The Issue Whether or not Petitioner was subject to a discriminatory housing practice based on her race, age, and gender, or any of the foregoing, when her application for a loan was denied by Respondents.
Findings Of Fact Based on the testimony and demeanor of the witnesses and documentary evidence presented, the following Findings of Fact are made: Petitioner, Janice Buchanan, is an African-American female who was 44 years old at the time she applied for the home loan which is the subject of this claim. She had served on active duty in the United States Air Force and, as a result of her service, was eligible for a home loan guarantee by the federal Department of Veterans Affairs ("VA") if she met other financial criteria established by the VA. At all times material to the claim herein, Town & Country Mortgage Company ("Town & Country") was a correspondent mortgage lender. A correspondent mortgage lender originates a loan application for an individual seeking a loan, locates an investor, and, if the investor approves the applicant, assigns the file to the investor. As a correspondent mortgage lender, Town & Country did not make loans or make the decision whether or not to approve a loan application. The decision whether to approve the loan is made by an underwriter employed by the investor. The investor's underwriter, not Town & Country, decides whether an application for a VA home loan guarantee meets the criteria established by the VA. A Town & Country loan application commences with the "pre-qualification" interview. During this interview, the loan officer will obtain the applicant's income information, asset information, and look at a quick "snapshot" of the applicant's credit history, which is obtained from a credit reporting agency. Once the loan officer believes sufficient information has been obtained during the pre-qualification interview, the loan application is actually filled out by the applicant and the loan officer, and the applicant provides the loan officer with documents such as bank statements and income verification documents. While processing the loan application, the loan officer attempts verification of the information provided by the applicant during the initial interview. Once the loan application is completed, a loan processor with Town & Country will begin a more detailed verification of financial information which includes calling the applicant's employer, ordering a "full factual credit report," and verifying all financial information the applicant has provided. If the loan applicant has a complex financial history, the verification process may take a considerable amount of time. In the instant case, the "full factual credit report" was obtained from Stateswide Credit Bureau Services, Inc. ("Stateswide"). Stateswide assembles credit information on the loan applicant from the three main credit information repositories in the United States (Equifax, TransUnion, and TRW). The "full factual credit report" is known as a "tri- merge," i.e., credit information from all three credit information repositories is combined into one document. A "tri- merge" report is used because one credit information repository may not have all of the information another repository has. As a result, even if an applicant produced a satisfactory credit report from one credit information repository, it would be insufficient to overcome an unsatisfactory report on a "tri- merge." Petitioner's "full factual credit report" included at least nine negative credit references. A negative credit reference may be a delinquent account, a past due account, late payments or other activities considered inappropriate by a credit provider and reported to a credit information repository. The Stateswide "full factual credit report" was prepared by Laura Aguayo on November 2, 1999. In compiling the report, Ms. Aguayo telephoned each creditor which had provided negative credit information. Each creditor verified the negative information by social security number, in addition to name. If a creditor did not accept Ms. Aguayo's telephone call, she wrote the creditor. Petitioner was advised of the negative credit information; she provided Town & Country with additional information in an effort to explain the negative information on her credit report. After the verification process is completed, Town & Country's loan processor forwards the information obtained during the loan application and verification process to the investor. This information includes the loan application completed by the applicant and a credit package consisting of the applicant's credit report, income, assets, property, collateral, and additional information, e.g., the loan applicant's explanation of negative credit information, which was forwarded in the instant case. The investor's underwriter reviews the loan application and related information and makes a decision as to whether or not the investor will provide the loan. Town & Country would not forward a loan package to an investor if Town & Country did not want the application to be approved by the investor. There is an economic incentive for Town & Country to want a loan application to be approved by an investor; if an investor approves a loan, Town & Country receives a commission; if an investor does not approve a loan, Town & Country receives no income from the investor. The investor in the instant case was Irwin Mortgage Corporation ("Irwin"); the underwriter at Irwin who reviewed Petitioner's application was Ms. Christine Ross who, like her employer, has no affiliation with Town & Country. Ms. Ross has 15 or 16 years of underwriting experience. Ms. Ross reviewed Petitioner's income and assets and assessed whether she has the ability to make the payments and reviewed her credit history to determine if Petitioner had, in the past, made payments in a timely fashion. Ms. Ross determined that Petitioner was not credit worthy because of a poor credit history and insufficient funds to close the loan. In addition, Ms. Ross considered that Petitioner had several checks returned because of insufficient funds. She reviewed all of the information provided and opined that the application would not meet VA guidelines. If the loan is not approved by an investor, Town & Country's loan officer will work with the applicant to determine what can be done to have the loan approved. When dealing with a VA loan, as in this case, the loan application and related information can be forwarded to the VA for review even though it has not been approved by an investor. The benefit of having the package forwarded to the VA is that the VA might see something the investor missed, and provides the applicant with a second chance to have the loan approved. Town & Country would not request that the investor forward the loan file to the VA if it did not want the loan application to be approved. If the VA denies the loan, there is no purpose in trying to find another investor for the loan because by denying the loan application, the VA is indicating it will not accept the loan application from any investor. When Irwin advised Town & Country that Petitioner's loan application had been denied, Town & Country requested that Irwin forward the application directly to the VA. Upon Town & Country's request, Ms. Ross sent the loan package to the VA. If the VA had decided to guarantee the loan, Irwin would have no risk and would approve the loan. The VA also denied Petitioner's loan application. The reason the VA denied the loan was because "[t]he present income of the borrower(s) was not shown to be sufficient." Ultimately, Ms. Aguayo of Stateswide was able to remove one negative entry from Petitioner's credit report, but she was unable to remove any others. This deletion of one negative entry is evidenced by a December 17, 1999, Stateswide "full factual credit report." Had Ms. Ross been in possession of the December 17, 1999, credit report from Stateswide, this would not have affected her decision to deny Petitioner's loan application, because the report still showed a credit history that did not meet VA guidelines. Additionally, the VA denied the loan because of insufficient income, not poor credit. No credible evidence was presented that Town & Country caused a delay in seeking financing or provided false information as alleged in Petitioner's Petition For Relief. Steve Pilchick, President of Town & Country, had no direct involvement with Petitioner's loan application and did not discriminate against her. No evidence was offered regarding any discrimination against Petitioner based on her age. No evidence was presented that Town & Country was responsible for the denial of Petitioner's loan application. Nor was any evidence presented that Town & Country had approved loans for any particular person or persons of any race or gender who had loan qualifications similar to Petitioner.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Commission on Human Relations dismiss Petitioner's Petition for Relief with prejudice finding that neither Town & Country Mortgage Company nor Steve Pilchick unlawfully discriminated against Petitioner. DONE AND ENTERED this 4th day of April, 2002, in Tallahassee, Leon County, Florida. JEFF B. CLARK Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 4th day of April, 2002. COPIES FURNISHED: Janice Buchanan 4266 Cloverleaf Place Casselberry, Florida 32707 Janice Buchanan Teamesha Leyva 14901 Newland Street, Apartment C Midway City, California 92655 Denise Crawford, Agency Clerk Florida Commission on Human Relations 2009 Apalachee Parkway, Suite 100 Tallahassee, Florida 32301 Daniel P. O'Gorman, Esquire Ford & Harrison LLP 300 South Orange Avenue, Suite 1300 Orlando, Florida 32801 Cecil Howard, General Counsel Florida Commission on Human Relations 2009 Apalachee Parkway, Suite 100 Tallahassee, Florida 32301
Findings Of Fact At all times pertinent to the allegations contained herein, Respondent was a licensed Mortgage Broker and the principal broker for Mortgage Associates of Countryside, located at 2623 Enterprise Rd., Clearwater, Florida. The Department was and is the state agency charged with regulating the activities of mortgage brokers in this state. In September, 1987, Andrew Grosmaire and Kevin Gonzalez, compliance officer and financial examiner, respectively, for the Department, pursuant to a complaint from Mark Snyder, conducted an examination of Respondent's affairs as they pertained to his operation as a mortgage broker. During the survey, which covered the period from August, 1986 through August, 1987, Mr. Grosmaire and Mr. Gonzalez examined between 50 and 60 loan files which had culminated in loan closings. In addition, they examined loan files which did not result in closings, bank account records, and other of Respondent's miscellaneous records. In order for an appropriate audit of a closed loan file to be conducted, it is imperative that the loan closing statement be included. Without it, the examiner cannot accurately determine what, if any, closing costs the borrower actually paid and if closing costs paid were consistent with those disclosed by the broker on the Good Faith Estimate Form at the initial interview. Of the closed loan files reviewed, these closing statements were missing from seven files. Respondent admits that several closed loan files did not have the required closing costs statement form enclosed. He attributes this, however, to the failure of his processor, an assistant, to place the closing statement in the file. They were not presented at hearing or thereafter. The investigators examined the Good Faith Estimate Forms in those files which culminated in loans and found that the form utilized by the Respondent failed to contain language, required by statute, which summarized the limits and conditions of recovery from the Mortgage Brokerage Guaranty Fund. Respondent contends that the pertinent statutory section was not in existence at the time he was engaged in mortgage brokerage activities. This was found to be not true. The Act became effective July 1, 1986 and the files surveyed were from the period August, 1986 through August, 1987. Examination of the Good Faith Estimate Forms used by the Respondent in each of the cases which culminated in loan closing revealed that Respondent consistently underestimated closing costs. This resulted in the borrowers generally paying higher closing costs than was initially disclosed to them. On -loans applied for by Mr. and Mrs. Snyder, Mr. Iyer, and Mr. Toland. Respondent redistributed loan points to himself in an amount higher than that which was agreed to by the parties. In the Toland case, Mr. Toland agreed to pay a 1% loan origination fee in the amount of $996.00. The settlement statement dated approximately 2 months later reflected that Toland paid Respondent a loan origination fee of $1,128.00 in addition to a 1% ($664.00) loan discount fee to the lender. This latter mentioned discount fee was not disclosed in advance to Mr. Toland on the estimate form nor was the excess loan origination fee charged. It should be noted here that a second Good Faith Estimate Form, dated nine days after the original, reflecting a 3% loan origination fee, was found in the file. Though signed by Respondent, this second form was not signed by the borrower as required. It cannot, therefore, serve to support Respondent's claim that he advised the Tolands of the higher cost by this second form. There is no showing that the Tolands were aware of it. In the Iyer case, the estimate form dated September 19, 1986 reflected a points and origination charge of $1,332.50 which is 1% of the mortgage loan amount of $133,250.00. The Iyers were subsequently approved for a mortgage in the amount of $145,600.00. The closing statement dated March 6, 1987, almost six months later, reflects that the Iyers paid a 2% loan origination fee of $2,740.00 to Mortgage Associates and a load discount fee of $685.00 to the lender. Here again the Respondent claims that a second cost estimate form reflecting a 2% point and origination fee of $2,912.00 was subsequently executed by the Iyers. However, this second form, found in Respondent's files, is undated and fails to reflect the signature of either Respondent or the Iyers. It cannot, therefore, serve as proof that the Iyers were made aware of the change. It does appear, as Respondent claims, that the bottom of the second form, (here, a copy) , was excluded from the copy when made, but there is no evidence either in the form of a signed copy or through the testimony of the Iyers, that they were aware of the change. Consequently, it is found that the Iyers had not been made aware of the second estimate and had not agreed to pay as much as they did, in advance. As to the Snyder closing, both Mr. Snyder and Respondent agree that it was their understanding at the time the loan was applied for, that Respondent would attempt to obtain a lower interest rate for them than that which was agreed upon in the application and in the event a lower rate was obtained, Respondent's commission points would remain the same as agreed upon in the brokerage agreement. In that case, as Respondent points out, his commission is based on the mortgage amount, not the interest rate, and he would be entitled to the agreed upon percentage of the loan face amount regardless of the interest rate charged by the lender on the loan. The Snyders had agreed to a 1% commission to Respondent plus a 1% loan origination fee to the lender. When the lender agreed to lend at par, without an origination fee, Respondent appropriated that 1% to himself, thereby collecting the entire 2% called for in the application. This was improper. Respondent's claim that it is an accepted practice in the trade is rejected. The Snyders initially made demand upon the Respondent for reimbursement of that additional 1% and ultimately had to hire an attorney to pursue their interests. Respondent subsequently made a $400 partial reimbursement payment of the amount owed but nothing further notwithstanding the fact that the Snyders ultimately secured a Judgement in Pinellas County Court against him for $1,082.52 plus interest, attorney's fees and costs. As a result, the Florida Mortgage Brokerage Guarantee Fund will reimburse the Snyders for their loss. According to the investigators, the Snyders Toland, and Iyer files, in addition to the problems described, also reflected that Respondent received payments for other items which should have gone into an escrow account. These included such things as credit reports and appraisal fees. The Department requires that any money received by a broker other than as commission, be placed in the broker's escrow account pending proper disbursement. Respondent did not have an escrow account. Mr. Gonzalez looked at Respondent's overall operation, including closed files, in an attempt to correlate between income and outgo to insure that Respondent's operation was in compliance with the statute. In addition to his search for an escrow account, Mr. Gonzalez also examined Respondent's "Loan Journal" which by statute is required to contain an entry for each transaction in each loan. The purpose of this journal is to provide a continuing record to show when each item in the loan processing was accomplished. In Mr. Gonzalez' opinion, the Respondent's journal was inadequate. It contained repeat and conflicting entries for specific items which hindered the investigators' ability to determine an audit trail. In addition, all required information was not put in the journal in complete form in each account. In the opinion of the investigators, the Respondent's violations were significant in that they made it impossible for the Department to determine compliance with statutes and Department rules and inhibited the compliance examination. All in all, Respondent's way of handling his accounts, his failure to maintain an escrow account, and his unauthorized increase in commission income, all indicated his actions were not in the best interest of his clients. The investigators concluded that clients funds were not being handled properly and that the purpose of Chapter 494, Florida Statutes, to protect the consumer, was not being met. In Mr. Gonzalez' opinion, Respondent's method of business constituted incompetence as a mortgage broker and "possibly" fraudulent practice. It is so found. Both Mr. Gonzalez and Mr. Grosmaire indicated they had extreme difficulty in attempting to locate Respondent after the complaint was filed by Mr. Snyder, in order to conduct their examination. They finally located him at a site different from that which appeared in the records of the Department. Respondent contends that the Department had been notified in writing within the required time, of his change of location when he filed a notice of fictitious name. He contends that after filing his notice of name change, he received no response from the state but took no action to inquire whether the change had been made. In any case, his current address was in the phone book and had the agents chose to look there, they would have found him. Respondent contends that the good faith estimates required by the statute are just that, an estimate, and that actual figures may vary from and exceed these estimates. This is true, but there is a procedure provided whereby the broker is to notify the client of a change in advance and if the change exceeds a certain amount, it may constitute grounds for voiding the contract. In paragraph 7 of the complaint, Petitioner alleges that Respondent used a form for the estimates which failed to contain a statement defining the maximum estimated closing costs. Review of the statement offered herein reflect this to be a fair analysis. However, Respondent claims that certain items cannot be predicted accurately in that some companies charge more than others for the same item and it was his practice to insert in the estimate portion of the form a "worst case scenario." However, at no time did he address in his form what could be the maximum a prospective purchaser might be expected to pay. Respondent "doesn't like" the total picture painted by the investigators concerning his operation. He claims it is cot a fair and accurate representation. In many cases, he claims, he expended funds on behalf of clients in excess of that he received in either commission or reimbursement and even though he may have received more than entitled in some cases, it "evens out over a period of time." Though this may be so, it is no way to do business. The state requires the keeping of accurate records and, just as the broker should not be required to assume responsibility for other than his own misconduct, neither should the client be required to pay more than is his legal obligation. Respondent professes to know the mortgage business and he resents having his qualifications as a mortgage broker questioned. In his opinion, he has trained himself well and has acted in good faith on the basis of the information available to him at the time. He ignores the impact of the Judgement of the court in the Snyder matter because he feels it was "unilateral." He believes the law is designed to protect the client and he wants to know who protects the broker. It is for that very reason, he contends, that fees paid in advance are not refundable. Mr. Sample feels the Department should be more informative to the brokers and get the governing regulations updated more quickly. Respondent cherishes his license and claims he needs it to make a living. He went out of business once before, several years ago, because of bad business conditions, (the reason he uses for not complying with the court order), but did not declare bankruptcy because he wanted to go back into business and pay off the judgements against him. Though he has been back in business for several years, he has failed to make any effort to pay off any of his former creditors even though in his former operation, he improperly tapped his escrow account for other business expenses.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that the Respondent, Howard E. Sample's license as a mortgage broker in Florida be revoked. RECOMMENDED this 15th day of September, 1988 at Tallahassee, Florida. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this day of September, 1988. APPENDIX TO RECOMMENDED ORDER IN CASE NUMBER 88-2858 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. Insofar as Petitioner's submission refers to testimony of a witness, that is considered as a proposed finding of fact. FOR THE PETITIONER; Accepted and incorporated herein & 3. Accepted and incorporated herein 4. & 5. Accepted and incorporated herein Accepted and incorporated herein & 8. Accepted and incorporated herein Rejected as contra to the evidence A conclusion of law and not a finding of fact & 11a Accepted and incorporated herein Accepted Accepted and incorporated herein Accepted Accepted and incorporated herein - 18. Accepted 19. - 21. Accepted and incorporated herein Accepted & 24. Accepted and incorporated herein 25. & 26. Accepted and incorporated herein Accepted &-29. Accepted 30. - 34. Accepted and incorporated herein FOR THE RESPONDENT: Nothing Submitted by way of Findings of Fact COPIES FURNISHED: Elise M. Greenbaum, Esquire Office of the Comptroller 400 West Robinson St. Suite 501 Orlando, Florida 32801 Howard E. Sample 2465 Northside Drive Apartment 505 Clearwater, Florida 34621 Honorable Gerald Lewis Ccmptroller, State of Florida The Capitol Tallahassee, FL 32399-0350 Charles L. Stutts, Esquire General Counsel Department of Banking and Finance Plaza Level, The Capitol Tallahassee, FL 3 2399-0350
Findings Of Fact During 1984 Philip Dennis on his own behalf and on behalf of Medi Fund Inc. negotiated in Florida with William Kickliter for the purpose of arranging a mortgage loan. During those negotiations Respondent Dennis represented to Kickliter that both he and Respondent Medi Fund, Inc., were mortgage brokers licensed by the State of Florida. In his stated capacity as a mortgage broker, Respondent Dennis drafted and entered into an agreement with Kickliter whereby Kickliter would obtain a mortgage loan from Respondent Medi Fund, Inc., for financing an ongoing business. Respondent Dennis signed the agreement between Kickliter and Respondent Medi Fund, Inc., pursuant to which Kickliter gave to Respondent Dennis a refundable advance fee of $1,500 by check made payable to Respondent Medi Fund, Inc. No mortgage loan was ever consummated. When Kickliter made demand on Respondent Dennis for the return of his monies, Respondent Dennis sent to Kickliter a post-dated check for only $850 with a notation on that check that it was allegedly for full payment of the refundable advance fee. When Kickliter deposited that check, the check "bounced." Respondent Dennis then stopped payment on the check. Kickliter's refundable advance fee has never been refunded to him by either Respondent Dennis or Respondent Medi Fund, Inc. In 1983 Respondent Dennis negotiated in Florida with Robert N. Goldstein to secure financing so that Goldstein's company Hospitality Consultants, Inc., could acquire a hotel. Respondent Dennis drafted and presented to Goldstein and Goldstein's partner Thomas Palumbo an agreement between Respondent Dennis and Hospitality Consultants, Inc., whereby Respondent Dennis would seek mortgage funding for the corporation. In that agreement Respondent Dennis designated himself as "the broker", a designation which matched his oral representations to Goldstein that he was a mortgage broker licensed in the State of Florida. Respondent Dennis executed that agreement on March 11, 1983, on his own behalf. In 1985 Respondent Dennis negotiated in Florida with Bryan Miller of Deco Redevelopment Corp. to secure real estate mortgage loan financing for hotels located in Miami Beach. Respondent Dennis on behalf of Respondent Medi Funds Inc., drafted an agreement whereby Respondent Medi Funds Inc. would secure financing for real estate renovation and new construction of a hotel complex to be built in Miami Beach. Respondent Dennis entered into that agreement on behalf of Respondent Medi Fund Inc. Pursuant to, that agreement, Miller paid to Respondent Dennis on behalf of Respondent Medi Funds Inc., the sum of $5,000 as a refundable advance fee. Neither Respondent Dennis nor Respondent Medi Funds Inc. has arranged any mortgage loan to Deco Redevelopment Corp. Furthers the $5,090 Refundable advance fee paid to Respondents Dennis and Medi Fund Inc. has never been refunded. In 1985 Respondent Dennis while in Florida negotiated with Millie Bulkeley of Arizona for mortgage loan financing for a mobile home park in Arizona. Thereafter Respondent Dennis drafted and entered into an agreement with Bulkeley whereby Respondent Medi Fund Inc., would secure real estate financing for her. Pursuant to that agreement Bulkeley deposited into Respondent Dennis's bank account in New York $20,000 as a refundable advance fee. No financing was ever secured for the project by Respondent Dennis or Respondent Medi Fund Inc. and the refundable advance fee has never been refunded. During 1983, 1984, and 1985 Respondent Dennis represented himself as being an officer of Respondent Medi Fund Inc. and misrepresented to persons both orally and in writing that both Respondent Dennis and Respondent Medi Fund, Inc., were mortgage brokers licensed by the State of Florida. During the time period of December 1982 up to and including May 2, 1986, neither Respondent Dennis nor Respondent Medi Fund, Inc., has been a licensed mortgage broker. By Order entered April 16, 1986, in this cause Petitioner was awarded certain costs against Respondent Medi Funds Inc., as a result of Medi Fund, Inc.'s, refusal to engage in discovery. Those reasonable costs are $45 for the attendance of the court reporter, $318.10 for the travel expense incurred by Petitioner's attorney, and $1,275 as an attorney's fee for Petitioner's attorney. The Order of April 16, 1986, also required Respondent Medi Funds Inc. to return to Petitioner the witness fee and mileage fee paid to it before its non-appearance at its scheduled deposition.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED that a Final Order be entered finding Respondents Philip Dennis and Medi Fund, Inc., guilty of the allegations contained within the Cease and Desist Order filed herein ordering Respondents Dennis and Medi Fund, Inc. to forthwith and immediately cease and desist from any further violations of Chapter 494, Florida Statutes, requiring Medi Funds Inc. to return to the State of Florida the witness fee and mileage paid to it pursuant to the April 16, 1986 Order entered herein and requiring Respondent Medi Funds Inc. to pay to the State of Florida the sum of $1,638.10, as further required by the April 16, 1986 Order entered herein. DONE and RECOMMENDED this 29th day of August 1986 at Tallahassee Florida. LINDA M. RIGOT Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 29th day of August, 1986. COPIES FURNISHED: Gerald Lewis, Comptroller State of Florida The Capitol Tallahassee, Florida 32301 Deborah Hoffman, Esquire Thomas E. Glick Esquire Office of Comptroller 401 N.W. 2nd Avenue, Suite 870 Miami Florida 33128 Philip Dennis 2124 Northeast 167 Street North Miami Beach, Florida 33160 Medi Funds Inc., a Florida Corporation c/o Philip Dennis 2124 Northeast 167 Street North Miami Beach, Florida 33160
Findings Of Fact Based upon the evidence adduced at hearing, and the record as a whole, the following Findings of Fact are made: Petitioner is a Florida corporation headquartered in Boca Raton, Florida. William Kirschner is Petitioner's owner and chairman of the board. Stacey Interlandi is its President and principal broker. Petitioner is in the mortgage lending and brokerage business. All of the mortgage loans it makes are sold to investors. Petitioner held an active mortgage brokerage business registration (No. HB 592567137 00) issued pursuant to former Section 494.039, Florida Statutes, which was effective from September 1, 1990, until its expiration on August 31, 1992. 2/ It currently holds a mortgage brokerage business license (No. MBB 592567137 000) issued pursuant to Section 494.0031, Florida Statutes. The effective date of this license was September 1, 1992. The license expires on August 31, 1994. From October 1, 1989, through September 30, 1991, Petitioner acted as a seller or assignor of mortgage loans and/or a servicer of mortgage loans. Since October 1, 1991, Petitioner has made mortgage loans by advancing funds to mortgage loan applicants. With respect to each of these loans, however, the commitment to advance funds was made prior to October 1, 1991. Since October 1, 1991, Petitioner has sold or assigned mortgage loans to non-institutional investors, but for no monetary gain. Since October 1, 1991, Petitioner has serviced mortgage loans pursuant to agreements into which it entered prior to October 1, 1991. At no time has Petitioner been licensed as a mortgage lender pursuant to Chapter 494, Part III, Florida Statutes. On or about July 31, 1991, the Department sent the following written advisement concerning the revisions made by the 1991 Legislature to Chapter 494, Florida Statutes, to all registered mortgage brokerage businesses, including Petitioner: The 1991 Legislature revised Chapter 494, Florida Statutes, effective October 1, 1991. A copy of the new law is enclosed. Some of the changes which affect mortgage brokerage businesses are: A mortgage brokerage business may not make (fund) loans or service loans. Only mortgage lenders and correspondent mortgage lenders may make (fund) loans. Only mortgage lenders may service loans. A mortgage brokerage business may ONLY act as a mortgage broker. "Act as a mortgage broker" is defined as: "... for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly, accepting or offering to accept an application for a mortgage loan, soliciting or offering to solicit a mortgage loan on behalf of a borrower, or negotiating or offering to negotiate the terms or conditions of a mortgage loan on behalf of a lender." There are no net worth requirements for mortgage brokerage businesses. A principal broker designation form must be completed and maintained in the principal place of business and a branch broker designation form must be completed and maintained at each branch. The required forms will be sent to your office prior to October 1, 1991. To act as a mortgage broker, a licensed individual must be an associate of a licensed brokerage business and is prohibited from being an associate of more than one mortgage brokerage business. "Associate" is defined as: ". . . a person employed by or acting as an independent contractor for a mortgage brokerage business . . ." Under the new law, no fee or notification to the Department is required when a mortgage broker becomes an associate of your business. However, the license of each mortgage broker must be prominently displayed in the business office where the associate acts as a mortgage broker. Note: The Department will discontinue processing change of status requests under the current law effective August 1, 1991. Mortgage brokerage businesses in good standing which hold an active registration are eligible to apply for licensure as a mortgage lender pursuant to the saving clause. The applicant must have: For at least 12 months during the period of October 1, 1989, through September 30, 1991, engaged in the business of either acting as a seller or assignor of mortgage loans or as a servicer of mortgage loans, or both; Documented a minimum net worth of $25,000 in audited financial statements; Applied for licensure pursuant to the saving clause before January 1, 1992 and paid an application fee of $100. Should you meet the above requirements and wish to apply for licensure as a mortgage lender pursuant to the saving clause or if you wish to apply for licensure as a mortgage lender pursuant to Section 494.0061, please contact the Department for the appropriate application. These applications will be available in early September 1991. THESE CHANGES ARE EFFECTIVE OCTOBER 1, 1991. PLEASE REVIEW THE ENCLOSED COPY OF THE LAW CAREFULLY FOR OTHER CHANGES WHICH MAY AFFECT YOUR MORTGAGE BROKERAGE BUSINESS. As promised, application forms for licensure as a mortgage lender were available the first week of September, 1991. Petitioner requested such an application form on September 18, 1991. The requested form was mailed to Petitioner the following day. On December 31, 1991, Petitioner submitted a completed application for licensure as a mortgage lender pursuant to the "saving clause," Section 494.0065, Florida Statutes. The application was accompanied by an application fee of $100.00 and an audited financial statement reflecting that Petitioner had a net worth in excess of $25,000.00. At the time of the submission of its application, Petitioner had an unblemished disciplinary record.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Department enter a final order granting Petitioner's application for licensure as a mortgage lender pursuant to the "Saving Clause." DONE AND ENTERED in Tallahassee, Leon County, Florida, this 18th day of November, 1992. STUART M. LERNER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 18th day of November, 1992. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 92-4313 The following are the Hearing Officer's specific rulings on the findings of facts proposed by the Department: 1-7. Accepted and incorporated in substance, although not necessarily repeated verbatim, in this Recommended Order. 8. Rejected because it is more in the nature of a statement of the law, albeit an accurate one, than a finding of fact. 9-12. Accepted and incorporated in substance. 13. Rejected because it is more in the nature of a statement of the law, albeit an accurate one, than a finding of fact. 14-15. Accepted and incorporated in substance. 16. Rejected because it would add only unnecessary detail to the factual findings made by the Hearing Officer. 17-21. Accepted and incorporated in substance. 22. Rejected because it is not supported by persuasive competent substantial evidence. 24 6/-39. Rejected because they would add only unnecessary detail to the factual findings made by the Hearing Officer. 40. Rejected because, even if true, it would have no bearing on the outcome of the instant case.
The Issue Whether the application of the Respondent Melvin Haber for a mortgage broker's license should be approved or denied.
Findings Of Fact Respondent Melvin Haber applied for registration as a mortgage broker by filing an application for registration as a mortgage broker on December 20, 1976. On January 14, 1977, Petitioner issued to Respondent its Notice of Intent to Deny Respondent's Application for registration as a mortgage broker. The reasons for such denial were set forth in an accompanying document entitled "Administrative Charges and Complaint." Petitioner Division of Finance had determined that Respondent Melvin Haber did not meet the proper qualifications necessary to be licensed as a mortgage broker and that he had, through Guardian Mortgage and Investment Corporation, charged and received fees and commissions in excess of the maximum allowable fees or commissions provided by the Florida Statutes; and although he had stated otherwise on his application, Respondent in fact had been charged in a pending lawsuit with fraudulent and dishonest dealings; and had demonstrated a course of conduct which was negligent and or incompetent in the performance of acts for which he was required to hold a license. By letter dated January 19, 1977, to Mr. Joseph Ehrlich of the Comptroller's Office, Tallahassee, Florida, Petitioner received a request from the Respondent Melvin J. Haber in which he acknowledged receipt of his rejection for mortgage broker's license and stated, "I received notice today of my rejection for my mortgage broker's license. I would, therefore, withdraw my application and re- quest return of $75.00 as I will not answer the rejection as I can't afford an attorney at this time." A Special Appearance to Dismiss Complaint was entered on February 11, 1977. The grounds are as follows: "1. The Department of Banking and Finance does not have jurisdiction over this Respondent. There is no jurisdiction in any administrative proceeding over this Respondent. There is no pending application for any mortgage broker's license by this Respondent. The application originally filed for the mortgage broker's license was withdrawn on January 19, 1977. A copy of the letter withdrawing application is attached hereto as Exhibit A. The proceedings are moot and would serve no useful purpose. Permitting this tribunal to proceed on a non-existent request for broker's license would deny to the Respondent due process of law, equal protection of the law, and his rights under the State and Federal Constitutions applicable thereto." On March 4, 1977, the Division of Administrative Hearings received a letter from Eugene J. Cella, Assistant General Counsel, Office of the Comptroller, State of Florida, requesting a hearing in this cause be set at the earliest practical date, and enclosed in the letter requesting a hearing was a copy of the Division of Finance's Administrative Complaint and a copy of the Respondent's Special Appearance to Dismiss the Complaint. A hearing was set for April 22, 1977, by notice of hearing dated March 30, 1977. A letter was sent by Irwin J. Block, Esquire, informing the attorney for the Petitioner that the Respondent "intends to permit the matter to proceed solely upon the written Special Appearance to Dismiss Complaint heretofore filed." Evidence was submitted to show that between May 29, 1973 and continuing through November 25, 1976, Guardian Mortgage and Investment Corporation and Melvin Haber as Secretary/Treasurer charged and received fees and commissions in excess of the maximum allowed fees or commissions in violation of the Florida Statutes and the Florida Administrative Code. Respondent's application for registration as a mortgage broker indicated that Petitioner was not named in a pending lawsuit that charged him with any fraudulent or dishonest dealings. However, on August 5, 1976, a suit was filed in Dade County, Florida, which charged the Petitioner and others with fraud in violation of the Florida Securities Law. The application was filed by Respondent, was processed by Petitioner and a Notice of Intent to Deny Respondent's Application for Registration was filed together with Administrative Charges and Complaint. The Division of Administrative Hearings has jurisdiction upon request of a party for a hearing once an application has been received and the Division has investigated and fully considered the application and issued its Notice of Intent to Deny and filed a Complaint on the applicant. In this cause the question of whether the applicant is entitled to a refund of fees also must be resolved. An orderly procedure to finalize the resolution of the issues is desirable and necessary. The Proposed Order filed by the Petitioner has been examined and considered by the Hearing Officer in the preparation of this order.
Recommendation Deny the application of applicant Melvin Haber for a mortgage broker's license. Refund the Seventy-Five Dollar ($75.00) fee Respondent paid upon filing the application. DONE and ORDERED this 31st day of May, 1977, in Tallahassee, Florida. DELPHENE C. STRICKLAND Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Richard E. Gentry, Esquire Assistant General Counsel Office of the Comptroller Legal Annex Tallahassee, Florida 32304 Irwin J. Block, Esquire Fine, Jacobson, Block, Goldberg & Semet, P.A. 2401 Douglas Road Miami, Florida 33145
The Issue The Respondents have been charged with multiple violations of Chapter 494, (1987), the Florida Mortgage Brokerage Act, and administrative rules promulgated pursuant to the act. The violations, described in an amended administrative complaint dated April 16, 1990, are as follows: Rule 3D-40.006(5), F.A.C.: Respondents failed to issue a statement signed by both parties, when receiving a deposit on a mortgage loan, regarding disposition of the deposit and other matters. Section 494.08(10), F.S. and Rule 3D-40.091(2), F.A.C.: Respondents failed to provide a written statement with a summary of limits and conditions for recovery from the Mortgage Broker Guaranty Fund. Section 494.055(1)(b), F.S. and Rule 3D-40.008(1), F.A.C.: Respondents assessed fees for credit reports, phone calls, appraisals and courier services, which fees were not supported by the files. Section 494.055(1)(0), F.S. and Rule 3D-40.006(4), F.A.C.: The department had to issue a subpoena for compensation records. Section 494.055(1)(g) and (p), and Section 494.08(5), F.S.: Borrowers were required to pay higher closing costs than were disclosed on the good faith estimate form. Section 494.08(5), F.S.: Respondents failed to secure executed modified mortgage loan applications from the borrowers or to return excess monies to the borrowers. Section 494.08(5), F.S. and Rule 3D-40.091(1), F.A.C.: Respondents accepted deposits from loan applicants but failed to obtain executed mortgage broker agreements which would disclose the cost of the loans. Sections 494.055(1)(b) and (g), and Sections 494.093(3)(a), (b), (c), and (4), F.S.: Respondents failed to disclose that they would retain both origination fees and discount points as their compensation, and failed to disclose compensation received from the lender in addition to brokerage fees assessed the borrowers on the closing statements. Section 494.055(1)(b), F.S., Section 494.08(5), F.S. and Sections 494.093(3)(a), (b), (c) and (4), F.S.: Respondents collected a servicing release fee from the borrowers when the Respondents were not the lender, and failed to disclose the collection. Section 494.055(1)(e), F.S. and Rule 3D-40.006(b)(a), F.A.C.: Respondents failed to maintain an escrow account.
Findings Of Fact Inlet Mortgage Company, Ltd. ("IMC") is a mortgage brokerage business operating under license #HB65002147500. Its place of business is 700 Virginia Avenue, Suite 105, Ft. Pierce, Florida 34982. John Davis is the principal mortgage broker of Respondent IMC, operating under license #HA246700273. He has been licensed in Florida since approximately 1987, and opened his business in February 1988. As authorized by Section 494.065(1), F.S. (1987), the Department of Banking and Finance ("department") conducted an examination of the affairs of the Respondents for the time period February 1988 through June 1, 1988. The examination was completed on July 5, 1988, with a written report. At the time of the examination Respondents had closed only four loans and had another six in progress. The audit was conducted because a loan processor working for IMC had applied for her mortgage broker license, and her application seemed to imply that she was already practicing mortgage brokering. The audit cleared up this question and the processor was not found to be operating improperly. However, Timothy Wheaton, the department examiner, found other violations by IMC. When an audit or review is conducted by the department, the agency staff first interviews the person in charge to explain the review and to learn about the company. The staff then looks at the licenses, reviews files of closed and active loans, and examines books and accounts, payroll records, and the like. Generally, a sampling of loan files is selected from the broker's loan log, but in this first review all loans were reviewed, as so few existed. The staff writes a preliminary report and conducts an exit interview to let the broker know its findings. Later, a formal report is completed and provided to the broker, who has thirty days to respond. Timothy Wheaton conducted his review of IMC and John Davis at the company office in Ft. Pierce on June 3, 1988 and June 7, 1988. At some point on June 3rd, Wheaton was reviewing compensation records to determine how the broker, his partner and the loan processor were paid. Davis had checkbooks available, but the accountant had not prepared his books as the office had just opened. Wheaton had questions as to whether the checkbooks were all that was available; when he asked for the payroll records, Davis told him he would have to subpoena them. Wheaton returned on Monday with a subpoena and was given the same records as before. Davis admits that he made the demand for the subpoena. He was piqued because he was very busy when the audit staff arrived, and when he suggested they return later, he felt they wrongfully impugned his motives and accused him of hiding something. Respondent Davis has admitted to several "technical" violations or oversights in the loan files at the time of the first review. A summary of the limits and conditions of recovery from the Mortgage Brokerage Guaranty Fund was not being provided, but has been provided since the first audit. Deposits for credit report, appraisal fees and other costs were collected from the borrowers, but the files did not include a statement, signed by the borrowers, describing disposition of the funds in the event that the loan was not consummated, or the term of the agreement. After the first audit Davis has provided such a form statement and has included it in each file. On three closed loans, and one that was still pending, the files did not include documentation to support minimal (i.e., $25.00, $10.00, $6.56) fees for phone calls and courier fees, or fees were collected which exceeded the documentation in the file. Davis explained that these are charges made by the closing attorney, and the files now document those expenses. The difference between what was collected for a credit report and what was spent was returned to the borrower. (For example, $20.30 was returned to borrower, G. Stewart). In three loans closed at the time of the first audit, Davis and IMC received as compensation both the origination fee and a portion of the discount points. In the McCurdy loan, IMC received its 1 percent origination fee ($600.00), plus one half of the 1 percent discount fee ($300.00). In the Alexander loan, IMC received its 1 percent origination fee ($469.00), plus a .75 percent discount fee ($351.75). In the Stewart loan, IMC received its 1 percent origination fee ($612.00), plus 1/2 percent discount fee ($306.00). In each case, the Good Faith Estimate form provided to the borrowers disclosed the fees separately and did not break out which portion of the loan discount would be paid to the lender and which portion would be paid to IMC. The origination fee is sometimes called the broker's fee, although some banks also collect the fee when a mortgage broker is not involved. Discount points are a one-time payment to a lender to increase its yield on the loan. They are a percentage of the loan, paid up front, to reduce the interest rate over the term of the loan. These are distinctly different forms of charges to the borrower. Davis claims that he explained orally to each borrower how much compensation he would receive. The borrowers do not remember the specifics of that explanation, but rather consider the total origination fee and discount fee as their cost of the loan. They knew that the broker was going to be compensated for his services and understood that compensation would come from those fees in some unspecified manner. Davis claims that he checked with some lenders who told him that it was standard practice for part of the broker's compensation to be called a "discount" fee. He considered it a tax advantage to the borrower, as discount fees could be deductible, just as interest is deductible. During the audit, Davis discussed his compensation practice with the agency staff, who explained that, whatever it is called, the broker's compensation had to be fully disclosed to the borrower at the time of application on the Good Faith Estimate form. Between June 3rd and June 7th, Davis attempted to redisclose his compensation to the borrowers, but this resulted in unsigned disclosure forms in the file when the agency review staff returned on June 7th to complete the audit. At the time of the first audit, Davis and IMC maintained an escrow account for the deposits received from applicant/borrowers for audit reports, appraisal fees and other costs. Davis later closed his escrow account because he felt it was costing him money and because he did not consider the funds he received at the time of application to be escrow deposits. In most cases, the credit report and appraisal and other relevant services were ordered the same day as the loan application. Whether the loan was eventually consummated, the customer was still responsible for paying the charge if the services were provided. This is disclosed in a statement at the bottom of the Good Faith Estimate form and in a separate "Notice to Borrower", signed by the applicant which, since the first audit, is maintained in the loan file. According to the Notice to Borrower, if the loan is cancelled or denied, and the services have not been performed, the funds will be returned to the customer, less any cancellation charge by the appraisal or credit firm. These funds are deposits. When the escrow account was closed, Davis deposited the money for appraisals and credit report in his operating account. After services were rendered and an invoice received, he would pay the bill. Barbara Janet (Jan) Hutchersien, conducted the department's second audit of IMC in January 1990. This review covered the period from July 1, 1988 through December 31, 1989. John Davis provided the boxes of loans and bank records and loan log. The auditor used the logs to review a sample of loans from each lender with whom IMC works. The bank records were used to trace funds reflected in the loan files. Ms. Hutchersien found, and noted in her examination report, that no escrow account was maintained, although deposits were received in a sample of loan applications. In the Fishman loan, which closed on 4/11/89, closing costs were disclosed by IMC as $1,822.00 on the Good Faith Estimate form dated 1/12/89, yet those costs actually amounted to $2,075.00, disclosed at closing on the U.S. Housing and Urban Development (HUD) Settlement form, for a difference of $253.00. In determining consistency between a good faith estimate and actual closing costs, the agency staff looks at items which are predeterminable costs. In the Fishman case, the estimate for survey was $225.00, but the actual cost was $400.00, due, according to John Davis, to an oddly-shaped lot. In two loans financed by Greentree Mortgage Corporation, IMC received a substantial fee from the lender, which fee was not disclosed on the Good Faith Estimate form, on the HUD Settlement form, or anywhere in writing to the borrower. File documents call these fees "discount for pricing". In the Meslin loan, closed on 8/11/89, the fee from the lender to broker was $432.00; in the Krueger loan, closed on 7/21/89, the payment was $820.00. These paybacks are called "par plus pricing", a relatively new (within the last five years) form of loan pricing. Par plus pricing allows a borrower who does not wish to pay cash at closing, but who would qualify for a higher interest rate in terms of monthly payments, to avoid paying discount points fee at closing. Instead, the lender pays the points to the broker, and the borrower gets a higher interest rate. This is contrasted with the discount point system where the borrower pays cash points at closing in return for a lower interest rate. Par plus pricing can work to the advantage to all parties: The borrower avoids a large cash outlay at closing, the lender enjoys a higher interest rate over the term of the loan, and the broker receives his money from the lender. The borrower, however, should understand his options, including the option to pay cash at closing for a lower interest rate. Davis did not disclose the payback from the lender in writing because that is the way he says he was told to handle the loan by Greentree's representative. Davis told the borrowers that he was getting his money from the lender. He did not, however, explain that the borrower would be paying a higher interest rate in return, and Roger Krueger did not understand why his loan was at 10 1/4 percent, rather than 9 3/4 percent, which he thought was the going rate at the time of closing. IMC also received funds from the lender in the Barnes loan, closed on 12/30/88. Cobb Financial Partners was the original lender, yet they paid IMC a service release fee ordinarily paid by one lender to another for release of servicing a loan. Although the fee from Cobb to IMC was not disclosed in writing to the borrowers, the Barnes' were told that the fee for IMC's services would come from the lender, rather from them. They were told, and it is disclosed on the Good Faith Estimate form, and on the HUD Settlement Form, that Cobb Partners Financial was paid $900.00 (1.25 percent loan discount) by the borrowers. Of this, $810.00 was returned by Cobb to IMC. John Davis concedes that Cobb, not IMC, was the lender and was not "comfortable" with how Cobb told him to handle his fee. He has not done business with Cobb since this loan and was simply trying to avoid having to charge his fee to Barnes, who had just arrived in town to become the newspaper editor. The borrowers who were the subject of the files in which the agency found violations generally did business with Davis and IMC because they thought he would get the best deal for them. They were financially unsophisticated and trusted him to represent them. They understood that he was being paid for his services and felt that he should be paid. Except for Mr. Krueger, they were generally satisfied with their mortgage rates. The mortgage broker's fiduciary responsibility is to the borrower, rather than the lender, although he must deal fairly and honestly with the lender. The service that the broker provides to the borrower is his knowledge and his ability to shop for the best product. Par plus pricing and other mechanisms by which the broker receives his fee in whole or part from the lender are not considered by the department to be a violation of standards governing the practice of mortgage brokerage, so long as the customer is fully apprised of his options and is informed of the role of those payments in the product or service they are receiving. The Barnes' and Kruegers clearly were not so apprised, nor does the record establish that the Meslins were informed, although they did not testify. Categorizing brokerage fees or compensation as "discount points" is patently misleading, as discount points are used to buy down an interest rate. When the points are diverted instead to the broker, the consumer does not receive the loan for which he has paid. John Davis admits certain technical violations, but unequivocally denies that he wilfully misled his customers or committed fraud. Since the second audit, he has restored his escrow account. He now discloses his compensation as brokers fees rather than discount points, and has learned how to disclose in writing the par plus pricing loans. In considering certain violations as "technical", and in recommending a penalty in this case, the undersigned has considered Respondents' willingness to correct the errors addressed by the department and Respondents' inexperience at the time of the first audit. Although he was involved in banking, insurance, and accounting, John Davis had not practiced mortgage brokering before moving to Florida and starting his business. In his early practice, as evidenced by his own testimony, he was willing to rely on the advice of lenders, rather than to seek guidance from his licensing authority. He misconceived his role as being jointly responsible to the borrowers and lenders with whom he worked, rather than a primary fiduciary duty to the borrowers, his clients. Although the concealment of compensation as discount points was a willful misrepresentation, the record establishes a pattern of ignorance, albeit inexcusable, rather than fraud.
Recommendation Based on the foregoing, it is hereby, RECOMMENDED That a Final Order be entered, finding that Respondents violated Sections 494.055(1)(e), (o), and (q), F.S. (1987); Sections 494.08(5) and (10), F.S. (1987); and Section 494.093(4), F.S. (1987), and imposing a penalty of $1,000.00 fine, and one year probation, with the conditions that Respondent Davis successfully complete a specified amount and type of professional short course work and undergo periodic review and supervision by the agency. DONE AND RECOMMENDED this 30th day of July, 1990, in Tallahassee, Leon County, Florida. MARY CLARK, 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 30th day of July, 1990. APPENDIX The following constitute specific rulings on the findings of fact proposed by the parties. Petitioner's Proposed Findings of Facts Rejected as unnecessary. Adopted in paragraphs 3 and 6. Adopted in paragraphs 5 and 6. Rejected as redundant. - 8. Rejected as unsupported by the weight of evidence except as found in paragraph 6. The department was required to obtain a subpoena due to Respondents' feigned or real refusal to produce certain records. Rejected as unnecessary. Adopted in substance in paragraph 13. Adopted in substance in paragraph 7. Adopted in substance in paragraph 7. - 18. Rejected as unnecessary. Adopted in summary in paragraph 8. Rejected as immaterial. The telephone charges were incurred by the closing agent, not Respondents. Rejected as unnecessary. Rejected as contrary to the weight of evidence. Rejected as unnecessary. Adopted in summary in paragraph 7. and Rejected as unnecessary and - 48. Adopted in summary in paragraph 8. 49. - 52. Adopted in summary in paragraph 14. Adopted in paragraph 15. Rejected as unnecessary. Adopted in paragraph 13. and Rejected as unnecessary. Adopted in paragraphs 16 and 20. 59 - 74. Adopted in summary in paragraphs 16-19. Rejected as unnecessary. The conclusion that the handling of "par plus pricing" was fraudulent is rejected as contrary to the weight of evidence. 77. - 81. Adopted in summary in paragraphs 20 and 21. 82. Rejected as contrary to the weight of evidence. 83. Adopted in paragraphs 10 and 12. 84. Adopted in paragraph 10. 85. - 89. Rejected as unnecessary. 90. Adopted in paragraph 22. 91. - 93. Rejected as unnecessary. 94. Adopted in part in paragraph 26. Respondent's Proposed Findings of Fact Adopted in paragraphs 1 and 2. Rejected as unnecessary. Adopted in paragraph 6. Rejected as contrary to the weight of evidence. Adopted in paragraph 3. Adopted in paragraph 13. - 9. Adopted in summary in paragraph 7. Rejected as contrary to the evidence. Liability for payment occurs when the service is rendered, as reflected in Respondent's "Notice to Borrower". Rejected as unnecessary. Adopted in paragraph 12. Rejected as unnecessary and immaterial. Rejected as unnecessary. - 19. Adopted in summary in paragraph 8. 20. - 22. Rejected as unnecessary. Adopted in paragraph 14. Adopted in substance in paragraph 13. Adopted in substance in paragraph 16. Adopted in substance in paragraph 19. Rejected as unnecessary. - 29. Rejected as contrary to the weight of evidence. Included in conclusion of law number 9. Rejected as immaterial. - 33. Rejected as contrary to the evidence. The terms implied that the loans would be at a discounted rate, but were not, because the "discount" (partial) went to the broker. Adopted in paragraphs 19 and 20. Rejected as immaterial. COPIES FURNISHED: Elise M. Greenbaum, Esquire Office of the Comptroller 400 W. Robinson St., Suite 501 Orlando, FL 32801 John O. Williams, Esquire Renaissance Square 1343 East Tennessee St. Tallahassee, FL 32308 Hon. Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, FL 32399-0350 William G. Reeves General Counsel Dept. of Banking & Finance The Capitol Plaza Level, Rm. 1302 Tallahassee, FL 32399-0350 =================================================================
Findings Of Fact At no time pertinent to the issues herein was Rebecca Love Henderson licensed by the State of Florida, Department of Banking and Finance as a mortgage broker under the provisions of Chapter 494, Florida Statutes. The Department of Banking and Finance is the state agency responsible for licensing and supervising mortgage brokers and associated persons in this state. In early January, 1987, Ms. Henderson began working for MAC, a mortgage banking concern, at its office located at 4045 Tamiami Trail, Pt. Charlotte, Florida. In March, 1987, Carol May Wilson went to MAC's office to see about getting the adjustable rate mortgage then currently existing on her residence changed to a fixed rate mortgage, because her research indicated that MAC had the best mortgage rates available at the time. Ms. Wilson entered the office without an appointment and spoke to the receptionist who called Ms. Henderson to speak with her. On that visit, Ms. Henderson gave Ms. Wilson a pamphlet which contained the then existing mortgage rates and discussed with her the terms and rates, the amount of payment required both as a down payment and as monthly payments, and similar matters. After that discussion, Ms. Wilson left with the pamphlet without making application. After discussing what she had been told by Ms. Henderson with her husband, Ms. Wilson and her husband went back to MAC's office where they again spoke with Ms. Henderson. In this latter conversation, they again discussed the applicable rates and filled out an application for a mortgage. At that time they also paid a $300.00 fee to cover the cost of an appraisal on their property, and several other costs and fees. At this time, Ms. Henderson helped the Wilsons fill out the form and, in addition, prepared and delivered to them a "Good Faith Estimate", and discussed the appraisal costs, points, and the need for a termite inspection. On this second visit, Ms. Henderson gave the Wilsons a rate option form which they and she signed, which locked in the interest rate at 8 1/2 percent. She also gave them a receipt for the appraisal fee they had paid. Both forms reflect Ms. Henderson as a "loan officer." The Wilsons went to MAC on their own. They had not been solicited by Ms. Henderson or any other employee of the firm but came in on the basis of the firm's advertisements. While in the facility, they noticed a display board which indicated the current rates and points being charged and the rate and points reflected on that board were those charged by Ms. Henderson on behalf of MAC. She did not negotiate, or attempt to negotiate any change to either the rates or the points. During her conversation, Ms. Henderson explained the various types of loans available and the various options available but did not urge one over the other. At least one of the forms, the Good Faith Estimate form, was mailed to the Wilsons sometime after their visit and was sent with a cover letter from another employee of the firm. Neither Mr. nor Mrs. Wilson asked to speak with anyone else during either of their visits to MAC. Consequently, they do not know whether they could have done so had they desired. The documentation they received from Ms. Henderson appeared complete and they were satisfied with the service on their mortgage. At some time in early 1987, Donald R. Mullin, accompanied by his wife, went to MAC to refinance his mortgage and on that visit, spoke with Ms. Henderson. Mr. Mullin had previously filled out a loan application form which he had received from Floyd Henderson, also of MAC. Mr. Mullin was referred to MAC by a friend at work. He was not solicited by Respondent. During this meeting, the Mullins presented the forms they had filled out and paid the various appraisal and other fees required. The receipt given them by Ms. Henderson for these fees reflects her as a loan officer. At this meeting, Ms. Henderson did not indicate whether the loan would be approved or not. The only point for negotiation during the Mullin interview was with regard to the appraisal fee. Mr. Mullin had just had an appraisal done for his newly acquired mortgage and did not feel it necessary to have another one. During their conversation, Ms. Henderson agreed to see if the prior appraisal could be used and if so, the fee would be refunded. In fact it was refunded. The loan did not close because Mr. Mullin was not considered to have sufficient income to support the payments. However, at no time during their discussions, did Ms. Henderson make any commitments on behalf of MAC, nor did she offer to change points or rates. Herbert Roshkind and his wife were referred to MAC by their real estate broker and dealt exclusively with Ms. Henderson in all their dealings with the company. She gave them all the specifics relating to their potential loan, including interest rates. She explained that the rates varied weekly and that they could either lock in or not, as they chose. She also discussed the relevant fees for appraisal, credit report, etc., which she made clear were not refundable, and discussed the difference between a fixed rate and a variable rate mortgage. She also advised them of the various terms a loan could be taken for Their loan was complicated to the extent that Mr. Roshkind was retired. His income came from real estate and other investments which could not easily be verified. As a result, Mr. Roshkind was contacted frequently by Ms. Henderson in the course of preparation of the loan documents, requesting additional information. On one occasion, she came to his home to get additional information and to get his signature on a document just prior to closing. Ms. Henderson did not help the Roshkinds fill out their application. She gave them a package which they took home and filled out themselves. In the package was a list of 19 items which would be required to support the application, and her repeated requests for information related to these items. Mr. Roshkind at no time asked to speak with anyone else. He feels, however, that had he desired to do so, he could have. The rates for mortgages were posted on a board in the office and at no time did Ms. Henderson offer to negotiate either rates or points. Further, from the time the Roshkinds first came in to pick up the application package until they returned it to the MAC office filled in, they received no solicitation or any contact at all from Ms. Henderson or MAC. When the loan was finally approved, in May, 1987, they received a commitment form that was signed by George Emery on behalf of MAC but which was delivered by Ms. Henderson. Kimberly Lynn Johnson worked for MAC from May, 1986 to August, 1986 and during that period became familiar with Ms. Henderson and her father, Floyd D. Henderson, one of the principals in the company. During the period she worked there, the office was run by C. F. Cline and Mr. Henderson. Ms. Johnson started work as a secretary-receptionist and progressed up through clerking duties until she was trained to act as a loan processor. At that point, though she was not licensed as a mortgage broker, she began accepting loan applications and dealing with prospective clients just as did Ms. Henderson. When she took loan applications, she would receive the form from the prospective borrower, get the information required, and turn it over to a processor who would send out requests for the verifications required, do or order the credit report, and order an appraisal. At no time during this period was she a licensed mortgage broker nor did she know she had to be such to legally do what she was doing. She found this out only when she began studying for the broker's test approximately a year later. During the period Ms. Johnson worked at MAC, Ms. Henderson was a loan officer and also worked for Monroe Title Company. It was during this period of time, Ms. Johnson observed Ms. Henderson doing much the same type of thing she was doing involving the interviewing of applicants, and discussing with them the application forms, rates, points, fees, and the like, as well. This same type of activity was also done by other loan officers who, as she understood it, were licensed, and who, in addition to their in-office work, also visited builders, realtors, and other possible sources of business for the firm. Ms. Johnson recalls quite clearly that Ms. Henderson was engaged in this outside activity as well. On numerous occasions as she left the office, Ms. Henderson would advise Ms. Johnson where she was going, or her name would appear on the list of builders to be seen by herself and other loan officers. When Ms. Johnson first started with the company, walk-in clients would be referred to a loan officer on a rotating basis. Ms. Henderson and other, licensed, loan officers were on that list for rotation. When she served as a loan officer, Ms. Johnson would stay with her client all the way from application through closing and on almost every occasion, once trained, she would complete the process without any help from a licensed loan officer. The same applied to Ms. Henderson. Ms. Johnson was told by Mr. Cline that it was all right for her to act as a loan officer without a license as a mortgage broker as long as she didn't take a bonus or commission or did not solicit outside the office. Ms. Johnson was paid an hourly wage only. She does not know how Ms. Henderson was paid nor was any evidence admitted to define that. However, considering the fact that Mr. Moulin and Mr. Stillweaa both complained because their income was reduced as a result of Ms. Henderson's grabbing clients and her sharing of Moulin's builder clients, it can be inferred she was, at least in part, paid by commission. Based on representations made by Mr. Cline, Ms. Johnson continued working without question until an inspector from the Department came in for an audit. At this point, she figured that something was wrong and subsequently found that only a loan officer in a commercial bank can take loan applications without being licensed as a mortgage broker. MAC was listed on it's business cards as a mortgage banker. Though Ms. Henderson indicated from time to time she was going out to visit with builders, Ms. Johnson never saw her in negotiations with either builders or realtors. At the time in issue, Ms. Henderson's mother was terminally ill and had to be taken to the hospital and doctor's office on a regular basis. Ms. Johnson agrees it is possible Ms. Henderson could have been performing that service when ostensibly out on a call, but specifically recalls her saying she was, from time to time, going to visit a builder or realtor. She cannot say with certainty what Ms. Henderson did; only what she said she was going to do. Considering the state of the evidence, it is clear that Ms. Henderson did visit builders, and notwithstanding her assertion she may have gone there merely to drop off advertising materials, the likelihood is, and it is so found, she went for the purpose of soliciting business. It also is clear that with the exception of Ms. Henderson and Ms. Johnson, the individuals who processed applications and met with clients were properly licensed as mortgage brokers and were identified as loan officers. Both Mr. Cline and Mr. Henderson were licensed mortgage brokers and supervised, on a routine basis, the files of the other loan officers including Ms. Henderson and Ms. Johnson. In addition, either Mr. Cline or Mr. Henderson was available for consultation if necessary at all times, as was Mr. Gerber, the underwriter. All loans written by the loan officers, licensed or otherwise, had to conform to the same standards. Subsequent to leaving MAC, Ms. Johnson applied for and was, after testing, issued a license as a mortgage broker in Florida by the Department. This occurred after she was identified as operating as an unlicensed broker similar to Ms. Henderson. She, however, was never cited with a Cease and Desist Order. Mr. Kenneth Moulin worked for MAC from December, 1985 through April, 1987 and, along with his family, owned a 20% interest in the stock of the company. He worked in the Pt. Charlotte office along with Ms. Henderson. His primary job as a licensed loan officer and mortgage broker, was to solicit builders and realtors to refer potential customers. Mr. Moulin was licensed as a mortgage broker in February, 1986. Prior to getting his license, he was not allowed to negotiate with clients or to solicit business from builders or realtors. Because he had been previously engaged in the construction business, the majority of his contacts were in the building industry and he had a list of builders he regularly visited. Shortly after Ms. Henderson came to work at MAC, Mr. Cline gave half of the builders on Mr. Moulin's list to her as her source list. This had a negative impact on Moulin's income since at about the same time, his salary was discontinued and his compensation was based solely on commission, doubled in rate at that time. 24 Once half of Moulin's builders list was given to Ms. Henderson, she began calling on them, and he was told by many friends in the building industry, that she was soliciting them for referrals. In March, 1987, Mr. Moulin and Mr. Stillwell, another loan officer, requested of Mr. Cline a different split of the walk-in traffic because Ms. Henderson, whose office was right near the entrance, was pulling in as many of the walk-ins as she could to the exclusion of the other loan officers. After this complaint, Cline arranged a rotating schedule for walk-ins so that each loan officer would get a proportionate share of opportunity. In Mr. Moulin's opinion, based on his observations of Ms. Henderson and her activities, she, though unlicensed, did much the same type of work he did under his license. She solicited business from builders and realtors outside the office and handled walk-in clients from application through closing. He was not allowed to do any of this prior to being licensed, and he stands by this assertion notwithstanding the fact that numerous forms introduced by Ms. Henderson reflect that prior to the date of his license, he was referred to as loan officer. He explains this as occurring when Cline put his name on forms prepared for other people's loans so that he could get credit for them. Considering the nature of the operation as it appears from the general line of testimony, it is found that this did happen. Mr. Moulin initiated the investigation which culminated in this hearing because he felt he was being unfairly treated when cases were taken from him and he did not receive the commissions to which he felt he was entitled. In his letter to the Department, he identified Ms. Henderson as an "unlicensed mortgage solicitor." This appears to be an accurate description. Marcus Combs, testifying for Ms. Henderson, was sent to MAC by a real estate salesman whose broker was reportedly a major owner of the company. As did the others, Mr. Combs observed the rates and points posted on a board in the office lobby and was referred to Ms. Henderson, who he did not previously know, by the receptionist. During their initial interview, Ms. Henderson discussed the items required for the application and gave him a forms package. At this time, Ms. Henderson was in training and there was a man present throughout the meeting as an observer. At no time during their relationship, did Ms. Henderson attempt to negotiate rates or points, nor did she attempt to sell a particular type of loan. At no time did she solicit Mr. Combs to apply for a mortgage and, because he was having difficulty qualifying for a loan, suggested he look elsewhere for the mortgage. She actually referred him to another lending institution from which he ultimately got his mortgage.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that a Final Order be issued by the Department sustaining the Cease and Desist Order entered herein and the denial of Ms. Henderson's application for registration as an associated person with Triple Check Financial Services, Inc. RECOMMENDED this 24th day of October, 1989, in Tallahassee, Florida. ARNOLD H. POLLOCK 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 24th day of October. 1989. APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 89-3203 and 89-3769 The following constitutes my specific rulings pursuant to S 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the partiesto this case. For the Department: Accepted and incorporated herein. & 3. Accepted and incorporated herein. 4. - 8. Accepted. Accepted and incorporated herein. - 12. Accepted. Accepted and incorporated herein. - 17. Accepted and incorporated herein. Accepted. Accepted and incorporated herein. - 23. Accepted and incorporated herein. Either hearsay evidence or not supported by the record. Accepted. & 27. Accepted and incorporated herein. 28. - 30. Accepted. 31. - 34. Accepted and incorporated herein. 35. - 43. Accepted and incorporated herein. 44. - 52. Accepted and incorporated herein. For Ms. Henderson: Not a Finding of Fact but a statement of legal authority. Not a Finding of Fact, (except as to dates of alleged infractions), but a Conclusion of Law. Not a Finding of Fact. Not a Finding of Fact but a comment on the Department's legal basis for filing. Not a Finding of Fact. 5a. - 5e. Not Findings of Fact but comments on the sufficiency of the evidence. & 7. Not a Finding of Fact but a comment on the sufficiency of the evidence. Accepted and incorporated herein. Not a Finding of Fact but a comment on the state of the Department's evidence. - 12. Accepted and incorporated herein, except to the second sentence of 12 which is unsupported. First and second sentences accepted. Third sentence is rejected as contra to the weight of the evidence. Accepted as to the issue of signing of statements but rejected as to the allegation of inaccuracy. COPIES FURNISHED: Robert K. Good, Esquire Office of the Comptroller 400 W. Robinson Street, Suite 501 Orlando, Florida 32801 Elise M. Greenbaum, Esquire Office of the Comptroller 400 W. Robinson Street, Suite 501 Orlando, Florida 32801 Rebecca Love Henderson 5635 Bryner Drive Jacksonville, Florida 32244 Hon. Gerald Lewis Comptroller State of Florida The Capitol Tallahassee, Florida 32399-0350 Charles L. Stutts, Esquire General Counsel Department of Banking and Finance The Capitol Plaza Level, Room 1302 Tallahassee, Florida 32399 =================================================================
The Issue Whether Petitioner has defaulted on student loans and, if so, the principal amounts due on the loans, as well as accrued interest, and collection costs. Whether Petitioner's employer should be required to withhold payments from Petitioner's pay pursuant to Section 112.175, Florida Statutes.
Findings Of Fact Petitioner is Johnny Martin. Petitioner's mailing address is 11431 Quailhollow Drive, Jacksonville, Florida. Respondent is the Florida Department of Education. The Department's business address is 325 West Gaines Street, Tallahassee, Florida. The Department is a guarantee agency which holds the loan account in question after paying the claim of the lender on July 28, 1994. All loans in this proceeding are Supplemental Loan(s) for Students (SLS), also known as Florida Auxiliary Loans. SLS loans are not subsidized by the federal government. Therefore, the federal government has no responsibility for payment of interest during periods of deferment or forbearance and there is no grace period for SLS loans. During any period of deferment or forbearance, such as when a borrower is unemployed, the borrower's repayment obligation may be suspended; however, interest accrues to the account for which the borrower is responsible. When the deferment or forbearance ends, the outstanding interest is capitalized on the loan. SLS loans accrue interest at the rate of 12 percent per year from the date of disbursement. Persons eligible to receive SLS loans include parents of dependent undergraduate students. As set forth below, Petitioner, as parent of an eligible dependent undergraduate student, received four SLS loans. Loan 1: Petitioner applied for and received Loan A000000442 in 1983. This loan, in the amount of $3,000.00, will be referred to as Loan 1. Although the Department is the guarantor of Loan 1, the lender never declared the loan in default or sold it to the Department. Therefore, Loan 1 is not at issue in this proceeding. Loan 2: Petitioner applied for and received Loan A000001064 in 1984. This loan, in the amount of $3,000.00, will be referred to as Loan 2. The lender declared Petitioner in default and sold Loan 2 to the Department as guarantor. Because Loan 2 was in repayment status for more than seven years, exclusive of suspensions of the repayment period, Loan 2 was discharged in bankruptcy. Therefore, Loan 2 is not at issue in this proceeding. Loan 3: Petitioner applied for and received Loan A000003767 in 1985. This loan, in the amount of $3,000.00, will be referred to as Loan 3. The lender declared Petitioner in default and transferred Loan 3 to the Department as guarantor. Because Loan 3 was in repayment status for more than seven years, exclusive of suspensions of the repayment period, Loan 3 was discharged in bankruptcy. Therefore, Loan 3 is not at issue in this proceeding. Loan 4: On or about August 5, 1986, Petitioner executed an Auxiliary (SLS) Loan application on behalf of his daughter, Kelly Aleta Martin, an eligible dependent undergraduate student. On or about September 8, 1986, Petitioner executed the promissory note for this loan. This SLS Loan was in the amount of $3,000.00. This loan was disbursed on or about October 9, 1986. The Department guaranteed this loan. Throughout exhibits presented by the Department, the loan number for this SLS Loan is A000007005; however, for convenience, herein this loan will be referred to as Loan 4. Loan 4 is the only loan at issue in this proceeding. Petitioner's first payment for Loan 4 was due October 25, 1986. The payment due date later changed to the 20th of each month. Petitioner's last payment to the lender was made on July 17, 1990. However, as Petitioner was behind in his payments, this payment was applied to the payment due May 20, 1990. The Petitioner is considered in repayment status for 44 months, from October 1986 through May 1990. A borrower is not considered in repayment status during any suspension of the repayment period, including any period of forbearance or deferment. Petitioner applied for and received an unemployment deferment on September 18, 1990. This deferment was for the period from July 21, 1990 through December 28, 1990. Because Petitioner was not current in his payments, he requested and received a forbearance from the lender for the payments due on June 20 and July 20, 1990, in order to qualify for the unemployment deferment. The forbearance together with the unemployment deferment brought Petitioner current in his payments; however, they suspended the repayment period for Loan 4 for seven months (two months for the forbearance and five months for the deferment). Petitioner failed to make any payments following the deferment period ending December 28, 1990. Petitioner applied for and received an unemployment deferment on April 23, 1991. This deferment was for the period from February 24 through July 23, 1991. Because Petitioner failed to make any payments following the deferment ending December 28, 1990, he again requested and received a forbearance for the payments due January 20 and February 20, 1991. The forbearance and unemployment deferment brought Petitioner current in his payments; however, they again suspended the repayment period for Loan 4 by another seven months (two months for the forbearance and five months for the deferment). Following Petitioner's unemployment deferment ending July 1991, he failed to resume payment to the lender beginning August 20, 1990. Thereafter, the lender declared Petitioner in default and made application to the Department for claim payment based on the guarantee. However, the Department refused to pay the lender's claim citing due diligence violations, and as a result, Petitioner is considered in repayment status from August 20, 1991 through April 20, 1992, or nine months, even though no payments were actually received by virtue of his Fresh Start Application. Petitioner submitted a Fresh Start Application to the lender dated May 13, 1992. This document reaffirmed the student loan obligation and, when received by the lender on May 19, 1992, reinstated the Department's guarantee of Loan 4. In an application dated May 24, 1992, Petitioner requested another unemployment deferment. The lender refused Petitioner's request for an unemployment deferment due to the fact that Petitioner was working at the time. However, the lender granted Petitioner a forbearance. This forbearance covered payments due from May 20 through December 20, 1992. Thereafter, Petitioner again requested and was granted forbearance of payments due through June 20, 1993. These forbearances, from May 20, 1992 through June 20, 1993, suspended the period Loan 4 is in repayment status by 14 months. Petitioner failed to resume payments beginning July 20, 1993, the final due date at default. In 1994, the lender declared Petitioner in default on Loan 4 and made application to the Department for claim payment based on the guarantee. The Department paid the default claim on Loan 4 on July 28, 1994. Although no payments were received from July 20, 1993 through July 20, 1994, or 13 months, Petitioner is considered in repayment status for that time because there was no forbearance or deferment in place. When the Department acquired Loan 4, Petitioner owed $2,195.68 in principal and $290.19 in accrued (claim) interest. These figures were capitalized by the Department and yield the figure of $2,484.18 in capitalized principal which is subject to interest at the rate of 12 percent per year. Beginning in 1995, Petitioner entered into a voluntary wage garnishment agreement with the Department. Under this agreement and through the period Petitioner was under the bankruptcy court's jurisdiction, a total of $383.95 was received by the Department and applied to Petitioner's account in accordance with Title 34, Code of Federal Regulations Section 682.404(f), relating to how borrower payments will be applied. The entire amount received was applied to outstanding interest. Prior to filing bankruptcy, Petitioner's Loan 4 was considered in repayment status from July 29, 1994 through January 5, 1995, during the time it was held by the Department. The Petitioner was credited for being in repayment status for five months, even though he made no payments. Additionally, Petitioner was credited for being in repayment status for 12 months in 1995, whether or not regular payments were received under Petitioner's voluntary wage garnishment agreement. Because Petitioner filed for bankruptcy prior to the January 20, 1996, the payment due date, the month of January 1996 cannot be counted as being in repayment status. Petitioner filed for Chapter 13 bankruptcy protection on January 11, 1996. The Department filed a proof of claim with the bankruptcy court for Loans 2, 3, and 4 in the principal amount of $5,571.91, the amount of capitalized principal due on the accounts. The Department filed with the court the claim of $5,647.02 due on the accounts through date of filing the case. See item 5 on page 2 of Department's Exhibit 5. This amount was the capitalized principal and interest due. On February 4, 1999, the United States Bankruptcy Court for the Middle District of Florida, Jacksonville Division, issued an "Order Discharging Debtor After Completion of Chapter 13 Plan" in Petitioner's case, number 96-00175-3F3. That order provides in pertinent part, "The debtor is discharged for all debts provided for by the plan or disallowed under 11 U.S.C. [Section] 502, except any debt . . . for a student loan or educational benefit overpayment as specified in 11 U.S.C.[Section]523(a)(8)." In 1996, Title 11 United States Code Section 523(a) provided in pertinent part: A discharge under . . . this title does not discharge an individual debtor from any debt-- for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an education benefit, scholarship or stipend, unless-- such loan, benefit, scholarship, or stipend overpayment first became due more than 7 years (exclusive of an applicable suspension of the repayment period) before the date of the filing of the petition . . . Pursuant to this order, Petitioner's debt to the Department for Loans 2 and 3 was discharged. The first payment for Loan 4 was due October 25, 1986. Petitioner filed for bankruptcy on January 11, 1996, nine days prior to the payment due date of January 20, 1996. There were 111 months from the month the first payment of Loan 4 was due through the month prior to the filing of bankruptcy (the month that bankruptcy was filed cannot be counted if the payment due date was after the date Petitioner filed for bankruptcy). Petitioner was in forbearance or deferment status for 28 months which suspends the period Loan 4 is considered in repayment status. Petitioner was in repayment status on Loan 4 for 83 months regardless of whether he actually made payments on the account. Therefore, Loan 4 was not discharged. Section 682.410(b)(2) of Title 34, Code of Federal Regulations, provides that the Department shall impose collection costs as follows: Collection charges. Whether or not provided for in the borrower's promissory note and subject to any limitation on the amount of those costs in that note, the guarantee agency shall charge a borrower an amount equal to reasonable costs incurred by the agency in collecting a loan on which the agency has paid a default or bankruptcy claim. These cost may include, but are not limited to, all attorneys fees, collection agency charges, and court costs. Except as provided in [Sections] 682.401(b)(27) and 682.405(b)(1)(iv), the amount charged borrower must equal the lesser of -- The amount the same borrower would be charged for the cost of collection under the formula in 34 CRF 30.60; or The amount the same borrower would be charged for the cost of collection in the loan was held by the U.S. Department of Education. The Department established that the amount of the annual collection cost mandated by Title 34 Code of Federal Regulations Section 682.410(b)(2) for the loan at issue in this proceeding should be calculated at least annually at the rate of 25 percent of the outstanding principal and accrued interest. Petitioner agreed to pay these costs in the application and promissory note he executed. Petitioner is employed by the Duval County School Board, a political subdivision of the State of Florida. As an employee of a political subdivision of the State of Florida, Petitioner is subject to the provisions of Section 112.175, Florida Statutes, and Chapter 28-40, Florida Administrative Code. These provisions pertain to employees of the State of Florida or its political subdivisions who have defaulted on an education loan made or guaranteed by the State of Florida. The Department notified Petitioner by letter dated August 13, 1999, that he had one or more student loans in default and offered him the opportunity to make voluntary payments on the loans. The letter also advised Petitioner that the Department would seek to make involuntary withholdings if he did not make voluntary payments. Petitioner elected to request the formal hearing which triggered this proceeding. As stated above, the capitalized principal due the Department for Loan 4 is $2,485.87. This amount reflects the principal due and the outstanding interest accrued on the account at the time the Department acquired the loan from the lender. All payments received by the Department were applied to outstanding interest which accrued on the account after the loan was bought by the Department, and no payment was applied to the capitalized principal. The capitalized principal accrues interest at the rate of 12 percent per year of $.82 per day. As of February 4, 1999, after taking into consideration the $383.95 received by the Department, the unpaid accrued interest for Loan 4 was $881.74. Pursuant to federal regulations collection costs assessed at the rate of 25 percent of principal and interest due as of February 4, 1999, were $867.08. Therefore, as of February 4, 1999, the total principal, interest, and collection costs due for Loan 4 totaled $4,234.69. Interest continues to accrue to the account as provided by law and collection costs may be reassessed as provided by law.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department enter a final order that adopts the findings of fact and conclusions of law contained herein, finds that Petitioner, as of February 4, 1999, owes the sum of $4,234.69, and orders the involuntary wage withholding of Petitioner's pay through his employer, Duval County School Board, pursuant to Section 112.175, Florida Statutes, and Chapter 28-40, Florida Administrative Code. DONE AND ENTERED this 22nd day of December, 2000, in Tallahassee, Leon County, Florida. STEPHEN F. DEAN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 22nd day of December, 2000. COPIES FURNISHED: Johnny Martin 11431 Quailhollow Drive Jacksonville, Florida 32218-3621 Ronald G. Stowers Assistant General Counsel Department of Education The Capitol, Suite 1701 Tallahassee, Florida 32399-0400 Honorable Tom Gallagher Commissioner of Education The Capitol, Plaza Level 08 Tallahassee, Florida 32399-0400 Michael H. Olenick, General Counsel Department of Education The Capitol, Suite 1701 Tallahassee, Florida 32399-0400
