Findings Of Fact Petitioner is the governmental agency responsible for issuing licenses to practice real estate. Petitioner is also responsible for regulating the practice of real estate on behalf of the state. Respondent is licensed as a real estate broker under license number 0602015. The last license was issued to Respondent as a broker t/a Oliver Realty and Management, 2431 Lot a Fun Avenue, Winter Park, Florida. On August 23, 1994, Respondent was licensed as a real estate sales person. He was employed by Mr. Kevin Jon Pribell, a licensed real estate broker. On August 29, 1994, Mr. Pribell terminated Respondent's employment. On August 30, 1994, Mr. Pribell delivered a copy of a termination form to Respondent at Respondent's residence. Mr. Pribell agreed to compensate Respondent on all transactions that were pending on or before the date of termination. The First Transaction On August 23, 1994, Respondent made an offer to purchase residential property for $80,500. Mr. Bruce and Mrs. Benitta Tegg owned the property (the "sellers"). The details of the offer were described in a standard contract for sale and purchase approved by the Florida Association of Realtors and the Florida Bar Association and in an attached addendum. The addendum required the sellers to hold a purchase money first mortgage of $80,500, amortized over 12 years at an annual interest rate of 8.5 percent. The addendum stated that the sellers were to receive $29,000 at closing as payment of the first 48 months payments. The sellers would then receive 30 equal monthly installments of $893.60, which would total $26,808. The unpaid balance was due in a balloon payment of $46,980.47 at the end of 78 months. The total amount to be paid the sellers, including interest, was $102,788.47. Respondent included a $1,000 earnest money deposit with the contract for sale and purchase. The sellers accepted Respondent's offer. Closing was set for September 6, 1994. 2/ On September 1, 1994, Respondent submitted a document to the sellers for their acceptance and signature. The document was entitled, "Partial Purchase/Cash Flow Agreement" (the cash flow agreement"). Respondent never mentioned the cash flow agreement to the sellers as part of the original offer. The cash flow agreement required the sellers to assign the mortgage of $80,500 to Orange Hearing Aid Center Employee Pension Plan (the "pension plan"). Respondent would have no money invested in the property initially. The initial payment of $29,000 would be a loan from the pension plan to Respondent. Respondent would repay the pension plan over time. The loan from the pension plan to Respondent was to be secured by the sellers' property. In the event Respondent defaulted on the loan from the pension plan, the sellers' property would be sold. The sale proceeds would first pay off the loan from the pension plan to Respondent. Any remaining sale proceeds would go the sellers. The sellers refused to accept Respondent's amendment of the original offer. Respondent defaulted on his original offer. The transaction did not close. The sellers' real estate agent divided Respondent's $1,000 earnest money deposit with the sellers because Respondent defaulted on the original offer accepted by the sellers. Respondent did not attempt to engage in "equity skimming." 3/ The sellers were not required to transfer title to Respondent prior to receiving $29,000. Respondent would not receive any other equity in the property. 4/ The cash flow agreement had the effect of converting Respondent's obligation on the purchase money mortgage from recourse to non-recourse debt. 5/ It also had the effect of subordinating the purchase money mortgage to the $29,000 loan to Respondent. 6/ Respondent is not guilty of violating Section 475.25(1)(b). Respondent is not guilty of dishonest dealing by trick, scheme, or device, culpable negligence, or breach of trust in a business transaction. Respondent disclosed the terms of the cash flow agreement to the sellers approximately six days before the scheduled closing. The sellers had adequate time to review the proposal. They chose to reject it. The sellers received approximately $500 after Respondent's default. That amount was reasonable compensation for taking their property off of the market for two weeks. The Second Transaction On September 1, 1994, Respondent offered to purchase a residential property owned by Ms. Gloria Alexander. Respondent offered to purchase the property for $114,500. Ms. Alexander accepted the offer. On September 1, 1994, Respondent was not licensed as a broker. Respondent's employing broker had terminated Respondent's employment two days before the contract for the second transaction was executed. The second transaction was not pending on or before August 29, 1994, when Respondent was still employed by Mr. Pribell, and Mr. Pribell was not legally entitled to a commission on the second transaction. In an abundance of caution, Respondent indicated on the contract that the selling broker was Mr. Pribell. Respondent acted in his own behalf in the second transaction. He was the buyer, i.e., a principal and not an agent for a principal. Respondent indicated on the written offer that he was acting as the buyer's agent. Respondent made a good faith attempt to disclose on the contract that he had been terminated from Mr. Pribell's employment and was not acting as the agent of the selling broker. Respondent did not deceive anyone and did not intend to do so. Respondent did not violate Sections 475.42(1)(a) and 475.25(1)(e) by operating as a broker without a valid broker's license.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondent not guilty of violating Sections 475.25(1)(b), 475.25(1)(e), and Sections 475.42(1)(a). RECOMMENDED this 14th day of August, 1996, in Tallahassee, Florida. DANIEL MANRY, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of August, 1996.
The Issue The issue is whether Respondents are guilty of dishonest dealing by trick, scheme or device, culpable negligence, or breach of trust in any business transaction, in violation of Section 475.25(1)(b); failing to maintain trust accounts in an escrow account until disbursement is authorized, in violation of Section 475.25(1)(k); operating as a broker without holding a valid broker's license, in violation of Sections 475.42(1)(a) and 475.25(1)(e); failing to prepare the required written monthly escrow-statement reconciliations, as required by Rule 61J2-14.012(2) and (3), and thus Section 475.25(1)(e); failing to give written notice to a party to a transaction, before the party signs a contract, that the broker is a representative of another party, in violation of Rule 61J2-10.033 and Section 475.25(1)(q); failing to comply with Section 475.25(1)(q), and thus Section 475.25(1)(e); and, as to Respondent Dume, engaging for a second time in misconduct that warrants his suspension or engaging in conduct or practices that show he is so incompetent, negligent, dishonest, or untruthful that clients and their money cannot safely be entrusted to him, in violation of Section 475.25(1)(o). If either Respondent is guilty of any of these alleged violations, an additional issue is what penalty should be imposed.
Findings Of Fact Respondent Dume has been licensed in Florida as a real estate broker, and Respondent Southwest Florida Home Realty, Inc. has been licensed in Florida as a corporate broker. Petitioner did not file licensing documentation as an exhibit. Petitioner's witness testified that the licenses expired on September 30, 1995, for Respondent Dume and March 31, 1995, for Respondent Southwest Florida Home Realty. This testimony is hearsay and does not establish the licensing status of Respondents. In their proposed recommended order, Respondents propose a finding that they are now and have been at all material times licensed real estate brokers in Florida. The evidence does not support this assertion. However, the pleadings of the parties establish that Respondents were licensed at least up to the dates alleged by Petitioner. The Administrative Complaint alleges that Respondent Dume's license expired on September 30, 1995, and Respondent Southwest Florida Home Realty's license expired on March 31, 1995. The obvious inference from these allegations is that Respondents were licensed up to those dates. Combining these inferred allegations in the Administrative Complaint with the assertion of Respondents in their proposed recommended order that they are now and have been at all material times licensed, it is clear that the parties do not dispute that Respondents were licensed at least up to the dates set forth in the Administrative Complaint. The only real dispute as to licensing is whether Respondents were licensed after these dates, and the record supplies no answer to this question. By final order filed August 8, 1994, the Florida Real Estate Commission found both Respondents guilty of violating Sections 475.25(1)(b), (e), and (k) and Rule 61J2-14.012(2) and (3). The final order is based on an administrative complaint alleging, as of February 1 and 2, 1994, a shortage of about $6000 in one escrow account and an overage of about $400 in another escrow account. The administrative complaint alleges that Respondent Dume prepared written monthly escrow-account reconciliation statements. The final order reprimands each Respondent. As to Respondent Dume only, the final order imposes a $300 fine, suspends his license until the fine is paid, and places Respondent Dume's license on probation for one year, during which time he was required to "enroll in and satisfactorily complete a 30-hour broker management course." The final order states that a failure to complete all conditions of probation may result in the filing of a new complaint. The final order establishes that Respondents have been licensed brokers in Florida, but does not establish their licensing status as of anytime after the expiration of Respondent Dume's probation, which ended on September 8, 1995. In mid-September 1995, an investigator employed by Petitioner contacted Respondent Dume to determine whether he had complied with the final order of August 8, 1994. Respondent Dume admitted that he had not undertaken the required education. The investigator set up an office audit for November 1, 1995. On November 1, 1995, the investigator visited Respondents' office to conduct the audit. She had access to all relevant documents and found that Respondent Southwest Florida Home Realty, Inc. maintained an escrow account for real estate rental deposits. The investigator audited the period from January 31, 1995, through September 30, 1995. The investigator found that neither Respondent conducted written reconciliations of the escrow account during this period of time. The investigator found checks drawn on the escrow account improperly paid to another corporation owned by Respondent Dume and, in one case, paid to Respondent Dume personally. Two of the checks payable to the other corporation, which was not a licensed corporate broker, were dated September 30 and October 31, 1994. The investigator did not testify as to the date of the check paid personally to Respondent Dume. The investigator asked Respondent Dume about these disbursements. As to the check made to him personally, he explained that a bank would not cash his check and he needed funds. All of the checks paid to the other corporation or Respondent Dume personally were unauthorized and an improper use of escrow funds. Petitioner proved that the two checks to the corporation owned by Respondent Dume related to a time period not covered in the case resulting in the August 8 final order. When the investigator attempted to reconcile the escrow account for the period from January 31 through September 30, 1995, she found a shortage of about $31,500. Respondent Dume told her that he had repaid the escrow account about $20,000, but this was in January 1994. There is no evidence that any client has suffered any losses due to Respondents' failure to maintain the escrow account in the manner required by law. As already noted, the parties in effect agree that Respondents were licensed until certain dates in 1995, but the evidence fails to establish that Respondents' licenses expired after that time. But even if the evidence had proved the alleged expiration dates, the evidence would still be less than clear and convincing that Respondents conducted real estate business after those dates. There is even less evidence that Respondents failed to make required written disclosures in real estate transactions, as Petitioner has failed to prove any real estate transactions or the absence of any such disclosures.
Recommendation It is RECOMMENDED that the Florida Real Estate Commission enter a final order revoking the licenses of Respondent Dume and Respondent Southwest Florida Home Realty, Inc. ENTERED on December 2, 1996, in Tallahassee, Florida ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of December, 1996. COPIES FURNISHED: Steven D. Fieldman Chief Attorney Department of Business and Professional Regulation Division of Real Estate Hurston Building, North Tower 400 West Robinson Street Orlando, Florida 32801-1772 Frederick H. Wilsen Gillis and Wilsen 1415 East Robinson Street, Suite B Orlando, Florida 32801 Lynda L. Goodgame General Counsel Department of Business and Professional Regulation Northwood Centre 1940 North Monroe Street Tallahassee, Florida 32399-0792 Henry M. Solares Division Director Department of Business and Professional Regulation Division of Real Estate 400 West Robinson Street Orlando, Florida 32802-1900
The Issue The issue for determination in this case is whether the Respondent Wayne E. Belton violated Section s. 475.25(1)(b), Florida Statutes (1979), by inserting an option provision into a lease agreement without the specific authorization of the tenants and subsequent to the tenants signing the original agreement. At the hearing, Petitioner's Exhibits 1-10 were offered and admitted into evidence. Leslie and Glenn Strickland, the tenants and complainants, testified on behalf of the Petitioner. Wayne Belton testified on his own behalf. Proposed Recommended Orders have been submitted by the parties. Those findings not incorporated in this Recommended Order were not considered relevant to the issues, were not supported by competent and substantial evidence or were considered immaterial to the results reached.
Findings Of Fact The Respondent Wayne E. Belton is a licensed real estate broker with his principal place of business at 337 Northeast Second Avenue, Delray Beach, Florida. On or about November 23, 1979, the Respondent prepared a one-year rental agreement or lease for property located at 2717 Southwest Sixth Street, Delray Beach, Florida, which was owned by Mrs. Margaret Finlay. Mr. and Mrs. Glenn Strickland executed the agreement as the tenants. The lease was prepared pursuant to an open listing by the owner for either sale or lease. When the Stricklands signed the original agreement it did not contain any provision concerning purchasing the property in the future through an option agreement. Although the Stricklands had discussed an option agreement with the Respondent, they did not specifically agree to an option agreement which required the deposit of additional monies in escrow which would not be refunded if the option were not exercised. The owner of the property, Mrs. Finlay, was primarily interested in selling the property and demanded that Respondent obtain a binding option from the Stricklands. When faced with the conflicting demands of the tenants and the owner, the Respondent inserted an option provision in the lease agreement after the Stricklands had signed the original lease which did not contain such a provision. When the Stricklands failed to deliver the $1,500 option money required by the option provision, Mrs. Finlay, through her attorney, threatened to take legal action against the Respondent. In response to the owner's demand, the Respondent through his attorney, demanded that the Stricklands pay $1,500 for the option pursuant to the lease agreement. When the Stricklands received the demand letter from Respondent's counsel, they contacted an attorney who eventually settled the matter. The Stricklands were required to expend $138.00 in attorney's fees to correct the problem caused by the Respondent. The Respondent admitted inserting the option provision into the lease agreement after the Stricklands executed it, but denied acting with any intent to alter the agreement contrary to what he believed the parties intended. Rather, the Respondent believed that he was remedying his original omission to conform to what he believed the parties had orally agreed to.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That the Petitioner enter a final order finding that Respondent Wayne E. Belton violated Section 475.25(1)(b), Florida Statutes (1979) and imposing a reprimand and an administrative fine. DONE and ORDERED this 7th day of June, 1982, in Tallahassee, Florida. SHARYN L. SMITH, 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 7th day of June, 1982. COPIES FURNISHED: Michael J. Cohen, Esquire Suite 101 2715 East Oakland Park Boulevard Fort Lauderdale, Florida 33306 Stephen G. Melcer, Esquire Suite 500 First Bank Building 551 Southeast Eighth Street Delray Beach, Florida 33444 Frederick H. Wilsen, Esquire Assistant General Counsel Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301 Carlos B. Stafford Executive Director Florida Real Estate Commission Post Office Box 1900 Orlando, Florida 32801 Samuel R. Shorstein Secretary Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301
The Issue Whether all or part of two statements challenged in the petition of Security Mutual Life Insurance Company violate Section 120.56(4)(d), Florida Statutes, requiring the agency to immediately discontinue all reliance on the statements as a basis for agency action.
Findings Of Fact On March 11, 1997, Petitioner filed a Petition seeking an administrative determination of whether certain agency statements constitute rules. Specifically, Petitioner listed three agency statements and alleged that each constituted a rule pursuant to Section 120.52(15), Florida Statutes, which had not been adopted by the rulemaking procedures provided by Section 120.54, Florida Statutes. The challenged statements which remain at issue in this proceeding are: (a) The Department disapproves contract forms labeled as "single premium annuity" contracts which permit additional contributions after the initial contribution is made; and (b) The Department requires that annuity contracts include a demonstration of compliance with Actuarial Guideline 33 to avoid forms/rates denial. The Department, through its Bureau of Life and Health Forms and Rates (Bureau), has been delegated the task of reviewing annuity forms (contracts) and rendering approval or disapproval of such forms prior to their being sold in Florida. As part of its actuarial review of a company's initial product filing in Florida, the Bureau is concerned with (1) whether the policy form title misrepresents the true nature of the policy and (2) whether the form is in compliance with the standard valuation law (CARVM). SINGLE PREMIUM STATEMENT A single premium fixed annuity policy" is an annuity policy that requires one single premium payment. If an annuity policy has contract provisions which allow for additional contributions, it is not a single premium contract." "Single premium contract" is a common generic name in the insurance industry. However, there is no insurance term of art that would allow the word "single," as used in reference to the number of premium payments in such annuity contracts, to mean more than one. This is consistent with the common usage of that term. In common usage, the term “single” is inconsistent with “multiple”. Since at least December 1993, the Department has disapproved all contract forms entitled or labeled "Single Premium Annuity" which contain provisions permitting additional contributions after the initial contribution is made. These forms are not approved unless the policy title is modified to accurately reflect the nature and terms of the policy or the provision allowing additional contributions is deleted. It is misleading to present to an annuity purchaser a policy labeled "single premium annuity," which requires only one premium payment but permits discretionary contributions during the first six months of the policy term. The potential harm is that the consumer reviewing a policy labeled as a "single premium annuity" might reasonably believe that the contract requires and allows him to make only one premium payment. Thus, the consumer may be encouraged to make a larger contribution than he might otherwise have made if the payments were made over time. Notwithstanding the fact that the consumer is allowed to withdraw his investment, the potential problem is not cured because of the penalty surrender charge imposed on the consumer. The Bureau has not adopted or published as proposed, a rule which specifically prohibits the inclusion of additional subsequent contributions after an initial contribution is made as to any annuity contract entitled "single premium" or requiring a contract title modification where the additional contributions provision is not deleted in order to avoid form/rate review disapproval. However, on May 15, 1996, the Department adopted a rule which provides that filing will be disapproved for inconsistencies or ambiguities which are misleading. Rule 4- 149.023(1), Florida Administrative Code. The provisions of Rule Chapter 4-149, Florida Administrative Code, sets out the filing procedures to be followed for a complete filing. These requirements are delineated in great detail in Rule 4-149.023 (1), Florida Administrative Code. The Petitioner was denied rates and forms approval by the Department's Bureau on a single premium annuity contract because the form was misleading. Although the form submitted by Petitioner was titled or labeled as a single premium annuity policy, the contract language allowed policyholders to make additional discretionary contributions after the first contribution. In denying Petitioner rate and form approval, the Department's decision was based on the misleading nature of its document title, not whether the option provided in the contract, though not included in the title, was a contract benefit or restriction to the policy holder. GUIDELINE 33 STATEMENT From the first quarter of 1996 to the present, the Department has routinely and consistently required that annuity contracts include a demonstration of compliance with Actuarial Guideline 33 to avoid forms denial. Actuarial Guideline 33, adopted by the National Association of Insurance Commissioners (NAIC) in March 1995, is published in the 1996 Financial Examiners Handbook, and provides guidance for complying the standard valuation law, commonly referred to as CARVM. By letter dated February 13, 1997, the Department advised Petitioner that actuarial information previously submitted as to its form filing, did not comply "with the Standard Valuation Law as described in Actuarial Guideline." The letter further advised Petitioner that the contract had not been amended and the description thereof was misleading and in contravention of Section 626.9541, Florida Statutes. The Department determined that the policy provisions were inconsistent with the policy title. In a letter dated February 20, 1996, the Department advised Petitioner that actuarial information previously submitted as to its Form Number 1807-5/95-FL "did not disclose the assumptions to be used in establishing reserves" and that the "reserve statement did not appear to address testing of the annuitization options." The letter requested that Petitioner verify compliance with Actuarial Guideline 33. The Petitioner was denied rates and forms approval by the Bureau a single premium annuity contract filing for failure to provide a demonstration of compliance with the Standard Valuation Law as described in Actuarial Guideline 33. Without rates and forms approval, the Petitioner may not market or sell its single premium annuity contract in Florida. On March 20, 1997, between the filing of the Petition and the date of the formal hearing in this matter, the Department amended Rule 4-138.001, Florida Administrative Code. The rule amendment essentially incorporated by reference the 1996 Financial Examiners Handbook by reference into the rule. The amended version of the rule became effective April 9, 1997, five days before the final hearing. Department actuaries who wrote the February 13 and 20, 1996 letters to Petitioner were unaware of the Department's proposed amendment of Rule 4-138.001, Florida Administrative Code, at the time the disapproval letters were written. These actuaries work in the Bureau of Life and Health Forms and Rates and that bureau has not adopted or proposed such a rule.
The Issue Whether the Florida Office of Insurance Regulation (OIR or Respondent) should approve the application submitted by Abacus Settlements, LLC (Abacus or Petitioner), for a license to operate as a viatical settlement provider in Florida.
Findings Of Fact On February 2, 2004, Abacus was formed as a limited liability company under the laws of the State of New York to operate as a viatical settlement provider. A viatical settlement provider is a licensed entity that buys existing life insurance policies from policy owners in a regulated market. The life or viatical market, also known as the secondary market, allows the consumer to sell their policy to investors for a much greater value, often three to five times their surrender value. Presently, Abacus is licensed to do business in 30 states as a viatical settlement provider by each respective state’s regulatory insurance agency. Since Abacus’s inception in 2004 through the present date, there have never been any consumer complaints filed against Abacus. Since its inception through the present date, Abacus has never had any regulatory complaints or administrative actions taken against it by any of the states where it is licensed to do business. From 2004 through the present date, Abacus has purchased life insurance policies with an aggregate face value of over $2 billion dollars and paid the owners of those policies nearly $250 million dollars in compensation. Of the 1,000 or so policies that Abacus has purchased since its inception in 2004, none of those policies has ever been the subject of any litigation filed by an insurance carrier seeking rescission of the policy for fraud or other malfeasance. Prior to the formation of Abacus, K. Scott Kirby, T. Sean McNealy, and Matthew Ganovsky (the “Principals”) owned and operated Advanced Settlements, LLC (Advanced), which they founded on December 19, 2000. Advanced was a viatical/life settlement broker licensed to do business in 35 states. The Principals have been participants in the viatical settlement/life insurance settlements industry since 1998, and have served as board members of the industry’s leading trade association, the Life Insurance Settlement Association. Advanced maintained a valid viatical settlement broker license from OIR from 2000 through its dissolution in 2014. The Principals maintained valid life insurance producer licenses from OIR from 2000 through the present date, and those licenses remain in good standing. The Principals are still licensed as life insurance producers and hold viatical settlement broker appointments with the State of Florida. From Abacus’s inception in 2004 through 2011, Abacus was operated on a day-to-day basis by its CEO/COO Craig Seitel, and the Principals were not involved in the day-to-day business of Abacus or in the company’s decisions regarding compliance or policy acquisition parameters. Due to health concerns related to Mr. Seitel’s wife, Mr. Seitel left the company and the Principals appointed Samantha Butcher in 2011 to manage the day- to-day business of Abacus. Since 2011, Samantha Butcher has operated Abacus as the director of operations from the company’s Tennessee office. On February 26, 2015, Abacus filed the Application with OIR for licensure as a viatical settlement provider under section 626.9912. The Application itself was in excess of 550 pages. On March 6, 2015, OIR transmitted a letter to Abacus detailing purported technical deficiencies in the Application. On March 31, 2015, OIR transmitted a letter to Abacus wherein OIR confirmed that the Application was formally received and complete, and would be routed to the proper unit within OIR for processing. Jan Hamilton from OIR was tasked with reviewing the Application. Ms. Hamilton has reviewed approximately 50 viatical settlement provider applications in her 20 years of experience at OIR, and has never reviewed an application that was approved without additional requirements added through the consent order process. Upon being notified on March 31, 2015, that Abacus had filed the Application, the head of OIR’s Life and Health Division communicated with Ms. Hamilton via an email stating "here we go." Ms. Hamilton sent a response noting that a "strategy meeting" would be convened amongst OIR staff regarding the Application. According to Ms. Hamilton’s notes, on March 31, 2015, the Application was accepted and assigned to an examiner, and was “under review.” On April 6, 2015, six days after the Application was filed, Ms. Hamilton’s notes state that the “Application is being prepared for denial due to lack of trustworthiness of principals/owners of Applicant which cannot be cured.” Included within the Application were the following: (a) Abacus’s proposed anti-fraud plan; (b) Abacus Plan of Operations; (c) Abacus Organizational (Employee) Chart; (d) Sworn Biographical Affidavits for each Principal and employee required; (e) Management Information Forms; (f) all organization documents and bylaws of Abacus; (g) all forms that were to be used by Abacus in Florida; (h) fingerprint cards for each Principal and key employee; (i) records retention policies for Abacus; and (j) a general description of how Abacus intended to use life-expectancy providers. Abacus also made the required $100,000.00 deposit with the Florida Department of Financial Services, Division of Treasury, Bureau of Collateral Management. Abacus’s proposed forms were approved by OIR on May 28, 2015, and Abacus’s Anti-Fraud Plan was approved by the Department of Financial Services on May 28, 2015. Subsequent to OIR’s acceptance of the Application, and over a month after Ms. Hamilton notes reflecting that the Application was being prepared for denial, OIR issued two clarification letters to Abacus that sought additional information or documents relative to the Application. The first clarification letter was dated May 28, 2015, and contained 60 additional requests for information or documents. The second clarification letter was dated June 29, 2015, and contained 12 additional requests for information or documents. Abacus responded to both clarification letters in a timely fashion. After Abacus filed its Application, OIR sent out emails to the various states where Abacus was already licensed as a viatical/life settlement provider inquiring as to the standing of Abacus’s license, and whether any administrative action had been taken against Abacus, among other things. Those states that responded confirmed that no administrative fines or penalties had been assessed against Abacus, and that Abacus was licensed in good standing. OIR thereafter asked Abacus to produce detailed spreadsheets with information relative to each policy that Abacus had purchased in its entire history of doing business, nationwide, as well as the same information for Advanced, which was no longer in business and was not the applicant for the Application. OIR requested that the spreadsheets include, among other things, the date of viatication, viator information, insured information, and life insurance policy information. Abacus provided the requested spreadsheets to OIR. On June 29, 2015, the Principals of Abacus traveled to Tallahassee, Florida, to meet with key individuals at OIR, including Belinda Miller, Jan Hamilton, Janice Davis, and others to discuss the status and progress of the Application. At this meeting and as part of the Application process, OIR requested that Abacus undergo a pre-licensing examination by OIR's market conduct examiner Janice Davis, who would travel to Abacus’s Tennessee offices to examine files. No one from Abacus was aware that Jan Hamilton had noted over two months before that the Application was going to be denied. On June 30, 2015, Ms. Hamilton contacted the Illinois Department of Insurance (the IDOI) to inquire about a market conduct examination that the IDOI had conducted on Abacus in February of 2015. On July 1, 2015, the IDOI contacted Ms. Hamilton and advised her that their market conduct examination had been concluded as to Abacus, and no issues were discovered. Ms. Hamilton did not deem Abacus’s positive market conduct examination result to be “at the top of the list of most important factors” relative to the Application. Ms. Hamilton did not disclose or otherwise inform Janice Davis or anyone else at OIR that Abacus had passed the IDOI market conduct examination in February of 2015 without any issues. The first time that Ms. Davis learned that Abacus had passed the IDOI examination was at the final hearing in this case. During the week of August 3-7, 2015, OIR sent Ms. Davis to Abacus’s Tennessee office to conduct the pre-licensing examination. During the examination, OIR was granted access to Abacus’s and Advanced’s database of files and Ms. Davis was able to view the Abacus and Advanced files that were available and in the possession of Abacus or Advanced. Some of the files had been routinely destroyed pursuant to the records retention policies of Abacus and Advanced, respectively, which are governed by the statutes of each state where each company conducted business. In total, during the five-day examination at Abacus’s Tennessee offices and an additional seven days of examination that occurred through granting Ms. Davis remote access to the database, OIR was able to review 315 policy transactions from Abacus, and 1,000 policy transactions for Advanced. During the course of the pre-licensure examination, OIR did not adhere or use the recognized National Association of Insurance Commissioners audit methodology standards. Rather, OIR utilized their “own standards.” OIR stated that their standards were grounded in sections 624.319 and 626.9922, Florida Statutes. However, neither statutory citation contains audit or examination standards or methodologies. In accordance with section 626.9922, Abacus was required to pay for all costs incurred by OIR for the pre- licensure examination. Abacus paid OIR approximately $6,000.00 for the pre-licensure examination. Subsequent to the pre-licensure examination, OIR, through Ms. Davis, prepared a summary memorandum (the Memorandum) that outlined the results of the pre-licensure examination. The findings in the Memorandum were also contained within the Denial Letter and the findings in the Memorandum were the basis for OIR's preliminary denial of the Application. On September 23, 2015, OIR denied the Application and issued the Denial Letter which delineated the grounds for denial of the Application. In both the Denial Letter and the Memorandum, two grounds for denial were asserted, as well as additional “areas of concern” and related issues for the principals of Abacus. The two grounds for denial were based on a total of eight of the approximately 1,000 polices that Abacus has transacted since its inception. In its first ground for denial, the Denial Letter states: As a result of the pre-licensure examination, OIR finds that the Applicant purchased policies that were obtained fraudulently via either non-disclosure of material facts or misstatements of material facts. OIR further finds that Mr. Kirby, part owner of the Applicant, previous co- President of Advanced, and a licensed life agent in Florida, acted as the viatical settlement broker in some of these transactions. As justification for its first ground for denial, OIR relied upon six policies identified in the pre-licensing examination and the provisions of section 626.99275(1)(a), which states: It is unlawful for any person: (a) To knowingly enter into, broker, or otherwise deal in a viatical settlement contract the subject of which is a life insurance policy, knowing that the policy was obtained by presenting materially false information concerning any fact material to the policy or by concealing, for the purpose of misleading another, information concerning any fact material to the policy, where viator or the viator’s agent intended to defraud the policy’s issuer. (Emphasis added). In support of its first ground for denial, OIR did not apply the "knowingly" or "knowing" standard recited in section 626.99275. Rather, in evaluating the policies in the pre- licensure examination, OIR applied a “knew or should have known” standard. As Ms. Davis conceded at final hearing, section 626.99275 does not contain the language or words “knew or should have known. Ms. Davis’s “cheat sheet” that she created to assist in her preparation of the Memorandum and Denial Letter references what Abacus “knew or should have known,” instead of relying on facts to support an allegation that Abacus knowingly transacted a fraudulently obtained policy. The policies that were allegedly fraudulently obtained were all transacted by Abacus prior to 2012 and can be found at Respondent’s Exhibits 1.3 through 1.8, and the compliance review. The ultimate decision to purchase those policies was not made by the current principals of Abacus, but instead by a former partner in Abacus, Craig Seitel, and the former general counsel of Abacus, Ed Gonzalez. From 2012 through the date of the pre-licensing examination, OIR did not identify any policies purchased by Abacus that were problematic in regards to potential fraudulent activity. Abacus was not involved in the initial application, underwriting, or issuance process for any of the six referenced policies. Abacus only came into contact with the policies as a viatical settlement provider interested in purchasing the policies at least two years after they were issued. During Abacus’s transaction of the six policies at issue, Abacus’s anti-fraud plan, similar to the one that was approved by OIR as part of the Application, was, and still is, in place to specifically ensure that Abacus does not acquire any policies that were fraudulently obtained. The documents relative to the first policy, the Marignoli policy, can be found at Respondent's Exhibit 1.3. When asked to identify which documents within Respondent's Exhibit 1.3 supported the first ground for denial, OIR responded by referencing loan documents that were executed after the policy was issued to the insured and that therefore, Abacus “knew or should have known” that the policy was obtained fraudulently. Abacus, however, purchased the policy almost four years after it was initially issued by the insurance carrier. The premium financing was taken out by the insured after the policy was issued and the insurance carrier accepted all premium payments from both the insured and the lender. To date, the insurance carrier has not made any claims that the policy was issued fraudulently. OIR never talked to the insured and could not confirm what the insured was thinking at the time the policy was applied for or issued. While OIR asserts that there was “suspected fraud” regarding the Marignoli policy, it did not provide evidence or testimony that Abacus knowingly transacted the policy knowing it was obtained fraudulently. The documents relative to the second policy, the Bakall policy, which was a part of the first ground for denial, can be found at Respondent’s Exhibit 1.4. OIR alleges that because the insured entered into a loan for the payment of premiums on the policy, Abacus transacted a policy that was fraudulently obtained. The Bakall insurance application, however, included a statement by the insured that the trustee had the ability to borrow money if necessary. The premium financing was undertaken after the policy was issued, and no one from Abacus or Advanced was involved in the issuance or subsequent financing of the policy. The evidence did not establish that Abacus knowingly transacted the policy knowing that it was fraudulently obtained. Instead, at the final hearing, OIR, through Ms. Davis, asserted that Abacus transacted this policy that they “knew or should have known” was fraudulently obtained. During her testimony, Ms. Davis admitted that the Bakall policy was reviewed by other OIR licensed viatical settlement providers and/or brokers, and no one else reported the Bakall policy as being fraudulently obtained. The documents relative to the third policy as part of the first ground for denial, the Cord policy, can be found at Respondent’s Exhibit 1.5. Again, OIR asserts that because the premiums for the policy were financed, the policy was fraudulently obtained. However, the documents within Respondent’s Exhibit 1.5 reveal that the policy application was completed on January 21, 2010, the policy was issued on February 5, 2010, and the loan documents were signed 40 days later on March 22, 2010. OIR was unable to identify any statutes or regulations that prohibit or otherwise make it illegal to have non-recourse premium financing for life insurance policies, or to finance the premiums of a life insurance policy after the policy is issued. When asked for proof that the insured had an arrangement, a plan, or a conspiracy to sell his policy at the time it was issued, OIR did not produce any evidence to meet the "knowingly" and "knowing" requirements of section 626.99275, and instead stated that there was “reason to suspect.” The documents relative to the fourth policy as part of the first ground for denial, the Mezey policy, can be found at Respondent’s Exhibit 1.6. As it pertains to the Mezey policy, OIR argues that the insured’s use of premium financing after the issuance of the policy demonstrates that the policy was fraudulently obtained. The original application for the Mezey policy was completed in May of 2008, the premium financing at issue was completed in October of 2008, and the insurance carrier issued an endorsement to the policy after the lender had paid the first premium saying the policy was effective. The loan was not secured by the insurance policy. Rather, the insured utilized the value of her securities account to obtain a loan to pay for the premiums of the policy. The evidence did not establish that Abacus knowingly transacted the Mezey policy knowing that it was fraudulently obtained. The documents relative to the fifth and six policies, the Davis policies, which were a part of the first ground for denial, can be found at Respondent's Exhibits 1.7 and 1.8. With regard to the Davis policies, OIR argues that the insured’s use of premium financing after the issuance of the policy demonstrates that the policy was fraudulently obtained. The Davis policies were issued by the insurance carrier on October 21, 2008, the first premium was paid by the policy owner, and the policy owner decided to obtain premium financing for the policies on November 20, 2009. OIR did not speak to the original policy owner and produced no evidence or proof outside of the documents contained within Respondent’s Exhibits 1.7 and 1.8 with regard to the Davis policies. The evidence was insufficient to establish that Abacus knowingly transacted these policies, or any of the other four policies at issue for the first ground for denial, knowing they were fraudulently obtained. As to OIR’s second ground for denial, the Denial Letter states: As a result of the pre-licensure examination, the Office finds that the Applicant viaticated policies from Florida viators without being licensed as a viatical settlement provider in Florida. Mr. Kirby acted as the viatical settlement broker in some of these transactions. OIR’s second ground for denial alleges violations of section 626.9912(1) which provides: A person may not perform the functions of a viatical settlement provider as defined in this act or enter into or solicit a viatical settlement contract without first having obtained a license from OIR. OIR alleges that Abacus transacted two viatical settlements with residents of Florida without having obtained a license from OIR. Ms. Davis identified the two policies at issue during her pre-licensure examination, and alleged that “Abacus knew or should have known that each of these policies was owned by a Florida resident, and they continued to process and subsequently purchase the policy in violation of Florida Statute.” In making her allegation that Abacus transacted two viatical settlements with Florida residents, Ms. Davis did not review the Florida Statutes for direction as to how to legally determine a viator’s residency, nor did she consult with legal counsel from OIR for assistance or a determination as to how to legally determine the residency of a viator. The first policy referenced in the second ground for denial is the Wyatt policy. The Wyatt policy was presented to both Advanced and Abacus over a four-year period of time. Abacus reviewed the file and all documents submitted to it by the viator, and determined, with the assistance of its compliance team and counsel, that the transaction was an Illinois transaction because Ms. Wyatt appeared to reside permanently in Illinois. In support of this conclusion, Abacus relied upon the following information: (a) the viatical settlement application completed by Wyatt in 2014 listed her address as being in Lake Forest, Illinois; (b) the same Illinois address was listed on related transaction forms; (c) the compliance packet completed by Wyatt’s broker/agent who submitted the policy to Abacus listed Wyatt’s state of residence as being Illinois; (d) the policy was issued to Wyatt in Illinois on December 15, 1999; (e) although Wyatt maintained a house in Florida, her agent confirmed it was a vacation home and that Wyatt resided in Illinois at the address she listed on the contract forms; (f) the contract forms were notarized by a notary in Illinois and were forms approved by the Illinois Department of Insurance; (g) the majority of the medical records for Ms. Wyatt were located in Illinois; and (h) it was only after the transaction documents were signed that Abacus learned of Wyatt’s intent to relocate from Illinois to Florida. The aforementioned information was provided to Abacus during the transaction and Abacus determined, based upon a totality of the circumstances, that Wyatt was a resident of Illinois and not a resident of Florida. In addition to the foregoing, other factors show that Ms. Wyatt’s permanent residence was Illinois at the time of the transaction. Ms. Wyatt did not provide, or otherwise have, a Florida driver’s license, voter’s registration card, or vehicle tag, and, to Abacus's knowledge, had not filed a formal declaration of domicile in Florida. To show Ms. Wyatt was a resident of Florida, OIR pointed to insurance verification forms in Abacus’s files filled out by Mr. Kirby while brokering the Wyatt transaction for Advanced. The forms listed Ms. Wyatt’s address as Wellington, Florida. It was also evident, however, that, over the course of the transaction, Advanced and Abacus were aware that Ms. Wyatt had a vacation home in Florida and that she was planning to eventually transition to Florida. In addition, in an expanded scope of the pre-licensure examination that gathered information that was not in Abacus’s files, OIR obtained evidence that Ms. Wyatt claimed homestead exemption in Florida in tax years 2013 and 2014. There was no evidence showing that Abacus was aware of the claimed homestead exemption. While OIR presented evidence indicative of Florida residency, that evidence, when considered in light of evidence in support of Illinois residency in Abacus's files, does not demonstrate by a preponderance of the evidence that Ms. Wyatt was a resident of Florida at the time of the transaction. Rather, the evidence shows that the Wyatt policy transaction involved an Illinois viator who was “transitioning” to Florida residency. The second policy referenced in the second ground for denial was the Martin policy. When the Martin policy was presented to Abacus for purchase, the compliance team at Abacus, as well as their legal counsel, determined that the policy was not a Florida transaction. In support of this conclusion, Abacus relied upon the following: (a) Martin’s medical records were located in Ohio; (b) the name affidavit executed by Martin listed her address as being in Ravenna, Ohio; (c) while the name affidavit and other related forms were notarized in Florida, that occurred because Martin was on a trip visiting her son who lives in Florida when she signed the documents; (d) all forms utilized for the transaction were on forms approved by the Ohio Department of Insurance; (e) the viatical settlement purchase agreement listed Martin’s address as Ravenna, Ohio; (f) transaction documents, including records releases and a durable power of attorney for Martin, listed her address as being in Ravenna, Ohio; (g) Martin’s driver’s license at the time of the transaction was issued by the State of Ohio; (h) a google search of Martin’s name includes a result of her address being in Ravenna, Ohio; (i) in the transaction disbursement form, Martin requested that the proceeds from the sale of the policy be paid to her Key Bank account in Rootstown, Ohio; (j) the voided check provided by Martin along with the transaction disbursement form listed her address as being in Ravenna, Ohio; (k) the funds for the transaction were wired to a Key Bank account in Cleveland, Ohio, in accordance with the bank wiring information provided by Martin; and (l) the policy was issued and delivered to Martin in Ohio. Abacus relied upon the aforementioned information that it was provided during the transaction to determine that Martin was a resident of Ohio and not a resident of Florida, and completed the transaction with Martin as an Ohio transaction based upon a totality of the circumstances. In further support of the Abacus's determination that Ms. Martin was not a resident of Florida, the evidence showed that Ms. Martin did not provide or otherwise have a Florida driver’s license and instead provided an Ohio driver’s license; she did not have a Florida voter's registration card or vehicle tag; and, to Abacus's knowledge, had not filed a formal declaration of domicile for Florida. In an attempt to show that Ms. Martin was a Florida resident at the time of the transaction, OIR relied on evidence uncovered in an expanded investigation beyond the scope of the audit of Abacus's files. While some evidence uncovered by OIR was suggestive of Florida residency, considering the evidence from Abacus’s files relied upon by Abacus in determining that Ms. Martin was a resident of Ohio, it is found that OIR failed to prove by a preponderance of the evidence that Ms. Martin was a resident of Florida at the time of the transaction. In paragraph 3(a)-(d) of the Denial Letter, OIR alleges that the pre-licensure examination revealed certain “areas of concern.” These “areas of concern” were not listed as the specific grounds for denial and did not reference any statutory or regulatory violations. Section 3(a) does not allege specific misconduct or violations of law or regulations, but recites that Abacus maintained a records retention policy and destroyed records in accordance therewith. In fact, OIR did not find any violations of the policy or state laws by Abacus with regard to records retention. In paragraph 3(b) of the Denial Letter, OIR alleges that the presence of blank signed annuity forms in a policy file invalidated the attestation clause relative to the accuracy of the annuity application. OIR, however, did not allege any specific statutory or regulatory violations. Annuities are often times used by viatical settlement providers to offset premium costs once a policy is purchased, and there is nothing illegal or nefarious about their use. In paragraph 3(c), OIR, without specificity, asserts that it found “inconsistencies between the level of control actually exhibited by the members over the Applicant and representations made to OIR regarding the same.” The testimony of Scott Kirby, Sean McNealy, and Samantha Butcher (via deposition) refutes this assertion, and shows that Samantha Butcher operated the day-to-day business of Abacus. Section 3(d) references an Assurance of Discontinuance that was entered into between Advanced and the New York Office of the Attorney General in 2010. While the parent company of Advanced entered into the Assurance of Discontinuance, it contained no admission of liability or wrongdoing, and from 2010 through its dissolution in December of 2014, Advanced and its principals remained licensed and in good standing with OIR and with the New York Department of Insurance as life agents and viatical settlement brokers. Abacus remains licensed and in good standing as a viatical settlement provider in New York, and no state has refused licensure to Abacus on the basis of the Assurance of Discontinuance. In paragraph 4 of the Denial Letter, OIR alleges that a prior review of the history of the three owners of Abacus revealed the following: (a) Letters of Guidance were sent by the Department of Financial Services to Advanced and the principals of Advanced in 2002 regarding possible fraudulent activity that was not reported; (b) an Order to Show Cause was issued in 2007 to another viatical settlement provider that is licensed in Florida by OIR, and Advanced was mentioned; (c) a letter of guidance was issued to Advanced and its principals in 2007; and (d) the Assurance of Discontinuance was entered into in 2010 with the New York Office of the Attorney General. As it pertains to the Letter of Guidance referenced in paragraphs 4(a), OIR was made aware of facts via a letter from the reporting company three months prior to the letter of guidance being issued that demonstrated that Advanced and its principals were unaware of the alleged fraudulent activity. The evidence showed that Advanced did not have the documents in their possession that revealed the alleged fraud. Nevertheless, the Department of Financial Services elected to issue the Letter of Guidance. Further, Letters of Guidance are non-probable cause actions, and do not constitute formal regulatory action. The letter of guidance referenced in paragraph 4(c) was guidance from OIR to Advanced and its principals, and subsequent to both letters of guidance, Advanced and its principals remained licensed and in good standing with the state of Florida as life agents. As it pertains to items 4(b) and 4(d), these matters pertain to Coventry First, LLC and not Abacus. OIR offered no evidence of misconduct by Abacus with regards to either of these issues.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that, consistent with the foregoing Findings of Fact and Conclusions of Law, the Office of Insurance Regulation enter a final order approving the Application and granting Abacus Settlements, LLC, a viatical settlement provider’s license under section 626.9912. Jurisdiction to adjudicate Abacus Settlements, LLC’s, pending Motion for Attorney’s Fees pursuant to section 57.015, Florida Statutes, is hereby retained. DONE AND ENTERED this 25th day of July, 2016, in Tallahassee, Leon County, Florida. S JAMES H. PETERSON, III Administrative Law Judge Division of Administrative Hearings The DeSotoBuilding 1230 Apalachee Parkway Tallahassee, Florida32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 25th day of July, 2016.
Findings Of Fact At all times pertinent to these proceedings, Respondent, Private Money Mortgage Company (PMMC), was a mortgage brokerage business in the State of Florida holding License Number HB592732699 that had been issued by Petitioner. At all times pertinent to these proceedings, Frank Donahue was a licensed mortgage broker in the State of Florida holding License Number HA267474770 that had been issued by Petitioner. The Department of Banking and Finance, the Petitioner in these proceedings, is the agency of the State of Florida charged with the responsibility of enforcing the provisions of Chapter 494, Florida Statutes. In 1985, Mr. and Mrs. A. Charles Cinelli bought a house in Palm Beach County, Florida, and moved from upstate New York to Palm Beach County, Florida. Respondent, Frank Donahue, assisted Mr. and Mrs. Cinelli in obtaining financing for the home the Cinellis purchased in Palm Beach, County. In connection with this 1985 transaction, Mr. Donahue forwarded to the Cinellis an "Exclusive Broker Agreement", which they executed and returned to him. Because this 1985 transaction involved a purchase, Mr. Donahue ordered an appraisal for this property and charged its cost as a part of the Cinelli's closing costs. Subsequent to that transaction, Mr. Donahue and his wife, Brenda, saw Mr. and Mrs. Cinelli at occasional social events. Franklin T. Smith is a certified public accountant who performed professional services for Mr. and Mrs. Cinelli and for Mr. and Mrs. Donahue. Mr. Smith referred the Cinellis to Mr. Donahue in 1985 and advised the Cinellis during the transaction that is the subject of this proceeding. Prior to December 2, 1988, Mr. Cinelli contacted several mortgage brokers in the Palm Beach County area to discuss the possibility of obtaining a mortgage on certain real property located in upstate New York. Mr. Cinelli contacted Mr. Donahue by telephone and discussed with him his desire to raise capital to begin a business in Florida. Mr. Cinelli estimated that he would require approximately $1,000,000 to start this business. Mr. Cinelli told Mr. Donahue that he and Mrs. Cinelli owned certain commercial real property in upstate New York and that State Farm Insurance Company held an option to purchase this property for the sum of $1,450,000. Mr. Cinelli did not want to wait to learn whether State Farm intended to exercise this option to purchase and he discussed with Mr. Donahue the possibility of obtaining the desired capital by securing a mortgage on this property. Mr. Donahue advised Mr. Cinelli that he could expect to secure a mortgage for approximately $700,000 (which was approximately 50% of the amount of the option contract) and that he would need a current appraisal. Mr. Donahue also informed Mr. Cinelli that he would require the sum of $2,500 as a non-refundable deposit to begin seeking such a commitment. On or about December 2, 1988, Mr. Cinelli provided Mr. Donahue with a copy of the option agreement with State Farm and with a copy of the agreement dated September 21, 1988, which extended the time within which State Farm could exercise its option for an additional six months. Mr. Cinelli reiterated to Mr. Donahue that the option price was for $1,450,000 and that he wanted to mortgage the property for $1,000,000. Mr. Cinelli also provided Mr. Donahue with the name, address, and telephone number of Mr. Wayne Lupe, who was represented by Mr. Cinelli to be his MAI appraiser in Schenectady, New York. On December 15, 1988, Mr. Donahue sent to Mr. Cinelli a letter which attached an "Exclusive Broker Agreement" that had been executed by Mr. Donahue on December 15, 1988. This was the same "Exclusive Broker Agreement" form that Mr. Donahue had used for the 1985 Cinelli transaction. The body of the letter provided as follows: Enclosed please find a copy of my exclusive brokers agreement detailing the probable terms of the loan which you are seeking. This agreement is the same agreement which you signed when you purchased your current resi- dence. The agreement calls for both you & Joan to sign and return along with a nonrefundable deposit in the amount of $2500.00 to Private Money Mortgage Corp. The above noted deposit shall be credited towards your closing costs at the time of closing, if a commitment is offered. I have spoken to several of my investors about your concerns and I am awaiting confirmation of their substantial interests prior to ordering the appraisal. I will contact you as soon as I have received the return of this agreement along with your deposit in order to fill you in on our efforts to secure you the most competitive loan on your desired terms. The Exclusive Broker Agreement reflected that the amount of the mortgage would be $700,000 and disclosed that the total estimated costs that would be incurred in securing the mortgage was $78,346, which included a broker's fee of $35,000 and an estimated appraisal fee of $3,500. The Exclusive Broker Agreement, signed by Mr. Donahue on December 15, 1988, contained the following provision: DEPOSIT: In consideration of the sum of $2,500, receipt of which is hereby acknowledged, and in compliance with Chapter 494, Florida Statutes, Broker accepts this application and agrees to exert his/her best effort to obtain a commitment for loan in accordance with the terms and conditions set forth herein. This deposit shall be credited toward closing costs at the time of closing the permanent loan or commitment, less Broker's expenses. Among the "Standards" which were incorporated as terms and conditions of the Exclusive Broker Agreement was the following: Deposit. Client simultaneously with execution of this agreement has deposited with broker the amounts stated in this agreement in order to secure the obligations owed by client to broker in the event of default of client as provided in the agreement and to reimburse broker of any and all expenses, including telephone charges, lodging, and administrative fees for credit checks and processing appraisals and the like, including upon any cancellation by client, reimbursement for broker's time expended incurred by broker, whether or not a loan commitment is obtained by broker. Mr. Cinelli was concerned that he would be incurring substantial fees and costs if Mr. Donahue obtained a commitment and Mr. Cinelli decided not to accept it. Mr. Smith advised Mr. Cinelli that the estimated expenses were not abnormally high, but he suggested that his liability should be limited. In response to those concerns, Mr. Donahue prepared and delivered between December 15, 1988, and the end of the year an addendum to the Exclusive Broker Agreement that would have limited Mr. Cinelli's liability to the sum of $7,500. That addendum provided, in pertinent part, as follows: It is hereby understood and agreed by the parties that in the event a loan commitment is offered to the applicants & they decide to refuse this commitment, the applicants liability will be limited to the sum of Five Thousand Dollars plus the original deposit of $2,500.00 for a total amount of $7,500.00. It is further understood that said commitment must bear approximately the same terms and conditions as the attached agreement. Mr. and Mrs. Cinelli gave Mr. Smith the sum of $2,500 in cash to deliver to Mr. Donahue, but there is conflicting testimony as to when this money was delivered to Mr. Smith for delivery to Mr. Donahue. Mr. Cinelli testified that the money was delivered before the Exclusive Broker Agreement dated December 15, 1988, was prepared. Mr. Donahue testified that the money was delivered after both the Exclusive Broker Agreement and the addendum thereto had been delivered to Mr. Cinelli. Mr. Donahue also testified that the statement contained in the Exclusive Broker Agreement that he signed on December 15, 1988, acknowledging his receipt of the $2,500 deposit was false. He did not explain why the addendum referred to the sum of $2,500 as "the original deposit". Mr. Smith did not recall when he delivered this money to Mr. Donahue, but he did recall having delivered the cash the same day he received it from the Cinellis. While his testimony is that he received the $2,500 during his initial meeting with Mr. and Mrs. Cinelli (which would be before Mr. Cinelli received the Exclusive Broker Agreement) this testimony lacks credibility because of Mr. Smith's lack of certainty as to dates. In addition, this testimony conflicts with the letter Mr. Smith wrote to Mr. Donahue at Mr. Donahue's request on August 28, 1989, which clearly indicates that the $2,500 was not paid until after the addendum to the Exclusive Broker Agreement had been prepared. This conflict is resolved by finding that the greater weight of the evidence establishes that the sum of $2,500 was delivered by Mr. Smith to Mr. Donahue after Mr. Cinelli had received both the Exclusive Broker Agreement and the addendum thereto. Mr. Donahue did not provide the Cinellis with any type of written agreement, other than his letter of December 15, 1998, the Exclusive Broker Agreement, and the addendum when he received the cash from Mr. Smith. There was no written receipt for these funds, nor was there any written memorandum of understanding between Mr. Donahue and the Cinellis as to whether payment for the appraisal that Mr. Donahue and Mr. Cinelli had discussed would be made from the $2,500. Mr. Cinelli was of the belief that $2,000 of the $2,500 deposit would be earmarked for the payment of the appraisal. Mr. Donahue was of the belief that the $2,500 was a non-refundable retainer and he treated that sum as an earned fee. There was no meeting of the minds between Mr. Cinelli and Mr. Donahue as to the nature of the $2,500 deposit, other than it was non-refundable. Specifically, there was no agreement as to what costs, if any, would be paid from that deposit. Mr. Donahue's normal business practice in transactions involving a refinance of property is different than his practice in transactions involving a purchase of property. In purchase transactions (such as the 1985 Cinelli transaction), Mr. Donahue arranges for the appraisals and treats the costs of the appraisal as an expense to be paid by the purchaser at closing. In refinance transactions (such as the 1988 Cinelli transaction), it is his practice to require his customer to deal directly with the appraiser in ordering and paying the costs of the appraisal. Respondents failed to establish that in the subject transaction, Mr. Donahue made it clear that Mr. Cinelli would be responsible for ordering and paying the cost of the appraisal. Mr. Cinelli believed that $2,000 of the $2,500 he later gave Mr. Donahue would be earmarked for the payment of the appraisal. Neither Mr. Donahue's letter of December 15, 1998, the Exclusive Broker Agreement, nor the addendum clearly resolved the dispute. There was a dispute between Mr. Donahue and Mr. Cinelli as to who ordered the appraisal. Mr. Cinelli denied that he ordered the appraisal and that his calls to his appraiser, Mr. Lupe, was only to advise him of Mr. Donahue's forthcoming call. Mr. Donahue denied that he ordered the appraisal and that his contacts with Mr. Lupe were after Mr. Cinelli had ordered the appraisal. Mr. Donahue contends that his contacts with the appraiser were merely to give the appraiser instructions as to the information that should be reflected by the appraisal. This dispute is resolved by finding that Mr. Cinelli ordered the appraisal through Mr. Lupe and that Mr. Donahue advised Mr. Lupe as to the information that should be reflected by the appraisal. It was determined from conversations between Mr. Donahue and Mr. Lupe that Mr. Lupe was not qualified to perform the appraisal and that Mr. Lupe would engage Albert L. Friedman, MAI and William J. McEvoy of Capitol Real Estate and Appraisal Company of Schenectady, New York, on Mr. Cinelli's behalf to perform the work. Messrs. Friedman and McEvoy prepared the appraisal and certified the same to Mr. Cinelli on March 13, 1989. The appraised value of the property was $2,100,000. As of the date of the formal hearing, the appraiser's bill of $2,000 had not been paid. Capitol Real Estate and Appraisal Company had billed both Mr. Donahue and Mr. Cinelli and an attorney representing Capitol Real Estate and Appraisal Company had written Mr. Cinelli a demand letter. It was the dispute over the payment of the appraiser's fee that prompted the complaint the Cinellis filed against Respondents. The Cinellis did not execute the Exclusive Broker Agreement and the addendum because they wanted to wait on the appraisal to see if the appraised value would permit them to borrow more than $700,000 and because they were not satisfied with the amount of the projected costs of consummating the transaction. Mr. Cinelli misled Mr. Donahue as to his intentions to execute these agreements. Mr. Donahue made several requests to the Cinellis that they execute the Exclusive Broker Agreement and addendum and return them to him. Despite the absence of an executed brokerage agreement, Mr. Donahue exerted considerable effort to seek a commitment consistent with the Exclusive Broker's Agreement and succeeded in securing such a commitment in April 1989. No part of the $2,500 Mr. Donahue received from Mr. Smith on behalf of the Cinellis was placed in escrow by Mr. Donahue. Respondents have made no accounting of the $2,500 and have paid no part of the appraisal bill. Mr. Donahue claims the deposit as a non-refundable earned fee, despite the absence of a written agreement to that effect. The Cinellis sold the subject property to State Farm in June 1989.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered by Petitioner which finds: that Respondents violated the provisions of Rule 3D-40.006(5), Florida Administrative Code, by accepting the $2,500 deposit from the Cinellis without a written agreement as to the disposition of those funds; that Respondents violated the provisions of Section 494.055(1)(e), Florida Statutes, and Rule 3D-40.006(6)(a), Florida Administrative Code, by failing to place said deposit in escrow; and that Respondents violated the provisions of by Section 494.055(1)(f), Florida Statutes, by failing to account for said deposit. It is further recommended that an administrative fine be levied against Respondents in the total amount of $1,000.00 for said violations. It is further recommended that the final order place the licenses of Respondents on probation for a period of one year with three special conditions of probation. The first special condition of probation would require Respondents to pay Capitol Real Estate and Appraisal Company the sum of $2,000 within sixty days of the Final Order. The second special condition of probation would terminate Respondents' probation upon timely compliance with the first special condition of probation. The third special condition of probation would prohibit Respondents from conducting any business as mortgage brokers within the State of Florida for a period of six months should Respondents fail to timely comply with the first condition of probation. RECOMMENDED in Tallahassee, Leon County, Florida, this 9th day of January, 1991. 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 9th day of January, 1991. APPENDIX TO RECOMMENDED ORDER, CASE NO. 90-4708 The following rulings are made on the proposed findings of fact submitted on behalf of the Petitioner. The proposed findings of fact in paragraphs 1, 3-10, and 13 are adopted in material part by the Recommended Order. The proposed findings of fact in paragraphs 2 and 11 are adopted in part by the Recommended Order, and are rejected in part as being contrary to the findings made. The proposed findings of fact in paragraph 12 are adopted in part by the Recommended Order, and are rejected in part as being argument. The following rulings are made on the proposed findings of fact submitted on behalf of the Respondent. The proposed findings of fact in paragraphs 1-3 are adopted in material part by the Recommended Order. The proposed findings of fact in paragraphs 4-6, 14, and 17 are rejected as being subordinate to the findings made. The proposed findings of fact in paragraph 7 are adopted in part by the Recommended Order. The characterization of the Cinellis having a "long standing relationship" with Mr. Donahue is rejected as being ambiguous and unnecessary to the conclusions reached. The proposed findings of fact in paragraph 8 are rejected as being unnecessary to the conclusions reached. The proposed findings of fact in paragraphs 9-11 are adopted in part by the Recommended Order, but are rejected to the extent that they are subordinate to the findings made. The proposed findings of fact in paragraphs 12 and 13 are rejected as being recitation of testimony or as being subordinate to the findings made. The proposed findings of fact in paragraph 15 are rejected as being subordinate to the findings made or as being contrary to the findings made or to the conclusions reached. The proposed findings of fact in paragraph 16 are adopted in part by the Recommended Order, and are rejected in part as being unnecessary to the conclusions reached. COPIES FURNISHED: Deborah Guller, Esquire Office of the Comptroller 111 Georgia Avenue, Suite 211 West Palm Beach, Florida 33401-5293 Marie A. Mattox, Esquire Douglass, Cooper, Coppins & Powell Post Office Box 1674 Tallahassee, Florida 32302-1674 Honorable Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0350 William G. Reeves General Counsel The Capitol Plaza Level, Room 1302 Tallahassee, Florida 32399-0350
