and desist order against his mortgage brokerage activities, and has at no time considered Mr. Hughes continuing to operate as a mortgage broker to be an imminent threat or danger to consumers. (TR 113-116) Apparently, periodic DBF field audits since the amended administrative complaint was referred to DOAH also have not caused DBF to move to expedite the instant case or take any emergency action. Mr. Hughes operated as a sole proprietorship, license number MBB 591623417, from 1968 until May 17, 1993. The loan at issue was closed June 21, 1989. The deposition that gave rise to the perjury occurred on December 20, 1991. The plea was September 3, 1993. The adjusdication of guilt was November 11, 1993. The sole proprietorship license was current until August 31, 1994. The sole proprietorship is a Respondent in this cause because its license was in effect at all times material. On May 17, 1993, Respondent Hughes converted his sole proprietorship to a corporation in which he was sole stockholder, President, and qualifying broker with license number MB 262740745. Janeen Davis was Vice President. This corporate entity was known as, "William H. Hughes Mortgage Broker, Inc.," license number MBB 593113739. On May 27, 1993, Respondent Hughes was indicted. On September 3, 1993, he entered a guilty plea to perjury. The corporation of which he was sole principal continued to operate until September 23, 1993, when the stock was transferred to James Etheredge as sole stockholder, with Respondent Hughes as qualifying broker. Corporate mortgage brokerage license MBB 593113739, continued in effect until January 12, 1994. This corporation is a Respondent herein because its license was in effect at the time of Mr. Hughes' guilty plea and adjudication of guilt. On November 17, 1993, James Etheredge applied for a corporate mortgage brokerage license in the name of the "new" corporation, "William H. Hughes Mortgage Broker, Inc.," owned exclusively by Etheredge, with Janeen Davis as qualifying broker instead of Respondent Hughes. On November 23, 1993, Respondent Hughes was adjudicated guilty of perjury and sentenced. On January 12, 1994, a new corporate mortgage broker license, number MBB 593113739-001, was issued to the new corporate entity. Respondent Hughes continued to work for the new firm as a mortgage broker. This corporate license, number MBB-593113739- 001, was renewed September 1, 1994 and is current through August 31, 1996. That licensed corporation is not a Respondent herein and DBF has stipulated that it has no charges or evidence against it. (TR 19-21; 47-48; 50). In 1989, William Neufeld had come to Respondent Hughes seeking a mortgage loan for a condominium located at B-801 Grand Mariner, Destin, Florida. Sugar Sands Development Corporation was purportedly selling the condominium to Neufeld. The purported purchase price was approximately eight hundred thousand dollars ($800,000). Appraisals were provided to Respondent Hughes by the Seller to verify the value of the property. Respondent Hughes forwarded Neufeld's mortgage loan application to Carteret Savings Bank, which then accepted the loan. During this period of time, Carteret regularly called for a review appraisal for every loan, regardless of who did the original appraisal. Carteret regularly ordered a review from a different appraisal company to make sure that property valuation was true and accurate. It is inferred that Carteret performed its own separate appraisal on the B-801 Grand Mariner condomimium as it did in every other case. The parties to the loan brokered by Respondent Hughes were Sugar Sands Development Corporation as Seller, William Neufeld as Purchaser, and Carteret Savings Bank as Lender. Carteret Savings Bank funded the mortgage for the condominium after its own investigation and upon agreed terms. Respondent Hughes personally brokered the mortgage loan between William Neufeld and Sugar Sands Development Corporation, which was funded by Carteret Savings Bank. He received a $20,475 commission therefor. His commission amount was based upon points, which was in no way remarkable in the mortgage business. William Neufeld subsequently defaulted on the loan. At the time of the transaction, Respondent Hughes knew that the condominium was owned by an entity named Altus Bank prior to its transfer to Sugar Sands Development Corporation. On December 20, 1991, Respondent Hughes was deposed in a civil action resulting from Neufeld's default, Case No. 91-30398-RV, Carteret Savings Bank, F.A., v. First American Title Insurance Co., Inc., et al., in the United States District Court for the Northern District of Florida, Pensacola Division. In his deposition, Respondent Hughes testified as follows: Q: When, if ever, did you find out an entity by the name of Altus Bank was involved in these transactions? A: I don't know if -- to my knowledge, I did not know -- Altus wasn't involved in our transaction. We never dealt with Altus at all. So, to my knowledge, I don't know if I knew Altus was even involved in this unit until after this had already closed, because here again we were presented a contract of sale, we dealt directly with our customer, the buyer and really never had an occasion to even deal with the seller. * * * Q: You did not know, you had not heard any rumors, you had no indication whatsoever that Altus Bank had any interest in this unit at any time prior to the FBI coming to talk to you a year ago? A: No. I think that's the first time I knew that Altus was involved. Respondent Hughes was subsequently indicted on May 27, 1993 in Case No. 93-03069-01/RV, United States v. William H. Hughes, in the United States District Court for the Northern District of Florida, Pensacola Division. The indictment contained nine felony counts relating to an alleged "flip transaction" on the subject condominium involving Altus Bank, Sugar Sands Development Corporation as "straw man", and William Neufeld, the purpose of which was to artificially inflate the condominium's real property value and obtain an inflated loan amount of approximately $800,000 in loan proceeds for property truly valued at only approximately $385,000. The indictment alerted Carteret Savings Bank, which has since gone out of business, and other lending institutions to audit Respondent Hughes' transactions with them and to otherwise institute quality control reviews of loans he had placed with them. No discrepancies or dishonest dealings of any kind were uncovered by these institutions. On September 3, 1993, Respondent Hughes pled guilty to one count of engaging in perjury in violation of 18 U.S.C. Section 1623, based exclusively upon his deposition testimony quoted supra. The remaining eight felony counts were dismissed. These counts were the counts alleging that Mr. Hughes knew of the "flip transaction" aspects of the loan. Exhibit P-9 shows the foregoing to have been a plea bargain which encompassed evidentiary factors. It was not merely a "plea of convenience." At formal hearing herein, Respondent Hughes admitted that knowing the question in the deposition, he gave the wrong answer. He has accepted responsibility for that wrong answer. However, he credibly denied any knowledge that a flip transaction was intended. He explained that he had understood that the loan amount was determined upon independent evaluations and appraisals which included projected renovation costs to be expended to conform the condominium to the needs of the Purchaser, Mr. Neufeld. On November 23, 1993, a federal judgment was entered against Respondent Hughes. Pursuant to that judgment, Respondent Hughes was adjudicated guilty of violating 18 U.S.C. Section 1623 by engaging in perjury. He was ordered to pay a special assessment of $50.00; to pay $1,724.50 in juror fees; was placed on probation for a term of three years; and was placed on home detention for a period of six months. Respondent Hughes' probation is not scheduled to end until November 1996. Respondent Hughes has continued to practice as a mortgage broker without interruption during the eighteen months since his conviction and is currently employed as a mortgage broker by William H. Hughes Mortgage Broker, Inc., the firm reconstituted with Mr. Etheredge as the sole stockholder and Janeen Davis as its qualifying agent as of January 12, 1994. See, supra. Respondent Hughes has practiced his profession since 1968 (27 years) with only this one bad incident on his record. Respondent Hughes continues to enjoy a good reputation in his wider mortgage brokerage business community, although the reputation testimony herein is diminished by the fact that many of those who have dealt with him and who have expressed reputation opinions to the witnesses who testified were not aware of his perjury conviction or its circumstances. Respondent Hughes' reputation for truth and veracity and for fair dealing in the mortgage brokerage community as it currently exists within the Florida Panhandle has remained "good" and "very good" since knowledge of his perjury conviction has become known in that community. Two mortgage brokers, two employees of lending institutions, one attorney and one bank officer testified as fact witnesses that they were willing to deal with Mr. Hughes as a mortgage broker in the future, despite their knowledge of his perjury conviction. Two of these persons were formerly employed by Carteret Savings Bank and were fully aware of all circumstances of his criminal case. DBF's only expressed reason for requesting license revocation instead of other permissible disciplinary penalties was its perception that the perjury in this case was directly related to the transaction of mortgage brokerage business.
Recommendation Upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Banking and Finance enter a final order that: Finds Respondent Hughes individually, license MB 262740745, is guilty of the charged offense; Assesses an administrative fine against Respondent Hughes individually for $3,000, payable within 10 days of entry of the final order; and Places Respondent Hughes on probation until November 30, 1996, termination of probation to be conditioned upon his successful completion of his federal sentence; his practicing during probation under the supervision of a broker approved by DBF, and his being subject during this probation to unannounced DBF audit and review of all his transactions; and further providing that any violation of the final order, any discrepancy in his accounts, or any violation of Chapter 494 F.S. during his probationary period would subject him to immediate and summary revocation of his license. RECOMMENDED this 29th day of June, 1995, at Tallahassee, Florida. ELLA JANE P. DAVIS 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 June, 1995. APPENDIX TO RO 94-5114 The following constitute specific rulings, pursuant to S120.59(2), F.S., upon the parties' respective proposed findings of fact (PFOF). Petitioner's PFOF: 1-8, 24-26 are covered in FOF 1-8 as necessary. Otherwise accepted but not adopted. 9-20, 22-23 Accepted, except that unnecessary, subordinate and/or cumulative evidence has not been adopted. 21, 27-31 Rejected as conclusions of law or legal argument, not proposed findings of fact Respondent's PFOF: 1-7 are introductory and labelled "Statement of the Case." They are covered within the "Preliminary Statement" of the Recommended Order. 8-17, 20-21, Accepted except that unnecessary, subordinate 23, 25-27 and/or cumulative evidence has not been adopted. 18, 24 Rejected as a conclusion of law, not a proposed finding of fact 19 Irrelevant 22 Accepted only as modified and covered in FOF 27-29 COPIES FURNISHED: Elise M. Greenbaum Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32399-0350 J. Ladon Dewrell, Esquire Post Office Box 1510 Fort Walton Beach, Florida 32541 Honorable Robert Milligan Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350 Harry Hooper General Counsel Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32399-0350
The Issue The issue in this case is whether disciplinary action should be taken against Respondents' mortgage brokerage licenses for the reasons set forth in the Order to Cease and Desist, Administrative Complaint and Notice of Rights filed by Petitioner on January 18, 1989 (the "Administrative Complaint".) The Administrative Complaint alleges that Respondents violated the following statutory and rule provisions: Section 494.055(1)(b), Florida Statutes, by charging borrowers closing costs that were in excess of the actual amount incurred by the mortgagor; Section 494.08(3), Florida Statutes, and Rule 3D- 40.008(9), Florida Administrative Code, by charging excess brokerage fees; Section 494.055(1)(b), Florida Statutes, by engaging in deceit, misrepresentation, negligence or incompetence in mortgage financing transactions and for breach of the fiduciary duty of a broker as a result of the manner in which escrow accounts were handled; Section 494.055(1)(h), Florida Statutes, due to the misuse, misapplication or misappropriation of funds, mortgage documents or other property entrusted to Respondents as a result of the excess charges assessed to borrowers and the misuse of monies in the escrow accounts; Rule 3D- 40.006(6)(a), Florida Administrative Code, for failing to maintain trust, servicing and escrow account records in accordance with good accounting practices; and Section 494.0393(2), Florida Statutes by failing to operate the company under the full charge, control and supervision of a principle who is a licensed mortgage broker.
Findings Of Fact At all times pertinent hereto, Respondent All States Mortgage and Investment Corporation ("All States Mortgage") was licensed by the Department as a mortgage brokerage company having been issued License Number HB-592582215. All States Mortgage had its principle place of business in Davie, Florida. All States Mortgage did not typically engage in traditional "mortgage broker functions." Instead, it generally worked with other mortgage brokers in providing funds for loans brought to All States Mortgage by other brokers. At all times pertinent hereto, Respondent, Lynn F. Smith ("Smith") was a licensed mortgage broker having been issued License Number HA-265-72-0045. Smith was the principle mortgage broker for All States Mortgage. Smith has been the principle mortgage broker for All States Mortgage since its inception and has been registered with the Department as a licensed mortgage broker since before a license was issued to All States Mortgage. In addition to being the principle broker for All States Mortgage, Smith was an officer and director of the company and had responsibility for the direction, control, operations and management of the company. In May of 1988, Respondents were affiliated with a licensed consumer finance company known as All States Finance Company. Currently, both All States Mortgage and All States Finance are inactive and an application has been filed to transfer the license of All States Mortgage to a new company known as All States Financial Services. As a result of an audit and examination conducted by the Department in May, 1988, it was determined that one client of All States Mortgage, Donald Salvog, was charged a brokerage fee in excess of the maximum allowable fee under Chapter 494. After notification by the Department, Respondents admitted that they inadvertently charged an excess fee to Mr. Salvog and Respondents immediately proceeded to refund the excess of $82.63 to the customer. There is no evidence that Respondents charged any other customers with a brokerage fee in excess of the maximum allowed under Chapter 494. In a number of the individual mortgage transactions in which it was involved, Respondents charged a standard credit report fee of $25.00 to the borrowers. The following chart reflects the individual loan files where such a fee was charged and the total amount of the invoices in the respective loan file to support the charges. Borrower's Name Cost per Closing Stmt. Cost per Invoices Roland Sagraves $25.00 $3.25 John Murphy $25.00 $3.25 Donald Salvog $25.00 $2.95 Harry Walley $25.00 $2.57 Raymond Parker $25.00 $5.14 Shateen/Lawrence $25.00 $5.75 James Arnold $25.00 $3.94 Richard Pope $25.00 $5.04 James Smith $25.00 $6.50 9. In four of the nine customer files listed in Findings of Fact 8 above, a "standard factual" credit report was included in the file. The typical cost for a "standard factual" is $45.00. No invoices were included in those files to reflect this cost. In obtaining credit reports for an individual mortgage transaction, Respondents did not generally order a credit report from an existing service. Instead, All States Mortgage had an on-line computer terminal with a direct phone modem linked to the individual credit reporting agency's computer data base. An employee of All States Mortgage, usually Burton Horowitz, used this computer link-up to conduct a credit report on the borrower. "Standard Factual" reports were ordered from existing services as necessary to supplement the computer search. The standard $25.00 fee charged by All States Mortgage was based upon an estimate of the overhead and indirect costs associated with producing credit reports in this manner. The overhead and indirect costs involved in obtaining credit reports as described in Findings of Fact 10 include the cost of leasing the equipment, the labor involved in obtaining the computer report (it typically takes an operator 30 minutes to obtain the credit reports) and the cost of the materials involved in producing a copy of the report. The standard $25.00 fee charged by All States Mortgage was not based on a specific allocation of the indirect costs associated with producing a particular report, but, instead, was simply based upon an estimate of the costs involved. During the course of its operations, All States Mortgage would periodically receive funds that were to be held in escrow. These escrow funds were kept in an interest-bearing account that was used by All States Mortgage and All States Finance. (This account is hereinafter referred to as the "Commingled Account.") The escrow funds in this Commingled Account were mixed with other funds of All States Mortgage as well as money belonging to All States Finance. Respondents contend that the escrow funds were commingled with the other funds because the companies had only one interest bearing account and that account had limited check writing ability. Respondents transferred money between the interest bearing Commingled Account and their other operating accounts on a continuous basis. At the end of each month, Respondents attempted to perform a reconciliation as to the escrow balances in the Commingled Account. On several occasions during the period from July 1987 through May 1988, the balance in the Commingled Account was less than the total funds that Respondents were supposed to be holding in escrow. No evidence was introduced to indicate that Respondents' handling of the escrow funds and/or the Commingled Account ever resulted in a loss to any of their borrowers or customers. Thus, while the evidence does indicate that, on occasion, the balance of the Commingled Account was less than the funds that should have been in escrow, the difference on each occasion was ultimately corrected in the reconciliation process. Respondents failed to use good accounting principles in the handling of the escrow funds. The Department has not adopted any rules requiring a mortgage broker to handle escrow funds in a separate account. Prior to the initiation of this Administrative Complaint, Respondents were never informed that they were required to do so. The Department's examiners prepared a schedule indicating that Respondents had diverted some of the escrow funds to their own use. However, that schedule includes several loans that had already been sold to another company on the date listed. Thus, the schedule does not accurately reflect the funds that should have been in escrow on any particular day. Although Respondent Lynn Smith was only in the office approximately fifteen percent (15%) of the time while the Department's examiners were conducting their audit in May of 1988, insufficient evidence was introduced to establish the charge that Smith was not fully supervising or controlling the actions of the employees of All States Mortgage. The unrefuted testimony of Smith indicates that she often worked non-regular hours, that she reviewed all the documents for every transaction in which All States Mortgage was involved and she supervised the work of all of the employees of the company. Extenuating circumstances in May of 1988 caused her to be out of the office more than usual during regular business hours. However, this fact alone is insufficient to establish the charge that she was not fully supervising or controlling the actions of the company.
Recommendation Based upon the foregoing Findings of Facts and Conclusions of Law it is, it is RECOMMENDED that the Department of Banking and Finance enter a final order finding the Respondents guilty of violating Sections 494.055(1)(b), (d), (f), (h) and (k) and issue a reprimand to the Respondents and impose a fine of one thousand five dollars ($1,500.00). DONE and ORDERED this 9th day of July, 1990, in Tallahassee, Florida. J. STEPHEN MENTON Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of July, 1990.
Findings Of Fact Based upon the testimony of the witnesses and the documentary evidence received at the hearing, the following findings of fact are made: For the period September 1, 1987 through August 31, 1988, Respondent was registered as the principal mortgage broker for the company AFM. Respondent's license number, HT 0010066, and street address, 3200 N. Military Trail, Suite 300, Boca Raton, Florida 33431, were included on the mortgage broker business registration renewal form executed and submitted by Respondent to the Department. AFM's mortgage brokerage registration number was HY0019932. Ronald Mims performed an examination of the AFM business records for a period which included September 1, 1987 through August 31, 1988. One of the loan transactions examined by Mr. Mims pertained to a borrower/applicant named Frazer. The records maintained by AFM related to this transaction contained a good faith estimate, dated April 15, 1988, that was prepared and executed by Darlene M. Mannarino, as the AFM office manager. The file did not contain a copy executed by the borrower. The good faith estimate described in paragraph 2 provided, in part: In compliance with Chapter 494 of Florida Statutes; Lender/Broker hereby acknowledges receipt of an application fee in the amount of $ 300.00 , and agrees that this will be applied towards the settlement charges. If an acceptable commitment is not obtained or loan closing does not occur for any reason, this deposit will not be refunded. A copy of a check in the amount of $300.00 payable to "American Funding1 from Frazer Distributors was included in the AFM-Frazer transaction file. Also included was a loan application executed by Respondent as the AFM interviewer. None of the documents contained in the Frazer file dIsclosed the limits and conditions of recovery from the Mortgage Brokerage Guaranty Fund (MBGF). Such documents did not disclose the escrow/trust agent if other the payee, American Funding. AFN did not have an escrow/trust account. The good faith estimate for the Frazer transaction provided for an estimated charge of $225.00 for an anticipated appraisal fee. Peter H. Sayles performed an appraisal for the Frazer transaction. The total amount billed to AFM by Sayles for he Frazer account was $350.00. Mr. Sayles was not paid for this work nor for an additional $100.00 due to him from AFM for a Roberts account. Mr. Sayles obtained a default judgment for these amounts in summary claims. Mr. Mims also obtained copies of records maintained by AFM related to a transaction for a borrower/applicant named Neger. A good faith estimate executed by the borrower on October 27, 1987, contained the same language as described in paragraph 3 above. The amount of the Neger deposit, however, was $250.00. The file did not contain a copy of the good faith estimate executed by AFM. The file held a copy of a check dated October 27, 1987, from Daniel Neger to "American Funding" in the amount of $250.00. The Neger loan application was signed by Darlene/Sherin Reynolds as the interviewer for AFM. The Neger documents maintained by AFM did not disclose the conditions or limits for recovery from the MBGF. Additionally, the documents did not disclose the escrow/trust agent for the transaction if other than the payee (American Funding). At the time of this transaction AFM did not maintain an escrow/trust account. At all times material to this case, Darlene Mannarino was not licensed by the Department. Except as noted above, Ms. Mannarino's duties and the type of payment she received for the work she rendered on behalf of AFM are not established by the record in this case. AFM did not maintain a mortgage journal in connection with the loan transactions it processed. Instead, AFM retained records in a card index file for loan applications. The records maintained in the card index file were incomplete and, consequently, inadequate to allow Mr. Mims to track the status and completion of loan transactions processed by AFM.
Recommendation Based on the foregoing, it is RECOMMENDED: That the Department of Banking and Finance, Division of Finance, enter a final order placing the Respondent licensee on probation for a period of two years. Further, it is recommended that the Department impose an administrative fine against Respondent in the amount of $1000.00. DONE and ENTERED this 2nd day of July, 1990, in Tallahassee, Leon County, Florida. JOYOUS D. PARRISH 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 2nd day of July, 1990. APPENDIX TO CASE NO. 90-0743 RULINGS ON THE PROPOSED FINDINGS OF FACT SUBMITTED BY THE DEPARTMENT: Paragraphs 1 and 2 are accepted. Paragraph 3 is rejected as contrary to the weight of the evidence or unsupported by the record. Paragraph 4 is accepted. Paragraph 5 is accepted but is irrelevant. Paragraph 6 is accepted. Paragraph 7 is accepted. Paragraph 8 is rejected as unsupported by the weight of the evidence. While the Department established that Sayles was not paid for appraisal services rendered, that does not imply nor establish that Respondent misused funds. Whether funds exist from which Sayles could be paid, is unknown. All that is known is that AFM, for whatever reason, did not pay Sayles. Paragraph 9 is rejected as unsupported by the weight of the evidence. RULINGS ON THE PROPOSED FINDINGS OF FACT SUBMITTED BY THE RESPONDENT: The first sentence of paragraph 1 is accepted. The balance of the paragraph is rejected as unsupported by the evidence or irrelevant. Paragraph 2 is rejected as irrelevant or contrary to the weight of the credible evidence. Paragraph 3 is accepted but is irrelevant. Paragraph 4 is rejected as contrary to the weight of the evidence or argument. Paragraph 5 is rejected as contrary to the weight of the evidence or argument. COPIES FURNISHED: Eric Mendelsohn Assistant General Counsel Office of the Comptroller Ill Georgia Avenue, Suite 211 West Palm Beach, Florida 33401-5293 Jerald A. Goldstein JERALD A GOLDSTEIN, P.A. 3200 North Military Trail Suite 300 Boca Raton, Florida 33431 Honorable Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0350 Mr. William G. Reeves General Counsel The Capitol Plaza Level, Room 1302 Tallahassee, Florida 32399-0350
The Issue Whether Petitioner's responses to the mortgage brokers examination administered in April 1995 were properly graded and, if not, whether Petitioner passed the examination? Whether Petitioner's responses to the mortgage brokers examination administered in May 1995 were properly graded and, if not, whether Petitioner passed the examination?
Findings Of Fact Respondent is the agency of the State of Florida responsible for the licensure of mortgage brokers pursuant to Part II of Chapter 494, Florida Statutes. Pursuant to Section 494.0033(2)(b), Florida Statutes, individuals who apply for licensure as a mortgage broker are required to pass a licensure examination. To pass the examination, a candidate must receive a minimum score of 75. National Assessment Institute is the company employed by Respondent to administer the licensure examination. Petitioner applied for licensure as a mortgage broker. On April 25, 1995, Petitioner took the mortgage broker examination. Petitioner was advised that she had achieved a score of only 64. Petitioner was afforded an opportunity to review the examination questions and her answers thereto, and she did so on May 12, 1995. She questioned her failure to receive credit for fourteen of her answers on that examination and provided written explanations why she believed her answers to those questions were correct. Petitioner's written challenges and explanations regarding her answers to those fourteen questions were reviewed by staff of National Assessment Institute. The individual who reviewed Petitioner's responses did not testify in this proceeding. This individual determined that Petitioner's answers to those fourteen questions were incorrect and that her explanations were without merit. Petitioner was advised that she was not entitled to additional credit for her answers on the April 1995 examination. At the final hearing in this cause, Petitioner failed to present any evidence that her April 1995 examination was improperly graded or that she was otherwise entitled to additional credit for her responses to the challenged questions on the examination. Petitioner also sat for the licensure examination administered May 23, 1995. Petitioner received a score of 74 on this examination. On June 9, 1995, Petitioner reviewed the grading of answers to the May 1995 examination. Petitioner asserts that the reviewer gave her the wrong question book so that the answer key would make her answers appear incorrect. For her review on June 9, 1995, Petitioner was provided a correct copy of her examination book, a photo copy of her answer sheet, her original scratch paper, and two challenge sheets. The information provided Petitioner reflected the response to each question the Respondent considered to be the correct response. At the final hearing in this cause, Petitioner failed to present any evidence that her May 1995 examination was improperly graded or that she was otherwise entitled to additional credit for her response to any question on the examination. Petitioner failed to establish that the April or May examination was improperly administered. She likewise failed to establish that the opportunity to review the scoring of these two examinations was compromised by fraud or mistake. The Respondent has promulgated Rule 3D-40.031(2), Florida Administrative Code, which authorizes it to request additional information in conjunction with a licensure application, which information may include the applicant providing evidence of a passing score on the mortgage broker examination. That Rule requires that additional information requested must be received by the Respondent within 90 days. The Respondent requested that Petitioner provide evidence that she had received a passing score on the examination. Petitioner has been unable to provide that information.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a Final Order that adopts the findings of fact and conclusions of law contained herein. It is FURTHER RECOMMENDED that Petitioner's challenges to the scoring of the April and May 1995 licensure examinations be dismissed and, consequently, that Petitioner's application for licensure as a mortgage broker be denied. DONE AND ENTERED this 16th day of May, 1996 in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON, 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 16th day of May, 1996. APPENDIX TO RECOMMENDED ORDER, CASE NO. 95-5132 The proposed findings of fact submitted by Petitioner are rejected as they are not supported by the record. While Petitioner purports to explain her answers to certain questions on the April 1995 examination, this evidence was not presented at the formal hearing. The following rulings are made as to the proposed findings of fact submitted by Respondent. The proposed findings of fact in paragraphs 1, 2, 3, 4, and 5 are adopted in material part by the Recommended Order. The proposed findings of fact in paragraphs 6 are adopted in part by the Recommended Order. The fact that Petitioner challenged ten question as a result of her review on June 9, 1995, was not established. Since there was no dispute that the request for formal hearing was timely and this is a de novo proceeding, the proposed findings of fact in paragraph 7 are unnecessary to the conclusions reached. The proposed findings of fact in paragraphs 8, 9,10, 11, 13, and 14 are subordinate to the findings made. The proposed findings of fact in paragraphs 12 and 15 are rejected as being unnecessary to the conclusions reached. COPIES FURNISHED: Ms. Nasrin Y. Niknam 53 Castle Harbour Isle Drive Fort Lauderdale, Florida 33308 Deborah Guller, Esquire Office of the Comptroller Department of Banking and Finance 201 West Broward Boulevard, Suite 302 Fort Lauderdale, Florida 33301 Honorable Robert F. Milligan Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350 Harry Hooper, General Counsel Department of Banking and Finance The Capitol, Room 1302 Tallahassee, Florida 32399-0350
Findings Of Fact At all times pertinent to the allegations contained herein, Respondent was a licensed Mortgage Broker and the principal broker for Mortgage Associates of Countryside, located at 2623 Enterprise Rd., Clearwater, Florida. The Department was and is the state agency charged with regulating the activities of mortgage brokers in this state. In September, 1987, Andrew Grosmaire and Kevin Gonzalez, compliance officer and financial examiner, respectively, for the Department, pursuant to a complaint from Mark Snyder, conducted an examination of Respondent's affairs as they pertained to his operation as a mortgage broker. During the survey, which covered the period from August, 1986 through August, 1987, Mr. Grosmaire and Mr. Gonzalez examined between 50 and 60 loan files which had culminated in loan closings. In addition, they examined loan files which did not result in closings, bank account records, and other of Respondent's miscellaneous records. In order for an appropriate audit of a closed loan file to be conducted, it is imperative that the loan closing statement be included. Without it, the examiner cannot accurately determine what, if any, closing costs the borrower actually paid and if closing costs paid were consistent with those disclosed by the broker on the Good Faith Estimate Form at the initial interview. Of the closed loan files reviewed, these closing statements were missing from seven files. Respondent admits that several closed loan files did not have the required closing costs statement form enclosed. He attributes this, however, to the failure of his processor, an assistant, to place the closing statement in the file. They were not presented at hearing or thereafter. The investigators examined the Good Faith Estimate Forms in those files which culminated in loans and found that the form utilized by the Respondent failed to contain language, required by statute, which summarized the limits and conditions of recovery from the Mortgage Brokerage Guaranty Fund. Respondent contends that the pertinent statutory section was not in existence at the time he was engaged in mortgage brokerage activities. This was found to be not true. The Act became effective July 1, 1986 and the files surveyed were from the period August, 1986 through August, 1987. Examination of the Good Faith Estimate Forms used by the Respondent in each of the cases which culminated in loan closing revealed that Respondent consistently underestimated closing costs. This resulted in the borrowers generally paying higher closing costs than was initially disclosed to them. On -loans applied for by Mr. and Mrs. Snyder, Mr. Iyer, and Mr. Toland. Respondent redistributed loan points to himself in an amount higher than that which was agreed to by the parties. In the Toland case, Mr. Toland agreed to pay a 1% loan origination fee in the amount of $996.00. The settlement statement dated approximately 2 months later reflected that Toland paid Respondent a loan origination fee of $1,128.00 in addition to a 1% ($664.00) loan discount fee to the lender. This latter mentioned discount fee was not disclosed in advance to Mr. Toland on the estimate form nor was the excess loan origination fee charged. It should be noted here that a second Good Faith Estimate Form, dated nine days after the original, reflecting a 3% loan origination fee, was found in the file. Though signed by Respondent, this second form was not signed by the borrower as required. It cannot, therefore, serve to support Respondent's claim that he advised the Tolands of the higher cost by this second form. There is no showing that the Tolands were aware of it. In the Iyer case, the estimate form dated September 19, 1986 reflected a points and origination charge of $1,332.50 which is 1% of the mortgage loan amount of $133,250.00. The Iyers were subsequently approved for a mortgage in the amount of $145,600.00. The closing statement dated March 6, 1987, almost six months later, reflects that the Iyers paid a 2% loan origination fee of $2,740.00 to Mortgage Associates and a load discount fee of $685.00 to the lender. Here again the Respondent claims that a second cost estimate form reflecting a 2% point and origination fee of $2,912.00 was subsequently executed by the Iyers. However, this second form, found in Respondent's files, is undated and fails to reflect the signature of either Respondent or the Iyers. It cannot, therefore, serve as proof that the Iyers were made aware of the change. It does appear, as Respondent claims, that the bottom of the second form, (here, a copy) , was excluded from the copy when made, but there is no evidence either in the form of a signed copy or through the testimony of the Iyers, that they were aware of the change. Consequently, it is found that the Iyers had not been made aware of the second estimate and had not agreed to pay as much as they did, in advance. As to the Snyder closing, both Mr. Snyder and Respondent agree that it was their understanding at the time the loan was applied for, that Respondent would attempt to obtain a lower interest rate for them than that which was agreed upon in the application and in the event a lower rate was obtained, Respondent's commission points would remain the same as agreed upon in the brokerage agreement. In that case, as Respondent points out, his commission is based on the mortgage amount, not the interest rate, and he would be entitled to the agreed upon percentage of the loan face amount regardless of the interest rate charged by the lender on the loan. The Snyders had agreed to a 1% commission to Respondent plus a 1% loan origination fee to the lender. When the lender agreed to lend at par, without an origination fee, Respondent appropriated that 1% to himself, thereby collecting the entire 2% called for in the application. This was improper. Respondent's claim that it is an accepted practice in the trade is rejected. The Snyders initially made demand upon the Respondent for reimbursement of that additional 1% and ultimately had to hire an attorney to pursue their interests. Respondent subsequently made a $400 partial reimbursement payment of the amount owed but nothing further notwithstanding the fact that the Snyders ultimately secured a Judgement in Pinellas County Court against him for $1,082.52 plus interest, attorney's fees and costs. As a result, the Florida Mortgage Brokerage Guarantee Fund will reimburse the Snyders for their loss. According to the investigators, the Snyders Toland, and Iyer files, in addition to the problems described, also reflected that Respondent received payments for other items which should have gone into an escrow account. These included such things as credit reports and appraisal fees. The Department requires that any money received by a broker other than as commission, be placed in the broker's escrow account pending proper disbursement. Respondent did not have an escrow account. Mr. Gonzalez looked at Respondent's overall operation, including closed files, in an attempt to correlate between income and outgo to insure that Respondent's operation was in compliance with the statute. In addition to his search for an escrow account, Mr. Gonzalez also examined Respondent's "Loan Journal" which by statute is required to contain an entry for each transaction in each loan. The purpose of this journal is to provide a continuing record to show when each item in the loan processing was accomplished. In Mr. Gonzalez' opinion, the Respondent's journal was inadequate. It contained repeat and conflicting entries for specific items which hindered the investigators' ability to determine an audit trail. In addition, all required information was not put in the journal in complete form in each account. In the opinion of the investigators, the Respondent's violations were significant in that they made it impossible for the Department to determine compliance with statutes and Department rules and inhibited the compliance examination. All in all, Respondent's way of handling his accounts, his failure to maintain an escrow account, and his unauthorized increase in commission income, all indicated his actions were not in the best interest of his clients. The investigators concluded that clients funds were not being handled properly and that the purpose of Chapter 494, Florida Statutes, to protect the consumer, was not being met. In Mr. Gonzalez' opinion, Respondent's method of business constituted incompetence as a mortgage broker and "possibly" fraudulent practice. It is so found. Both Mr. Gonzalez and Mr. Grosmaire indicated they had extreme difficulty in attempting to locate Respondent after the complaint was filed by Mr. Snyder, in order to conduct their examination. They finally located him at a site different from that which appeared in the records of the Department. Respondent contends that the Department had been notified in writing within the required time, of his change of location when he filed a notice of fictitious name. He contends that after filing his notice of name change, he received no response from the state but took no action to inquire whether the change had been made. In any case, his current address was in the phone book and had the agents chose to look there, they would have found him. Respondent contends that the good faith estimates required by the statute are just that, an estimate, and that actual figures may vary from and exceed these estimates. This is true, but there is a procedure provided whereby the broker is to notify the client of a change in advance and if the change exceeds a certain amount, it may constitute grounds for voiding the contract. In paragraph 7 of the complaint, Petitioner alleges that Respondent used a form for the estimates which failed to contain a statement defining the maximum estimated closing costs. Review of the statement offered herein reflect this to be a fair analysis. However, Respondent claims that certain items cannot be predicted accurately in that some companies charge more than others for the same item and it was his practice to insert in the estimate portion of the form a "worst case scenario." However, at no time did he address in his form what could be the maximum a prospective purchaser might be expected to pay. Respondent "doesn't like" the total picture painted by the investigators concerning his operation. He claims it is cot a fair and accurate representation. In many cases, he claims, he expended funds on behalf of clients in excess of that he received in either commission or reimbursement and even though he may have received more than entitled in some cases, it "evens out over a period of time." Though this may be so, it is no way to do business. The state requires the keeping of accurate records and, just as the broker should not be required to assume responsibility for other than his own misconduct, neither should the client be required to pay more than is his legal obligation. Respondent professes to know the mortgage business and he resents having his qualifications as a mortgage broker questioned. In his opinion, he has trained himself well and has acted in good faith on the basis of the information available to him at the time. He ignores the impact of the Judgement of the court in the Snyder matter because he feels it was "unilateral." He believes the law is designed to protect the client and he wants to know who protects the broker. It is for that very reason, he contends, that fees paid in advance are not refundable. Mr. Sample feels the Department should be more informative to the brokers and get the governing regulations updated more quickly. Respondent cherishes his license and claims he needs it to make a living. He went out of business once before, several years ago, because of bad business conditions, (the reason he uses for not complying with the court order), but did not declare bankruptcy because he wanted to go back into business and pay off the judgements against him. Though he has been back in business for several years, he has failed to make any effort to pay off any of his former creditors even though in his former operation, he improperly tapped his escrow account for other business expenses.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that the Respondent, Howard E. Sample's license as a mortgage broker in Florida be revoked. RECOMMENDED this 15th day of September, 1988 at Tallahassee, Florida. ARNOLD H. POLLOCK 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 day of September, 1988. APPENDIX TO RECOMMENDED ORDER IN CASE NUMBER 88-2858 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. Insofar as Petitioner's submission refers to testimony of a witness, that is considered as a proposed finding of fact. FOR THE PETITIONER; Accepted and incorporated herein & 3. Accepted and incorporated herein 4. & 5. Accepted and incorporated herein Accepted and incorporated herein & 8. Accepted and incorporated herein Rejected as contra to the evidence A conclusion of law and not a finding of fact & 11a Accepted and incorporated herein Accepted Accepted and incorporated herein Accepted Accepted and incorporated herein - 18. Accepted 19. - 21. Accepted and incorporated herein Accepted & 24. Accepted and incorporated herein 25. & 26. Accepted and incorporated herein Accepted &-29. Accepted 30. - 34. Accepted and incorporated herein FOR THE RESPONDENT: Nothing Submitted by way of Findings of Fact COPIES FURNISHED: Elise M. Greenbaum, Esquire Office of the Comptroller 400 West Robinson St. Suite 501 Orlando, Florida 32801 Howard E. Sample 2465 Northside Drive Apartment 505 Clearwater, Florida 34621 Honorable Gerald Lewis Ccmptroller, State of Florida The Capitol Tallahassee, FL 32399-0350 Charles L. Stutts, Esquire General Counsel Department of Banking and Finance Plaza Level, The Capitol Tallahassee, FL 3 2399-0350
Findings Of Fact At the time of CMNI's application, Mr. Giunta was president of CMNI and, as such, exercised primary control over the day-to-day activities of CMNI (Tr.12). Mr. Giunta is also the president of Christian Investors Network, Inc. (CINI), and exercised similar control over the activities of that corporation (Tr. 11-12). Mr. Giunta, CMNI, and CINI have never been licensed as mortgage brokers by the Department (Tr. 12-13). CINI, with the knowledge and approval of Mr. Giunta, placed advertisements in the St. Petersburg Times (Tr. 13). One such advertisement appeared in St. Petersburg Times edition of April 20, 1986, under the heading "Loan Information." That advertisement stated "Major Real Estate Financing" and "Residential Real Estate." (Exhibit 1). Sometime in the middle of 1986, Paul Mark called Mr. Giunta in response to an advertisement in the St. Petersburg Times. Mr. Mark was seeking a mortgage loan or loans to build several houses on real estate he owned and so informed Mr. Giunta, who indicated to Mr. Mark that he could arrange a mortgage loan for Mr. Mark (Tr. 28-29). Messrs. Mark and Giunta met shortly after the telephone call. Mr. Mark handed Mr. Giunta a package of documents including a site plan, survey, credit information and a completed mortgage loan application. Mr. Giunta again stated that he would have no problem arranging a mortgage loan for Mr. Mark and requested a fee for such service in the amount of $300.00 (Tr. 30-31). After the meeting, Mr. Mark sent to Mr. Giunta a check made out to Mr. Giunta in the amount of $300.00, together with a letter dated July 16, 1986, confirming that Mr. Giunta would secure mortgage financing (Tr. 31-33); Exhibit 3). In October of 1986, Clifford Clark called Mr. Giunta in response to a newspaper advertisement, seeking a mortgage loan to refinance a certain parcel of property owned by Mr. Clark. Mr. Giunta stated that he could arrange mortgage financing for Mr. Clark at an interest rate of approximately ten percent (Tr. 48-49). After the telephone contact, Messrs. Clark and Giunta met and Mr. Giunta had Mr. Clark fill out a residential loan application (Exhibit 7). Mr. Clark provided Mr. Giunta with originals of his deed to the property and other real estate related documents. Mr. Giunta indicated that he could obtain mortgage financing for Mr. Clark and requested a fee of $250.00, whereupon Mr. Clark gave Mr. Giunta a check for that amount (Tr. 49-51). In early 1986, Robert Miraglia called Mr. Giunta in response to a newspaper advertisement, seeking a second mortgage. Mr. Giunta arranged to meet with Mr. Miraglia to discuss the requested loan. In August of 1986, Russell Foreman contacted Gerald Giunta in response to a newspaper advertisement, seeking a mortgage loan to refinance his home (Exhibit 5). On August 26, 1986, Mr. Foreman met with Mr. Giunta and at Mr. Giunta's request gave him copies of his deed, a survey of the lot, the mortgages to be satisfied and other real estate related documents. Mr. Giunta assured Mr. Foreman that there would be no problem in obtaining a mortgage loan and requested a fee of $200.00. Mr. Foreman wrote a check for that amount and gave it to Mr. Giunta (Exhibit 5). Mr. Giunta never informed Messrs. Mark, Clark, Miraglia and Foreman that he was not a licensed mortgage broker. In approximately April of 1986, Mr. Giunta met with Mr. Arthur M. James, Area Financial Manager for the Department's Tampa Regional Field Office. At that meeting, Mr. James explained to Mr. Giunta that he could not offer to arrange or negotiate mortgage loans on behalf of clients and collect a fee for such service without first becoming licensed by the Department as a mortgage broker (Tr. 84). At some point prior to May 8, 1986, Mr. Giunta was contacted by the Department and informed of the statutes and regulations applicable to advertising his services in the area of real estate financing (Exhibit 2; Tr. 23-24). At some point in 1987, CMNI, with the knowledge and approval of Giunta, listed "Christian Mortgage Network, Inc." in the yellow pages of a local telephone book under the heading of "Mortgages." (Exhibit 1; Tr. 15).
