The Issue The issue presented for decision herein is whether or not the Respondents, Andrew DeGraffenreidt and Circle D. Realty, are guilty of conduct, set forth hereinafter in detail, amounting to fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence and breach of trust in a business transaction and have failed to account and deliver rental money all in violation of Subsections 475.25(1)(b)and (d), Florida Statutes.
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, documentary evidence received and entire record compiled herein, I hereby make the following relevant factual findings. Petitioner, Department of Professional Regulation, Division of Real Estate (hereinafter sometimes called the Petitioner), is a state government licensing and regulatory agency charged with the responsibility and duty to prosecute the Administrative Complaints pursuant to Chapters 20, 120, 455 and 475, Florida Statutes and rules promulgated pursuant thereto. Respondent, Andrew DeGraffenreidt, is now and was at all times material, a licensed real estate broker having been issued license number 0320099. Respondent, Circle D Realty, Inc., Is now and was at all times material hereto, a corporation licensed as a real estate broker in Florida having been issued license number 0221329. At all times material hereto, Respondent DeGraffenreidt was an officer of, and was the qualifying broker for Respondent, Circle D Realty, Inc. Respondents, in their capacity as a real estate broker, entered into an agreement with Emmett and Louis Anderson, during August, 1984 to handle the rental management of certain residential property owned by the Andersons located at 320 Northwest 20th Avenue, Fort Lauderdale, Florida. The management agreement was by its terms, effective for a period of one year beginning August 21, 1984 and ending August 22, 1985, and continuing from year to year until either party terminated the agreement by giving notice to the other party sixty (60) days prior to the end of any yearly renewal period. The Andersons, as owners, granted Respondents, inter alia, the following authority: Full management and control of said property with authority to collect rents and other monies and securities from tenants, to negotiate leases and renewals thereof, to have minor repairs made and to purchase necessary supplies and to pay all bills and charge same to owner, to serve vacate notices upon tenants and to prosecute in the name of the owner, to hire, discharge and pay from owners' funds any and all employees necessary to the maintenance and operation of the building, and were clothed with such general authority and powers as maybe necessary or expeditious to carry out the spirit and intent of the management agreement with respect to the renting, management and operation of the property. For such services, Respondents would receive 10 percent of gross rentals and other monies. Respondent was authorized to deduct from the owners' funds held by them, any amount due Respondent for any charges incurred on the owners' behalf. At the time when Respondents entered into the management agreement with the Andersons, there were two outstanding mortgages on the subject property in favor of Associates Financial Services Company and California Federal of Florida, Inc. Both mortgages were delinquent at the time Respondents agreed to manage the Andersons' property. When Respondent assumed management of the subject property, the tenants were paying monthly rent of $450.00, an amount insufficient to cover the outstanding mortgages. During some undetermined time during August 1984 and June, 1985, Respondent raised the rent from $450.00 to $600.00, an amount agreed to by the tenants who were desirous of purchasing the property. The management agreement between Respondent and the Andersons was for management of the property and not one for the payment of the mortgages. However, during some unspecified period of time, Mrs. Emmett Anderson, by telephone, requested Respondent's office manager, Mary MacDonald, to mail the mortgage payments of $338.48 and $207.00 to the various mortgage companies. Ms. MacDonald agreed to accept Mrs. Anderson's request and have rent monies mailed directly from Respondent to the two financial institutions without consulting Respondent, DeGraffenreidt. Respondent DeGraffenreidt, upon learning of the verbal agreement with Mrs. Anderson and the office manager, MacDonald, informed Ms. MacDonald that she would have to assume the task of paying and mailing mortgage payments each month and he (DeGraffenreidt) would cash the rental check and give her money orders to be mailed and/or paid to the respective financial institutions. As early as February, 1984, the mortgages were delinquent for the Andersons' property and both institutions were contemplating instituting foreclosure proceedings. (Respondent's Exhibit 2). All written communications between the financial institutions concerning the delinquency were mailed to the Andersons who had relocated to Boston, Georgia. Unbeknownst to Respondent DeGraffenreidt, the mortgage payment to California Federal was increased from $207.00 to $296.00 per month. California Federal refused one payment for $207.00 which had been sent by Respondent after the amount was increased to $296.00. Respondent DeGraffenreidt requested Anderson to advise him of the correct amount of the mortgage payment to be sent to California Federal. Mr. Anderson did not respond to this request. During October and November, 1985, Respondent DeGraffenreidt advised the Andersons that additional monies were needed from them to bring the mortgages current. Respondent DeGraffenreidt again telephoned the Andersons and advised them during early December, 1985 that he needed $1,000.00 to prevent California Federal from foreclosing on the mortgage. At that time, Mr. Anderson requested that the Respondents try to sell the property. Respondent DeGraffenreidt contacted some business associates and investors trying to arrange a sale for the Anderson property. However, no investors were interested based on the asking price and all potential buyers lost interest in the Andersons' property when they learned that the two outstanding mortgages exceeded the marketable value for the property. During June and July, 1986, Respondent DeGraffenreidt attempted to reconcile the Anderson account and determined the exact amount that the Andersons were owed based on some returned payments which Circle D received from the financial institutions and which were placed in an escrow account. Respondent determined this amount to be approximately $557.35, which amount was tendered to the Andersons via a money order during the course of the hearing. Respondents maintained a ledger which correctly showed the monies due and owing to the Andersons based on monies returned by the financial institutions. The Andersons never provided Respondents a written account of any change in the mortgage payments. On or about January, 1986, the Andersons notified the Johnsons (tenants) to pay the rent directly to the Andersons. The Andersons never advised the Respondents that they were terminating the management contract which required written notice from the Andersons.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Administrative Complaint filed herein be DISMISSED. DONE and RECOMMENDED this 24th day of November, 1987, in Tallahassee, Florida. JAMES E. BRADWELL 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 24th day of November, 1987. COPIES FURNISHED: Arthur R. Shell, Jr., Esquire Department of Professional Regulation - Division of Real Estate 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802 Andrew DeGraffenreidt and Circle D. Realty, Inc. 2123 Northwest Sixth Street Ft. Lauderdale, Florida 33311 Harold Huff, Executive Director Department of Professional Regulation, Division of Real Estate 400 West Robisnon Street Post Office Box 1900 Orlando, Florida Tom Gallagher, Secretary Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32399-0750 William O'Neill General Counsel Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32399-0750
The Issue Whether Mortgage Broker License No. 3534 should be suspended or revoked under Section 494.05, F.S. At the hearing, the Respondent filed an answer to the charges in the Petitioner's Administrative Complaint, incorporating therein affirmative defenses. Rule 28-5.25(2), Florida Administrative Code, provides that the party may file an Answer which may contain affirmative defenses within 20 days of service of the Petition. Respondent's basis for late filing was inadvertence and neglect of its counsel. The Answer contained a general denial of the allegations and set forth affirmative defenses asserting lack of jurisdiction of the Petitioner to pursue its claims for alleged actions which took place on or before October 19, 1974, which was prior to the issuance of the mortgage broker license to Respondent. Further defenses included the claim that the Administrative Charges and Complaint are vague and ambiguous, that Petitioner had taken written action against Respondent without a hearing and denied it due process of law prior to the filing of the Administrative Charges and Complaint, thereby constituting double jeopardy, that Petitioner has unilaterally and without hearing denied Respondent renewal of its license, therefore denying it due process of law and claiming that petitioner is estopped from proceeding on the ground that it violated Section 494.06(5), in not keeping confidential the examination and investigation of the Respondent by giving press releases designed to influence the outcome of the hearing. The Hearing Officer permitted the late filing of the Answer and Affirmative Defenses at the hearing, over the objection of the Petitioner who claimed lack of notice as to the affirmative defenses. Respondent made a motion at the hearing to quash or abate the charges on the grounds of lack of jurisdiction on the basis set forth in its aforesaid pleading and on the grounds that Section 494.05(1) permits the petitioner only to investigate actions of licensees and not to suspend or revoke such licenses. The motion was denied by the Hearing Officer under the authority granted to deny, suspend or revoke licenses pursuant to Section 494.05, F.S. From statements of counsel at the hearing, it appears that Respondent's application for yearly renewal of its license was denied by Petitioner on September 3, 1975. However premature such a denial might have been, the question is not in issue in the instant proceeding. Nor is any purported violation by Petitioner of Section 494.06(5), concerning confidentiality of its investigations of Respondent. Both parties made opening statements and closing arguments. The Petitioner presented its case through two witnesses and submitted documentary evidence. The Respondent did not call, any witnesses. Petitioner also called Frank H. Roark, Jr. President of Respondent Corporation as a witness. Mr. Roark, after being sworn, declined to testify on the grounds of possible self-incrimination. The Hearing Officer thereupon excused the witness. Upon a showing by the Petitioner that the books and records of Respondent Corporation had been requested by Subpoena Duces Tecum and its request that Mr. Roark be required to identify the corporate books and records in his capacity as an officer of the corporation, over objection of Respondent's counsel, the Hearing Officer permitted Mr. Roark to testify for this limited purpose.
Findings Of Fact The Department of Banking and Finance of the State of Florida issued Mortgage Broker License Number 3534 to Respondent on October 10, 1974 (Petition and Answer). The transactions of the Respondent which are the subject of the Administrative Charges and Complaint, concern the purchase by investors/lenders of corporate promissory notes issued by a land development company which are secured by mortgages on its land. The purpose of selling the note is for the land development company to raise funds for the development of real property. The sales of the notes were made by Respondent to individual investors. Usually these transactions were handled through what was termed a "Master Broker" who was a middle man between the land developer and the Respondent mortgage broker which actually made the individual sales of the notes. Typical of the manner in which Respondent conducted these transactions was to enter into an agreement with an investor termed an "Application To Purchase a Mortgage" for a certain face amount at a specified interest rate with interest payable monthly and with concurrent delivery by the investor to Respondent of the stated sum under the conditions that the note would be executed, the mortgage recorded, and the note and recorded mortgage delivered to the investor-purchaser. In due course, a promissory note issued by the land development corporation (the borrower), was delivered to the investor, along with a mortgage deed to specified real property to secure the note. Some notes were payable on an interest only basis and some on a principal and interest basis. Some involved the issuance of title insurance policies and others did not. In some cases, Respondent remitted funds involved in the transaction to the "Master Broker" and in some cases directly to the land developer, less an amount retained by Respondent, ostensibly for its fees, commissions, and/or other charges. The funds were placed into escrow bank accounts when they were received from the investors by Respondent and then sometimes on the same day or in most cases several days or weeks later, the funds less the amount retained by Respondent, were forwarded on to the "Master Broker" or directly to the developer (testimony of Mr. Hunt, Petitioner's Exhibits 1, 3 & 4). Acting upon a request of the State Comptroller to have all mortgage companies examined, in the latter part of July, 1975, Mr. Lawrence W. Hunt, a Financial Examiner Supervisor of Petitioner's Division of Finance along with three assistants went to the Respondent's office to examine its records and determine from the examination whether or not violations of the Mortgage Brokerage Act had been committed. Utilizing source documents from the company records, Mr. Hunt and his associates prepared a worksheet and listed thereon various items of information gleaned from these records (Petitioner's Exhibit 1). After preparation of the worksheet, overcharges as to the 402 transactions identified in the worksheet were computed by Mr. Joseph Ehrlich, Deputy Director of the Division of Finance, solely from the worksheet obtained by the examiners (Petitioner's Exhibit No. 2). Such overcharges were computed with respect to maximum fees or commissions which a broker could charge in accordance with the provisions of Rule 3-3.08, Florida Administrative Code, in consideration of the amount of funds retained by Respondent, Mr. Hunt is not a state auditor and his examination of records did not go into the depth of an audit such a compilation of financial statements. His work consists basically of an examination which involves obtaining information from corporate records and placing it on worksheets so it can be analyzed. During Mr. Hunt's visit to Respondent's place of business, he received full cooperation of its officers and employees and found the records to be in good order. He also had no reason to question any of the entries in any of the records that he observed. Neither he nor Mr. Ehrlich had received complaints from any individual or organization about Respondent's operations prior to his visit. He did not at any time contact any of the lenders or borrowers involved in Respondent's transactions (Testimony of Mr. Hunt, Mr. Ehrlich, Petitioner's Exhibits 1 and 2). On October 11, 1974, the Division of Finance issued a "Memorandum to all Mortgage Brokers" in which it was stated that it had been brought to the Division's attention that a number of mortgage brokers in transactions (such as those under consideration here), were remitting investors' funds to the land developer rather than placing the funds in an escrow account, and that such funds were being remitted in anticipation of receiving a recorded mortgage and note. The Memorandum warned that this practice could result in substantial losses to the broker in repaying investors should the land developer fail and was also in violation of the Mortgage Brokerage Act and could lead to the suspension or revocation of a license under Section 494.05, (1)(f), Florida Statutes. This section concerns placement of funds received in escrow accounts where they shall be kept until disbursement thereof is properly authorized (Respondent's Exhibit A). The Memorandum was sent to Respondent among others Mr. Hunt, during his examination of Respondent's records, found that Respondent ,had changed its escrow procedures approximately the date that the bulletin was issued and that there were no discrepancies after that date concerning escrow monies. By further correspondence in December, 1974, and May and June of 1975, Respondent's President posed various questions to Mr. Ehrlich to clarify certain aspects of escrow account requirements and received replies thereto (Respondent Composite B - Respondent's Exhibit C, D, F and G. (Note: There is no Exhibit E) In 402 separate transactions conducted by Respondent during the years 1973, 1974, and 1975, the mortgages which were purchased by the investors were delivered to the investor within varying periods from one day from the sale date until almost two months from the sale date. Forwarding of funds by the Respondent to the "Master Broker" or to the land development company was also accomplished in these transactions within varying periods of time from the sale date. These ranged from the same date as the sale to periods of a month or so thereafter, but usually on the date of delivery of the mortgage to the investor. The amounts forwarded by Respondent consisted of the face amount of the note and mortgage, less a certain amount which was retained by the Respondent (Petitioner's Exhibit 1). No effort was made by Petitioner's examiner to determine either the basis for the amount retained by Respondent or its composition. For example, he did not determine whether there were any "points" for service charges or discounts of any sort included in the retained sum. The examination was made solely on the basis of examining the business records of Respondent which did not reflect a breakdown of the retained amount. However, it could be deduced from various documents in individual investor files that certain amounts had been paid by someone unknown for title insurance premiums, recording fees and intangible taxes. The dates of mortgage delivery shown by Mr. Hunt in his worksheet were dates which he assumed were correct but he had not verified by any person the exact dates the mortgage was delivered to the investors. Neither could he ascertain from the records whether or not an investor had authorized Respondent to disburse funds at a particular time. The overcharges were determined in accordance with the formula set forth in Rule 3- 3.08, F.A.C., which is on a "gross proceeds" loan in which the borrower indicates that he wished to borrow a specified amount with all fees and charges to come out of the gross amount, thereby resulting in a reduced amount being provided to the borrower. The overcharges were computed without knowledge of whether the amount retained by the Respondent, as shown in Petitioner's Exhibit 1, included payment for state intangible tax, documentary stamps, and recording fees (Testimony of Mr. Hunt, Mr. Ehrlich, Petitioner's Exhibit 1 and 2). The overcharges set forth in Petitioner's Exhibit 2 were unrebutted by Respondent and are deemed correct. In a transaction between Respondent and Cary G. Anderson, who applied for purchase of a mortgage on May 7, 1974, in the face amount of $3,500.00, the file relating to the transaction did not reflect the amount of any costs to be paid by Respondent in the matter, nor did it reveal a specific figure for brokerage fee or commission charged by Respondent. The file did reflect a bill for title insurance premium in the amount of $45.00 and recording fees in the amount off $22.25, $5.25 documentary stamps, and $7.00 for intangible tax. The amount of overcharge was $175.46. In another $2,500 transaction with Mr. Anderson, the amount remitted to the land developer was $2,075.00. The amount retained by Respondent was $425.00. Petitioner's Exhibit number 2 establishes an overcharge from this transaction of $61.37. There was no copy of the mortgage in the file and therefore no information upon which to determine the payment of intangible taxes, documentary stamps and recording fees (Petitioner's Exhibit 3). In a $5,000 transaction between Walter L. and Thelma T. Beach and Respondent with application for purchase mortgage dated July 30, 1974, a check was written on Respondent's escrow account to Kingsland Development in the amount of $4,100. The maximum allowable brokerage fee or commission under the law would have been $590.90. The amount retained by Respondent was $900.00. The mortgage indicated that documentary stamps in the amount of $7.50 and intangible tax of $10.00 were paid. Assuming that Respondent paid the intangible taxes, and documentary stamps, the excess fee charged according to calculation under Rule 3-3.08, was $281.60 (Testimony of Mr. Hunt, Petitioner's Exhibits 1, 2 and 4). In respect to the above three transactions Petitioner's examiner did not find closing statements in the file, nor did he go to the Florida title ledger or Attorney's ledger of Respondent's records. However, he had, at the outset of his investigation, asked Respondent to make available all records concerning the transactions (Testimony of Mr. Hunt).
Findings Of Fact Petitioner presented one witness that had audited the books and records of Respondent. This audit revealed that Respondent had handled some 350 transactions involving mortgages and that on approximately 50 of those transactions the Respondent had withheld a commission more than authorized by statute or department rule. The witness testified to only a few of those transactions shown on his work sheet attached to a deposition admitted into evidence. Thereafter Respondent stipulated that if asked about all of the other transactions shown on the work sheet, this witness, and the auditor who performed the balance of the audit, would testify the same for those other transactions, viz. that the worksheet figures were extracted from the records of Respondent and the authorized commissions shown thereon were computed using either the statutory method or the rule method and that both methods would give the same results. These figures show that the Respondent overcharged the borrower on approximately 50 transactions as alleged. On approximately 2/3 of the transactions the funds were remitted to a master broker, and on the other 1/3 the funds were remitted to the borrower. Further, that the notes and mortgages were received by Respondent for delivery to his client some 4 to 6 weeks after he had disbursed the money from his trust account. Upon expiration of Petitioner's case Respondent renewed his motions for dismissal and further moved for dismissal on the grounds that the funds for a majority of the transactions involved were remitted to another broker, and for those remitted directly to the borrower (developer) the charges were not excessive but those actually proposed by the borrower-developer. This motion was denied and Respondent then testified in his own behalf. Richard Zaloudek percent has been a licensed mortgage broker since 1960 and is also a licensed real estate broker. He has been in the mortgage brokerage business since 1948. Prior to obtaining his mortgage broker's license he dealt in FHA mortgages which were exempt. He renewed his license automatically each year until September, 1975 when he received no response from the Comptroller's Office to his application for renewal. Since a valid license is required to operate as a mortgage broker, Respondent has been unable to so act since the expiration of his license in September, 1975. When Respondent was approached by the master broker representing Mortgage Development Corporation to sell mortgages for it, he questioned the legality of such transactions. He was presented with a copy of the opinion of the office of the Comptroller, Division of Securities, dated January 10, 1973. This indicated that the notes secured by mortgages that he was being solicited to sell complied with the statutes and rules affecting securities. Thereafter he advertised in the news media that he had these high interest paying notes secured by mortgage for sale. When a client came into his office to invest he would take their investment, deposit same in his trust account, and then forward to the master broker or borrower the deposit less the commission the borrower and master broker had authorized him to deduct. Thereafter the note and mortgage was mailed to Respondent who presented it to the investor. As a result of many people losing money in investments in promissory notes secured by mortgages on land, newspaper coverage of various facets of the land development industry became widespread. In several cases the various mortgage brokers, such as Respondent herein, were named in these articles in the newspapers; and press reports were issued by the Comptroller's Office that certain licenses, including that of Respondent, had been revoked. Because of the adverse publicity, not only did Respondent's mortgage brokerage business drop off and stop completely when his license was not renewed in September, 1975, but also his business as a real estate broker suffered. Respondent's testimony that he lost real estate listings totaling some two million dollars was not rebutted. Nor was his testimony that this represented a loss of some $70,000 in income.
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.
The Issue Whether the Respondent committed the violations alleged in the Administrative Complaint dated April 20, 1995, and, if so, the penalty which should be imposed.
Findings Of Fact Based on the oral and documentary evidence presented at the final hearing, the stipulation of the parties, and on the entire record of this proceeding, the following findings of fact are made: The Department of Business and Professional Regulation is a state government licensing and regulatory agency charged with the responsibility and duty to prosecute Administrative Complaints pursuant to Chapters 120, 455, and 475, Florida Statutes. The Florida Real Estate Commission ("Commission") operates within the Department and is the entity directly responsible for licensing and disciplining those licensed under Chapter 475. Section 475.02, Florida Statutes. The Division of Real Estate operates within the Department and assists the Commission in carrying out its statutory duties. Section 475.021, Florida Statutes. Janice H. Little is, and was at all times material to this action, licensed as a real estate broker in Florida and was issued license number 0370239. The last license issued to Ms. Little was as a broker %Dennis & Little, Inc., t/a Kays Realty, 421 Southwest 31st Avenue, Fort Lauderdale, Florida, 33312. On April 7, 1993, Ms. Little obtained an offer from Karlene Bascombe to purchase real property owned by Maxine Williams. Ms. Little was acting as the seller's co-broker in this transaction. Ms. Little provided Ms. Bascombe with the names of several mortgage companies. Ms. Bascombe decided to apply for financing to Vision Mortgage Corporation, one of the companies identified by Ms. Little, and she met with Henry Yee, the manager of Vision Mortgage Corporation, at Ms. Little's office. Ms. Little introduced Ms. Bascombe to Mr. Yee but did not participate in their meeting. As part of her loan application, Ms. Bascombe authorized Vision Mortgage Corporation to verify her past and present employment records, among other things. At some point during the time Ms. Bascombe's loan application was being processed, Ms. Little learned that Ms. Bascombe's income was not sufficient to warrant approval of the application. Ms. Little was aware that Ms. Bascombe was a bookkeeper and that she worked full time at Lerner's. After learning that Ms. Bascombe had insufficient income to secure financing for the purchase of Ms. Williams' property, Ms. Little approached Donaval Powell and asked if he would be interested in hiring a part-time bookkeeper. Mr. Powell owns Filament Electronics, a business that sells and repairs electronic equipment. The business is located in the same shopping center in which Ms. Little's office was located and in close proximity to her office. Filament Electronics has been in the same location since it opened in 1992. Ms. Little and Mr. Powell have known each other since shortly after he opened his business. Mr. Powell told Ms. Little he might want to hire a part-time bookkeeper, but Mr. Powell heard nothing further about this matter. He never met Ms. Bascombe, he did not hire her, and she was never employed by Filament Electronics.1 Blanca Tanadell, an employee of Vision Mortgage Corporation, prepared a Fannie Mae Request for Verification of Employment form for Ms. Bascombe. Ms. Tanadell filled out boxes one through eight of the form, and she identified Filament Electronics as the employer from whom verification of Karlene Bascombe's employment was sought. Ms. Tanadell sent the form to Ms. Little, even though the instructions included on the form direct the lender to send the form to the named employer. Ms. Little completed boxes nine through thirty of the employment verification form in which Filament Electronics was identified as Ms. Bascombe's employer. Ms. Little represented that Ms. Bascombe was employed there in January, 1991, and that her present position was as a bookkeeper. Ms. Little knew when she completed the form that Ms. Bascombe had not been employed by Filament Electronics prior to April 10, 1993, but she testified that she believed that Mr. Powell had hired Ms. Bascombe subsequent to that date. Ms. Little further represented that Ms. Bascombe's annual "current gross base pay" was $24,250.00 and that her gross earnings for 1992 were $24,250.00 and for 1991 were $23,500.00. At the time she completed the employment verification form, Ms. Little had no documentation to support the earnings she attributed to Ms. Bascombe.2 Finally, Ms. Little signed the name "Hyacinth Fuller" and identified her as "Supervisor."3 She then sent the completed employment verification form to Vision Mortgage Corporation. Ms Little did not ask Mr. Powell to complete the employment verification form, nor did she ask him whether he employed Ms. Bascombe and, if so, the amount of her earnings. Ms. Bascombe's loan application was approved, and she purchased the real property offered for sale by Maxine Williams. Ms. Little was paid a commission at closing in the amount of three percent of the sales price of the property. Ms. Bascombe subsequently defaulted on her loan, and it was in the course of the loan company's investigation of the default that Mr. Powell denied ever having employed Ms. Bascombe. Ms. Little is licensed in Florida as a mortgage broker, and, at one time, her license was with Vision Mortgage Corporation. She is familiar with the procedures for processing loan applications. The stipulation entered into by the parties and the evidence presented by the Department are sufficient to establish that Ms. Little is guilty of fraud or misrepresentation in a transaction related to her business as a real estate broker. Ms. Little seeks to excuse her actions by claiming that she believed that Ms. Bascombe had been hired by Mr. Powell after April 10, 1993, and that she was provided with the earnings figures by Henry Yee, who was the manager of Vision Mortgage and whom she considered trustworthy. She also claims that Mr. Powell wants to harm her because she spurned his sexual advances and told his wife that he constantly bothered her. These contentions are, however, contrary to the more credible and persuasive proof and, even if true, do not alter the fact that Ms. Little acted with, at the very least, extreme reckless disregard for the truth.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Florida Real Estate Commission enter a Final Order finding Janice H. Little guilty of violating Section 475.25(1)(b), Florida Statutes, and revoking her real estate broker's license. DONE AND ENTERED this 5th day of August, 1997, in Tallahassee, Leon County, Florida. PATRICIA HART MALONO Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 5th day of August, 1997.
Findings Of Fact The administratively complaint alleges that Respondent violated the provisions of Section 517,16(1)(a), F.S. by having sold notes, which were securities as defined by Section 517.02(1), F.S., which were unregistored in violation of Section 517.07, F.S., and having represented that said notes were secured by first mortgages when in fact they were not so secured in violation of Section 517.16(1)(d), F.S., on two occasions to Joseph M. and Patricia Barton. The first sale is alleged to have occurred on June 14, 1974, in the amount of $15,000, and the other sale is alleged to hake occurred on September 29, 1973 in the amount of $5,000. The Petitioner introduced Exhibit 1 which was received and which indicates that only the common stock of Equitable Development Corporation was registered with the State of Florida, Division of Securities. The Petitioner presented no evidence relative to the alleged sale occurring on June 14, 1974. It is therefore not proven. The Petitioner called Gregory Stevens who was the sole witness at the hearing and who was a license securities salesman and licensed mortgage broker. In September 1973 Stevens was self employed doing business for Gregory Stevens, Investment Incorporated. Stevens stated that he dealt in first mortgages. Respondent testified that he obtained the mortgage documents through Financial Resources Corp., the president of which was Mr. Rinehart. Respondent was assured by Mr. Rinehart before he began handling these mortgages that they were not required to be registered as securities because they ware exempt, and that the State had so indicated for this type of transaction. Respondent testified that he sold a note and mortgage to his clients, Joseph and Patricia Barton, in his capacity as a licensed mortgage broker on behalf of Gregory Stevens Investments, Inc., of which he is president. Exhibit 10 is a sample order form for another contract which shows that such transactions were in the corporate entity. Respondent's uncontroverted testimony was that only he individually is licensed to sell securities, and that no mortgages were sold as securities. The evidence is that on September 29, 1973, a promissory note of the Equitable Development Corporation was issued to Joseph and/or Patricia Barton, secured by a Mortgage Deed issued by Equitable Development Corporation. The face amount was $5,000. The Bartons also received a quitclaim deed. The mortgage deed specifically covenants that the underlying property is free and clear of all encumbrances except current and future real estate taxes. Respondent testified that he physically examined the property which secured the mortgages and it looked good. He saw appraisals at double the face amount of the mortgages he sold. Those clients who requested title insurance or opinions of title from a lawyer could obtain same, and when they were requested he saw then and they never showed any defects or other encumbrances. This was the procedure followed with the Bartons, although neither title insurance nor a title search and opinion were obtained requested by the Bartons. The Respondent indicated that at the time of said sale to the Bartons that he believed, and had no reason not to believe, that said mortgage was a first mortgage as it recites on its face. The Hearing Officer notes that Section 517.06(7), F.S., 1973, was amended effective October 1, 1973, and the Barton transaction took place on September 29, 1973. Therefore, the applicable provision is the unamended law found at Section 517.06(7), F.S.A. Regarding the law existing at the time and its interpretation, the Respondent also introduced Exhibit 2, 4, and 5 which letters indicate that the sale of notes secured by mortgages would be exempt from registration as exempt transactions pursuant to Section 517.06(7), F.S.A., and setting forth guidelines for exempt transactions. Without dealing with the question of estoppel, these exhibits state the agency's interpretations of the then existing law. The Hearing Officer finds the agency's interpretation as set out in Exhibits 2, 4, and 5 is an accurate interpretation of the statute. The Hearing Officer finds that a note is a security as defined in Section 517.02(1), F.S. Regarding the allegation that the note sold to the Bartons was an unregistered security, it is admitted that it was not registered, however, the Respondent asserts that the sale was a transaction exempted under the provisions of Section 517.06(7), F.S.A. Having examined the note and mortgage in question, the Hearing Officer finds that the note and entire mortgage securing it were sold in a single sale to one purchaser. The note and mortgage do not indicate any expressed recourse agreement or guarantee as to repayment of interest, principal, or both offered in connection with the sale. While the Respondent could not specifically recall the Barton transaction, he testified that purchasers were generally shown the property, an assessment of the property prepared by an appraiser indicating each lot's value, and it was represented that they would receive a first mortgage securing the note on lots worth two times the value of the note. There was no showing that the Respondent knew or should have known the mortgage to the Bartons was not a first mortgage and title to the property not clear. The transaction of September 29, 1973, was exempt under the law existing at that time. The Petitioner therefore has failed to show any violation of Section 517.16(1)(d), F.S.
Recommendation The agency having failed to show a violation of Section 517.16(1)(d), F.S., by the Respondent and the Hearing Officer having found that the September 29, 1973 transaction was exempt recommends that the charges be dismissed. DONE and ORDERED this 27th day of February, 1976. STEPHEN F. DEAN, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Fred O. Drake, III, Esquire Counsel for Petitioner Charles W. Musgrove, Esquire Counsel for Respondent
The Issue The issue presented for decision herein is whether or not Respondent's real estate brokers license should be disciplined because he engaged in acts and/or conduct amounting to fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence and breach of trust, and for failure to account and deliver1 in violation of Subsections 475.25(1)(b) and (d), Florida Statutes.
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, documentary evidence received and the entire record compiled herein, including post-hearing memoranda, I hereby make the following relevant factual findings: During times material herein, Respondent was, and is, a licensed real estate broker in Florida and has been issued license number 0007278. (Petitioner's Exhibit 1). Maryland Properties, Inc. was a corporation organized under the laws of Florida during times material and incorporated as such on March 24, 1977 and was involuntarily dissolved on November 10, 1983. At times material, Respondent was President of Maryland Properties, Inc. (Petitioner's Exhibit 2). Prior to December, 1980, Mr. and Mrs. Emeterio Padron Cruz were the owners of lots 16 and 17, block 11, of Athol Subdivision, Dade County, Florida. (Petitioner's Exhibit 11) Padron Deposition-Page 5; Petitioner's Exhibits 12-Mrs. Padron Deposition-Pages 2 and 3; Petitioner's Exhibit 3). Mr. and Mrs. Padron were interested in selling lots 16 and 17 and Respondent, in his capacity as real estate broker, sought buyers on behalf of the Padrons. (TR 94). On September 6, 1980, a contract was obtained by the Respondent between Mr. and Mrs. Padron, as sellers, and Roberto Hernandez and/or assigns as buyer. According to the terms of the contract, a real estate commission of $650 was to be paid to Respondent. (TR 97). The transaction between the Padrons as sellers and Roberto Hernandez as buyers did not materialize and instead Respondent, through the entity Maryland Properties, Inc., purchased the property and a closing was held on December 1, 1980. Respondent became interested in the purchase of this property based on a need expressed by the Padrons that they needed to dispose of their property and they wished that Respondent would purchase the property along the same terms as Roberto Hernandez had previously agreed. In this regard, Respondent executed the closing documents as President of Maryland Properties, Inc., the purchaser of the Padron property. The Padrons were aware that Respondent was President of Maryland Properties, Inc., based on their review of the closing documents. Respondent received a $650 commission in his capacity as broker in the Padron to Maryland Properties, Inc. transaction. (Petitioner's Exhibit 13; Petitioner's Exhibit 11-Padron Deposition-Pages 13 and 14). As part of the Padron/Maryland Properties, Inc. transaction, a mortgage dated December 1, 1980 was given back to Padron by Maryland Properties, Inc. for $8,000. The mortgage deed and note were not recorded until March 11, 1981. Respondent prodded the Padrons to record the mortgage and to keep the note in a safe in the event that it was needed later on. Per Respondent's insistence, the Padrons finally recorded the mortgage and note on March 11, 1981. (Petitioner's Exhibit 4). On November 27, 1980, Maryland Properties, Inc., through its President, the Respondent, entered into a contract to sell the same lots (16 and 17) to Agustin R. and Gladys A. Verde (Respondent's Exhibit 1). The Maryland Properties, Inc./Verde transaction closed on February 4, 1981 without the Verdes or their attorney, Antonio Alonso, being aware of the Maryland Properties, Inc. to Padron Mortgage. At no time prior to closing did the Respondent reveal to the Verdes or Mr. Alonso the existence of the mortgage. Mr. Alonso, prior to closing, received and reviewed an abstract on the property which abstract did not contain the mortgage as it could not have since the mortgage was not recorded until subsequent to the Verde closing. Additionally, Respondent executed an affidavit prior to closing wherein it is stated that the property was free and clear of any lien or encumbrance. (Petitioner's Exhibit 15) The closing statement executed by Respondent speaks of a purchase money (first) mortgage, which mortgage was from the Verdes to Maryland Properties, Inc. (Petitioner's Exhibits 4, 5, 8, 14, 15; TR 70-77). Respondent, as President of Maryland Properties, Inc., failed to make the final mortgage payment of $4,000 to Padron when same became due on December 2, 1982. Padron foreclosed on the mortgage which action was initiated on December 1, 1983. Respondent entered a settlement to the foreclosure action and paid the mortgage deficiency, however, there remains outstanding an award for attorneys fees for the foreclosure action in favor of the Padron's attorney (Louis Sabatino).
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Respondent 's license number 0007278 be suspended for a period of six (6) months. RECOMMENDED this 27th day of May, 1986, in Tallahassee, Florida. JAMES E. BRADWELL, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 27th day of May, 1986.
The Issue The issue in this case is whether Respondent is guilty of a violation of bail bondsmen disciplinary statutes.
Findings Of Fact At all material times, Respondent has been licensed in the State of Florida as a bail bondsman. He operates Freedom Bail Bonds in Orlando, Florida. On May 28, 1988, law enforcement officers of the Orange County Sheriff's Office arrested John P. Moody and placed him in the Orange County jail. Mr. Moody had never previously been arrested. After he was arrested, Mr. Moody contactedRespondent about obtaining a bail bond in order to get out of jail. Respondent agreed to come to the jail and interview Mr. Moody to determine if Freedom Bail Bonds could provide him a bond. When Respondent arrived at the jail on the evening of May 28, he was informed by an officer of the three charges that were pending against Mr. Moody. The bond was $1000 per charge, and the premium was 10% of the bond. Respondent met with Mr. Moody and asked him whether he had any assets to secure the bond. Mr. Moody explained that he had no assets such as a car, cash, or cash equivalent. However, he said that he owned jointly with his mother some land in Orange County. At the conclusion of the interview, Respondent had decided to write the bond. Respondent then learned from the booking officer that another charge had been added. Following a brief conversation between Respondent and Mr. Moody concerning the new charge, Respondent learned from the booking officer that a fifth charge had been added. After another conversation with Mr. Moody, Respondent learned in this manner that a sixth, and final, charge had been added. In all, Mr. Moody was charged with one count of failing to return a hired automobile and five counts of fraudulent bank deposits. Each charge carried a $1000 bond, so Mr. Moody now required a total bond of $6000, which in turn required a total premium of $600. Due to the increased amount of the bond, Respondent informed Mr. Moody that he would have to secure the bond with a mortgage on the property jointly held with his mother. Mr. Moody agreed, but asked Respondent not to contact Mr. Moody's mother immediately. It was the middle of the night, and Mr. Moody's mother is an invalid. Respondent agreed to allow Mr. Moody to contact his mother later and obtain her signature on a mortgage. Because Mr. Moody lacked the funds, a friend, Marion Reed Johnson, agreed to pay the premium. Knowing that Mr. Moody would not be able to obtain that evening his mother's signature to a mortgage, Respondent insisted on some interim security and agreed to accept six $1000 promissory notes from Mr. Johnson. These notes were payable on demand, but, according to their terms, became void if Mr. Moody appeared in court when ordered to do so and discharged all of the obligations of the bail bond. Respondent gave Mr. Johnson receipts for the $600 premium and six $1000 notes as soon as Respondent received these items. At the same time, also on the evening of May 28, Respondent completed a bail bond application and indemnity form, on which Mr. Moody provided certain background information. Mr. Moody and Mr. Johnson also signed indemnifications in favor of the surety. The application form states that the surety: shall have control and jurisdiction over the principal during the term for which the bond is executed and shall have the right to apprehend, arrest and surrender the principal to the proper officials at any time as provided by law. The application form also provides: In the event surrender of principal is made prior to the time set for principal's appearances, and for reason other than as enumerated below is paragraph 3, then principal shall be entitled to a refund of the bond premium. It is understood and agreed that the happening of any one of the following events shall constitute a breach of principal's obligations to the Surety hereunder, and the Surety shall have the right to forthwith apprehend, arrest and surrender principal, and principal shall have no right to any refund of premium whatsoever. Said events which shall constitute a breach of principal's obligations hereunder are: If principal shall depart the jurisdiction of the court without the written consent of the court and the Surety or its Agent. * * * If principal shall commit any act which shall constitute reasonable evidence of principal's intention to cause a forfeiture of said bond. * * * The application and indemnities were signed. Mr. Johnson paid the $600 premium and executed and delivered the six $1000 demand notes. Respondent then caused Freedom Bail Bond to issue the bond. Mr. Moody was released from the jail during the evening of his arrest (actually during the predawn hours of May 29). May 28 was a Saturday. The following Monday, Respondent gave one of his employees a copy of the warranty deed from Mr. Moody's mother to herself and Mr. Moody. Mr. Moody hadgiven a copy of the deed to Respondent during their initial interview in order to allow Respondent to prepare the mortgage that Mr. Moody had agreed to provide. Respondent instructed the employee to use the legal description from the warranty deed to prepare a mortgage and send it to Mr. Moody for execution by his mother and him. The employee did as instructed and promptly mailed the mortgage to Mr. Moody with instructions for execution, witnessing, and notarization. After about a week, Respondent asked the employee if she had received the executed mortgage. She replied that she had not and proceeded to telephone Mr. Moody. When she asked him about the mortgage, Mr. Moody did not express any unwillingness to sign it, but said that he had not received it. Confirming the mailing address, the employee agreed to send him another mortgage and did so on June 6, 1988. Several times after mailing the second mortgage, the employee contacted Mr. Moody and discussed the need to get the document fully executed and delivered to Freedom Bail Bonds. On one occasion, Mr. Moody agreed to return the executed mortgage on June 22. But on the last of these conversations, Mr. Moody informed the employee, for the first time, that he had no intention of providing the mortgage. The employee told Respondent what Mr. Moody had said and returned the file to Respondent for further action. At about the same time that Respondent's officehad sent the mortgage to Mr. Moody the second time, Mr. Moody's sister telephoned Respondent. Estranged from her brother, she was concerned that Mr. Moody, whom she believed had misused funds of their invalid mother in the past, might try to obtain their mother's signature on a mortgage to secure a bond in order to get out of jail. Mr. Moody's sister informed Respondent that her brother was not authorized to obtain their mother's signature on the mortgage. She said that her brother was not to be trusted, had improperly removed money from their mother's trust in the past, and had defaulted on at least one debt so as to require the creditor to lien the jointly held property in order to be repaid. At about the same time, a different employee of Respondent received an anonymous telephone tip that Mr. Moody was about to depart, or had already departed, on a trip to Alabama with another man. The informant described what turned out to be a vehicle owned by Mr. Johnson, with whom Mr. Moody had been living since his release from jail on May 29. Several attempts by Respondent's employees to reach Mr. Moody over the next two to four days were unsuccessful. In fact, Mr. Moody had gone to Alabama, which is outside the jurisdiction of the Orange County Circuit Court. On July 18, 1988, one of Respondent's employees contacted the Clerk of Court's office and learned that Mr. Moody had not qualified for the services of a Public Defender. In addition, the employee had been notified on or about July 6, byreceipt of a notice of hearing on a Determination of Counsel, that Mr. Moody had not been diligent in obtaining counsel. After determining that other Determination of Counsel hearings had been and were being set by the Court, the employee reasonably concluded that Mr. Moody was not diligently trying to obtain counsel or independently resolve the pending criminal matters. The employee communicated this information to Respondent on July 18. Respondent contacted Mr. Moody by telephone on July 18 and asked when he was going to supply the executed mortgage. Mr. Moody responded that he had determined that Respondent did not need the additional security and was not going to provide it. At this point, Respondent concluded that it was likely that Mr. Moody had in fact left the state without permission. Respondent also concluded that Mr. Moody no longer represented an acceptable risk. Respondent thus directed another employee to join him to arrest Mr. Moody and surrender him to the Orange County Sheriff's Office. Respondent and his employee immediately visited Mr. Moody and asked him whether he had left the state. Mr. Moody admitted doing so. Respondent and the employee then arrested Mr. Moody and returned him to jail. Mr. Moody remained in jail for 63 days until he pleaded guilty to the charges. He was sentenced to the time served, placed on probation for four years, and required to makerestitution, which he has done so far in accordance with the schedule. Following his release from jail, Mr. Moody returned to live with Mr. Johnson and gradually repaid him the $600 that he owed him. Although Mr. Moody demanded return of the $600, he never offered any proof of payment to Mr. Johnson. Mr. Johnson never demanded the return of the money. Respondent has retained the $600 premium. The six $1000 notes were automatically voided when Mr. Moody was arrested on July 18.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Insurance and Treasurer enter a final order dismissing the Administrative Complaint. ENTERED this 22nd day of March, 1991, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399 (904) 488 Filed with the Clerk of the Division of Administrative Hearings this 22nd day of March, 1991. COPIES FURNISHED: Hon. Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, FL 32399 Bill O'Neil, General Counsel Department of Insurance The Capitol, Plaza Level Tallahassee, FL 32399 Attorney David D. Hershel Division of Legal Services 412 Larson Building Tallahassee, FL 32399 Attorney Alan B. Robinson 56 East Pine Street Orlando, FL 32801
Findings Of Fact The facts which the Department asked Respondents to admit by Petitioner's Second Request for Admissions (Pet. Ex. 3) and Paragraphs 1-32 and each odd-numbered paragraph from 33-117, inclusive, of Petitioner's First Request for Admissions (Pet. Ex. 2) are conclusively established. Rather than recite all of those undisputed facts as findings, this Recommended Order will summarize those facts as necessary and make additional findings on the relatively few disputed issues of fact which were raised during the final hearing. The Financial Transactions Between February 1, 1980, and October 31, 1982, Davide, Inc., brokered 43 real estate mortgage loans which consisted of a wraparound second mortgage securing a promissory note in an amount equal to (1) the amount of "new money actually advanced to the borrower out of the wraparound mortgagee's pocket, plus the amount of the principal balance remaining on the first mortgage. There was no evidence how the interest rate on any of the 43 wraparound mortgage loans compared to the interest rate on the corresponding first mortgage loan. All 43 loans included, as an addendum to the wrap- around mortgage, the following agreements between the wrap- around mortgagee and the borrower: Mortgagor shall pay the taxes and insurance deposits required by Senior Mortgagee. The Mortgagor shall comply with all of the terms and provisions of the Senior Mortgage other than with respect to the payments of the principal and interest due. If the Mortgagor shall fail to so comply with all of the terms, provisions and conditions of the Senior Mortgage so as to result in a default under it (other than with respect to pay ments due upon the note secured by the Senior Mortgage) that failure on the part of the Mortgagor shall constitute a default under this mortgage and shall entitle the Mortgagee, at its option, to exercise any and all rights and remedies given the Mortgagee in the event of a default under this Mortgage. The Mortgagee agrees to pay to the holder of the Senior Mortgage the unpaid principal balance of the mortgage together with all interest accruing under it as and when required by the terms of the Senior Mortgage; therefore, by paying the constant monthly installments each provided to be paid from the date of funding this mortgage to and including the date the Note secured hereby becomes due at which time the Mortgagee's payment obligation shall terminate. At such time of termina tlon of the Mortgagee's obligation, the balloon balance due upon [sic] the Note secured hereby shall be credited for an amount aggregating the principal then owing upon the Senior Mortgage plus all sums which were paid as principal to the Senior Mortgage by the Mortgagee. All those payments provided to be paid by the Mortgagee pursuant to the provisions of paragraph 3 above shall be made by the Mortgagee before the expira tion of the applicable grace periods provided for those payments as contained in the Senior Mortgage. The Mortgagee does not assume any of the obligations of the Mortgagor under the Senior Mortgage except as provided above with respect to principal and interest payments due after this mortgage has been funded. If the Mortgagee shall default in making any required payment of principal or interest under the Senior Mortgage, the Mortgagor shall have the right to advance the funds necessary to cure that default and all funds so advanced by the Mortgagor, together with interest at the rate of 18 percent per annum shall be credited against the next installment(s) of interest and prin cipal due under the Note secured by the mortgage. The Mortgagor and the Mortgagee covenant and agree not to enter into any agreement with the holder of the Senior Mortgage modifying or amending any of the provisions dealing with payment of princi pal or interest under the Senior Mortgage without the prior written consent of the other. All 43 loans are short-term loans which are designed, by their terms, to become due before the first mortgages were, by their payment terms, to be paid in full. The loan application statements and closing statements related to each of the 43 wraparound mortgage loans show the first mortgage balance as, respectively, part of the amount of the loan and part of the disbursements to the borrowers. But both make clear that those items which refer to the amount of the balance on the first mortgage which the wraparound mortgagee agreed, in the addendum, to pay during the life of the wraparound mortgage. The first mortgage balances were not paid off by the wraparound mortgagee, nor was cash in the amount of the first mortgage balance disbursed to the borrower out of the wraparound mortgagee s pocket. In each of the 43 wraparound mortgage loans, the mortgage brokerage fee or commission would exceed the maximum allowable by law if computed only on the "new money," but would not exceed the maximum allowable by law if computed on the total face amount of the promissory note secured by the wraparound mortgage. If they were excessive fees, the total amount of the excess would be $22,508.29, and the Department's report of examination (Pet. Ex. 1) would identify the amount of the excess that should be refunded to each borrower. Finally, the mortgage brokerage fee actually charged on each of the 43 loans much more closely approximates what would be the maximum fee if computed on "new money" than what would be the maximum fee if computed on the face amount of the promissory note secured by the wraparound mortgage. B. The Department's Actions The Department apparently has not had the occasion to apply the law, which is now codified as Section 494.08(3), Florida Statutes (1983), and the Department's rules promulgated under it, to precisely the financial transactions shown by the evidence in this case. But since at least 1973, the Department consistently has interpreted the law and rules in various cases involving wraparound mortgages as requiring the maximum mortgage brokerage commission or fee to be computed on the new money" rather than on the total amount of the promissory note secured by the wraparound mortgage. In 1979, the Department considered two similar financial transactions: One was a specific refinancing wraparound second mortgage in which the wraparound mortgagee was obligated to make payments due on the first mortgage "out of sums paid hereunder"; the other was the generic purchase money wraparound second mortgage transaction in which the seller/wraparound mortgagee remains liable on the first mortgage. The Department concluded that, in both cases, the maximum fee should be computed on the "new money." The conclusion in the latter case was based upon the complete absence of any assumption by the wraparound mortgagee of a preexisting indebtedness of the borrower on the first mortgage. In the case of a purchase money wrap- round second mortgage, the wraparound mortgagee always was and simply remains liable on the first mortgage. The conclusion in the former case is based upon a determination: (1) that the wraparound mortgagee's assumption of the obligation to pay the first mortgage was not unconditional, but rather was conditioned upon the wrap- around mortgagee's receipt of payments on the wraparound mortgage; and (2) that the first mortgagee acquired no cause of action against the wraparound mortgagee. The Department acknowledged at the time that its interpretation was based upon the two sets of facts under consideration and that the Department was not foreclosing the possibility of reaching the opposite conclusion on other sets of facts. In recent years, Department personnel consistently have advised mortgage brokers of its position regarding computation of maximum fees on wraparound mortgage loans, as summarized above. Department personnel have on occasion attended meetings of Florida mortgage brokers in Miami and elsewhere in which the subject has been discussed and the Department's position publicly stated. There is no evidence whether Davide or any representative of Davide, Inc., attended any of those meetings or became aware of the Department's position before June, 1982. Although Davide attended the final hearing, he did not testify. In June, 1982, the Department and Respondents began communications regarding the maximum brokerage commission or fee on wraparound mortgage loans. The Department advised Respondents that it believed the maximum fee should be computed on the "new money." C. Respondents' Response Since approximately May 5, 1981, Respondent had relied on advice of counsel that the maximum mortgage brokerage commission or fee should be computed on the entire face amount of a wraparound mortgage. Counsel qualified his opinion, acknowledging that there was no judicial construction of the statute and that his interpretation could be wrong. Counsel's opinion did not mention, and apparently did not even consider, any Department rule interpreting the statute. Rather, the opinion was based primarily upon counsel's assessment that any other interpretation of the statute would render it unconstitutionally vague and ambiguous. On or about September 27, 1982, Respondents' counsel wrote a letter to the Department and seemed to agree that Respondents would conduct an audit and refund any excess fees charged on the wraparound mortgages. The Department completed its audit on December 3, 1982, and sent Respondents a copy on December 13, 1982. The audit specified alleged excess fees charged on the 43 wrap- around mortgages and on seven straight" mortgages. (Pet. Ex. 1) Respondents' counsel responded by January 10, 1983, letter, again seeming to indicate that Respondents agreed to refund excess fees "as applicable." But by January 20, 1983, letter, Respondents' counsel again wrote the Department to advise that Respondents would refund excess fees on the seven "straight" mortgages, but not on the 43 wraparound mortgages. Based on the above facts, I find that the Department did not mislead Respondents concerning the Department's position. Specifically, Respondents were not misled by the erroneous reference in Rule 3D-40.00(3), Florida Administrative Code, to Section 494.08(4), instead of Section 484.08(3), Florida Statutes.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED THAT: Petitioner, Department of Banking and Finance, enter a final order requiring Respondents, Davide & Associates, Inc., and Salvatore G. Davide, to refund to each of the first 43 borrowers identified in the report of examination (Pet. Ex. 1) as "Mortgagor(s)" the amounts identified therein as "Overcharge" to the borrower. RECOMMENDED this 5th day of March, 1984, in Tallahassee, Florida. COPIES FURNISHED: Walter W. Wood, Esquire Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32301 Herman T. Isis, Esquire Post Office Box 144567 Coral Gables, Florida 33114 The Honorable Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32301 J. LAWRENCE JOHNSTON 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 5th day of March, 1984.
