12-001539PL Department Of Business And Professional Regulation, Division Of Real Estate vs. Richard Patrick Truhan Status: Closed Recommended Order on Friday, October 26, 2012.

Summary: Real estate appraiser used inappropriate comparables, did not use reasonable diligence, and arrived at unreasonably high value conclusions.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND )

PROFESSIONAL REGULATION, )

DIVISION OF REAL ESTATE , )

)

Petitioner , )

)

vs. ) Ca se Nos. 12 - 1537PL

) 12 - 1538PL

RICHARD PATRICK TRUHAN , ) 12 - 1539PL

) 12 - 1541PL

Respondent . )

)

RECOMMENDED ORDER

On July 25, 2012, a final administrative hearing was held in

these cases by video teleconference in Tallahassee and Orlando,

Florida, before J. Lawrence Johnston, Administrative Law Judge,

Division of Administrative Hearings (DOAH).

APPEARANCES

For Petitioner: Christina Ann Arzillo, Esquire

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399

For Respondent: Thomas D. Sommerville, Esquire

Law Offices of Muller and

Sommerville, P.A.

Suite 2

1150 Louisiana Avenue

Winter Park, Florida 32789

STATEMENT OF THE ISSUE S

The issues are essentially whether Respondent failed to use

reasonable diligence on four appraisals of residential

condominiums in Orlando done i n 2007, and whether he failed to

register his appraisal business with Petitioner; and, if so, how

he should be disciplined.

PRELIMINARY STATEMENT

In 2009, Petitioner, the Department of Business and

Professional Regulation , Division of Real Estate (DBPR), f iled an

Administrative Complaint as to each of the four appraisals at

issue. Amended administrative complaints were filed in 2012, and

Respondent requested administrative hearings to dispute the

alleged facts. The requests were referred to DOAH, where th ey

were given case numbers, consolidated into one proceeding, and

scheduled for hearing. Leave was granted to file a second

amended complaint in each case. A Joint Pre - hearing Stipulation

was filed.

At the final hearing, DBPR called two witnesses (Diana

Woods, a DBPR investigator; and Dennis Cooper, an appraiser) and

had its Exhibits 1 through 18 admitted in to evidence. Respondent

testified and had his Exhibits 2 and 3 admitted in to evidence.

A Transcript of the final hearing was filed, and the parties

f iled proposed recommended orders, which have been considered.

FINDING S OF FACT

1. Respondent is a certified Florida real estate appraiser,

holding DBPR license 5422. In 2007, Respondent was appraising

through Rush Realty Appraisal Services, LLC (Rush Re alty), which

he owned and operated. Rush Realty was registered with the

Florida Department of State as a limited liability company, but

it was not registered with DBPR.

The Appraisals

2. In 2007, Rush Realty, through Respondent and a trainee

he supervise d, appraised four condominium units in a residential

complex in Orlando called the Residences at Millenia (Millenia).

Three of the appraisals were done in January and the other in

June. In January, Rush Realty appraised two of the condos at

$279,500 and appraised the third at $258,500; in June, it

appraised the fourth condo at $279,500. Respondent is

responsible for these appraisals.

3. One January appraisal was based on five comparables,

three of which were sales of Millenia condos; one of those three

was a pending sale. The other two January appraisals were based

on four comparables, two of which were sales of Millenia condos,

both of which were pending sales.

4. One of the pending Millenia sales used for the January

appraisals was for $290,000 ($282 per square foot, abbreviated

psf). The other Millenia pending sale used for the January

appraisals was for $279,500 ($272 psf). The closed sales used in

the January appraisals included one at Millenia for $209,800

($204 psf), another at Millenia for $20 7,400 ($202 psf), two at

nearby Sunset Lake Condos for $275,900 ($265 psf), one at Sunset

Lake for $259,900 ($251 psf), and one at Sunset Lake for $254,900

($256 psf).

5. According to the January appraisal reports, the sources

of the comparables used by R espondent were the public records and

the Multiple Listing Service (MLS) for the closed sales and the

Millenia sales office for the pending sales.

6. The June appraisal was based on two Millenia condo

sales. These were the two sales that were pending at the time of

the January appraisals. According to the June appraisal, those

sales closed in March 2007, one at $280,000 and the other at

$279,900.

7. The June appraisal listed only the Millenia sales office

as the source of the data on the two Millenia c losed sales used

as comparables for that appraisal.

8. The June appraisal listed only the Millenia sales office

as the source of the data on the two Millenia closed sales used

as comparables for that appraisal.

9. Respondent's January appraisal reports s tated that the

price range of properties similar to the subject property sold

within the year prior to the appraisal report was from $100,000

to $400,000. In fact, according to MLS, the range was $25,000 to

$313,000. Only seven of the 186 comparable sale s were over

$250,000.

10. Respondent's June appraisal report also stated that the

price range of properties similar to the subject property sold

within the year prior to the appraisal report was from $100,000

to $400,000. In fact, according to MLS, the r ange was $102,000

to $313,900. Only four of the 88 comparable sales were over

$250,000.

Whether Respondent Used Reasonable Diligence

11. The information provided by the Millenia sales office

for the pending sales used as comparables for the January

appra isals was unverifiable at the time.

12. It was inappropriate for Respondent to use the Millenia

sales office as the source of comparables for the January

appraisals (or to use it to verify other sources) because

Millenia was interested in the transaction for which the

appraisals were done.

13. Respondent testified that he and his trainee used a

research tool called Microbase to obtain public records

information on comparable sales for the appraisals. He testified

that the information from the public reco rds used for the January

appraisals, and from the Millenia sales office for the June

appraisal, was verified by the MLS, HUD - 1 closing statements, and

contracts. The use of MLS for verification for the closed sales

in the January appraisals is indicated b y the inclusion of MLS in

the part of those appraisal report forms used to indicate data

source(s). Although the data and verification sources other than

the Millenia sales office and MLS were not indicated on the

report forms for the January appraisals, and no source other than

the Millenia sales office was indicated on the report form for

the June appraisal, Respondent testified that his work files

document the use of all of these sources for the closed sales

used as comparables in the four appraisals.

1 4. DBPR questions the veracity of Respondent's testimony

regarding his work files and the use of these data and

verification sources based on his failure to replicate his work

files when asked to do by Petitioner's investigator. DBPR points

to no require ment for Respondent to replicate his work files upon

request. It appears from the evidence that Respondent understood

he was being asked to produce the files, not to replicate (i.e.,

recreate) them. His response was in the negative based on his

explanati on that the files had been confiscated by and remained

in the possession of the Federal Bureau of Investigation.

15. The FBI has not returned Respondent's work files.

Neither party attempted to subpoena the work files in this case,

and the work files wer e not placed in evidence.

16. DBPR also questions the veracity of Respondent's

testimony regarding his work files and the use of these data and

verification sources based on his failure to use any of the

numerous other comparable sales that were available from those

sources, most of which were sold for considerably less money than

the comparables used by Respondent. For example, for the January

appraisals, there were 37 comparable sales in the preceding six

months available through MLS that ranged from $3 9,000 to

$235,000; and, for the June appraisal, there were 16 comparable

sales in the preceding six months available through MLS that

ranged from $134,900 to $190,000. DBPR's expert utilized these

comparables in MLS and reached value conclusions that were

approximately $90,000 lower than Respondent's.

17. According to MLS, other closed sales at Millenia

between July 27, 2006, and January 27, 2007, ranged from $180,000

($184.82 psf) to $205,000 ($207.49 psf), with an average of

$198,472 ($196.96 psf) and a median of $205,000 ($199.42 psf).

Comparable sales of condos within a mile from Millenia that

closed between July 27, 2006, and January 27, 2007, ranged from

$39,000 ($38.24 psf) to $306,000 ($275.93 psf), with an average

of $187,279 ($183.82 psf) and a median of $188,500 ($189.95 psf).

Comparable sales of condos within a mile from Millenia that

closed between January 27, 2006, and January 27, 2007, ranged

from $25,000 ($30.56 psf) to $317,900 ($256.28 psf), with an

average of $168,468 ($152.69 psf) and a median of $169,650

($159.49 psf).

18. Respondent testified that he rejected the comparables

he did not use based on the properties' relative poor condition,

effective age, and lack of amenities. He also testified that, in

some cases, the sellers appear ed to be in financial distress and

extremely motivated to sell, even at lower than market value; or,

in other cases, the sellers did not raise their prices as the

market rose.

19. Taking all the evidence into account, DBPR did not

prove that Respondent di d not use any data and verification

sources other than the Millenia sales office for the closed sales

used as comparables in the four appraisals; however, Respondent

inappropriately used pending sales instead of the available

comparables and did not dilige ntly review the available

comparables before choosing the comparables he used. Instead, he

quickly focused on sales at Millennia and Sunset Lakes that were

significantly higher than the predominant prices of other

comparable sales available to him through MLS and other sources.

Respondent failed to exercise reasonable diligence in developing

the appraisals and preparing the appraisal reports .

20. If pending sales had not been used as comparables in

the January appraisals, or if other available comparable s had

been used, the appraised values would have been significantly

lower. The June appraisal would have been lower if other

avail able comparables had been used.

Other Errors in Appraisal Reports

21. For two of the closed sales, in the part of the

apprai sal report form for describing sales and financing

concessions, Respondent mistakenly entered MLS, with an official

public records book and page number. This labeling error could

have been confusing, but there was no evidence that a nyone was

misled by the error.

22. The report forms used by Respondent included an

addendum indicating that closed sales were used for comparables.

This language was inconsistent with the indications elsewhere in

the January appraisal reports that pending sales were used for

t hat purpose. While potentially confusing, there was no evidence

that anyone actually was mi sled by the addendum language.

23. The addendum language also stated that all comparables

were given equal consideration. Actually, in one of the January

appraisa ls, the higher comparables were given greater weight. In

that report, the property appraised for approximately $30,000

more than it would have if all comparables had been given equal

consideration. This language was misleading in that computations

would have been required to d etermine that it was in error.

USPAP

24. Rule 1 - 1(a) of the 2006 Uniform Standards of

Professional Appraisal Practice (USPAP) requires a real property

appraiser to be aware of, understand, and correctly employ those

recognized meth ods and techniques that are necessary to produce a

credible appraisal. Respondent violated this rule.

25. Rule 1 - 1(b) prohibits substantial errors of omission or

commission that significantly affect an appraisal. Respondent

violated this rule.

26. Rule 1 - 1(c) of USPAP prohibits rendering appraisal

services in a careless or negligent manner, including making a

series of errors that, although individually might not

significantly affect the results of an appraisal, in the

aggregate affects the credibility of the results. Respondent

violated this rule.

27. Rule 1 - 4(a) of USPAP requires that, when a comparable

sales approach is necessary for a credible result, an appraiser

must analyze such comparable sales data as are available.

Respondent violated this r ul e.

28. Rule 2 - 1(a) of USPAP requires that writte n and oral

appraisal reports be set forth in a manner that is clear and

accurate and not misleading. Respondent violated this rule.

Aggravating and Mitigating Circumstances

29. Respondent had not been disciplined and had not

received a letter of guidance prior to the four appraisal reports

at issue in this case. His license was in good standing at the

time.

30. When an appraiser does not exercise reasonable

diligence in doing an appraisal and prepari ng the appraisal

report and the result is an unreasonably high value conclusion,

as happened in the four appraisal reports at issue in this case,

and a lender relies and acts on the appraisal report, the lender

is harmed ipso facto , and the borrower and pu blic may also be

harmed, notwithstanding that many residential loans defaulted

after 2007 besides the loans made based on these four appraisals.

There was no evidence as to the specific extent of t he actual

harm to this lender.

31. Although DBPR filed a separate administrative complaint

for each of the four appraisals, the conduct complained of in

each administrative complaint was similar. E ach administrative

complaint has three counts: one for not using reasonable

diligence in doing the appraisal and p reparing the appraisal

report; another for not registering Rush Realty ; and a third for

violating USPAP provisions .

32. Respondent testified without contradiction that

revocation or suspension of his appraisal license, and even a

substantial fine, would b e a devastating financial hard ship to

him and his family.

CONCLUSIONS OF LAW

3 3. Section 475.624(4), Florida Statutes (2006), 1/ subjects

a licensed real estate appraiser to discipline for violating

chapter 475 or any lawful order or rule made or issued un der

chapter 455 or 475.

34. Section 475.624(15) subjects a licensed real estate

appraiser to discipline for failing or refusing to exercise

reasonable diligence in developing an appraisal or preparing an

appraisal report.

35. Section 475.623 requires lic ensed real estate

appraisers to furnish DBPR, in writing, each firm or business

name and address operated by the licensee to perform appraisal

services.

36. Florida Administrative Code Rule 61J 1 - 9.001 2/ requires

licensed real estate appraisers to comply w ith USPAP.

37. Because it seeks to impose license discipline, DBPR has

the burden to prove its allegations by clear and convincing

evidence. See Dep't of Banking & Fin. v. Osborne Stern & Co.,

Inc. , 670 So. 2d 932 (Fla. 1996); Ferris v. Turlington , 510 S o.

2d 292 (Fla. 1987). This "entails both a qualitative and

quantitative standard. The evidence must be credible; the

memories of the witnesses must be clear and without confusion;

and the sum total of the evidence must be of sufficient weight to

convinc e the trier of fact without hesitancy." In re Davey , 645

So. 2d 398, 404 (Fla. 1994). See also Slomowitz v. Walker , 429

So. 2d 797, 800 (Fla. 4th DCA 1983). "Although this standard of

proof may be met where the evidence is in conflict, . . . it

seems to preclude evidence that is ambiguous." Westinghouse

Electric Corp., Inc. v. Shuler Bros., Inc. , 590 So. 2d 986, 988

(Fla. 1st DCA 1991).

38. DBPR proved by clear and convincing evidence that

Respondent is subject to discipline under sections 475.624(4)

( through violations of USPAP and rule 61J 1 - 9.001), 475.624(15),

and 475.623. Each appraisal report constituted separate

violations.

39. Under Florida Administrative Code Rule 61J1 - 8.002, 3/

the range of discipline for the first violation of

section 475.624 (15) is from a five - year suspension to

revocation and a $1,000 fine; and the range of discipline for

the first violation of section 475.624(4), which applies to the

violations of section 475.623 and rule 61J 1 - 9.001, is up to

revocation 4/ and a fine of up t o $5,000.

40. Rule 61J1 - 8.002(4) 5/ authorizes a deviation from the

disciplinary guidelines under certain circumstances. Aggravating

or mitigating circumstances may include, but are not limited to:

the degree of harm to the consumer or public; the number of

counts in the administrative complaint; the disciplinary history

of the licensee; the status of the licensee at the time the

offense was committed; the degree of financial hardship incurred

by the licensee as a result of the imposition of a fine or

sus pension of the licensee; and violation of a provision of a

previous letter of guidance.

41. Under the facts and circumstances of this case, a

downward deviation from the discipline guidelines is warranted.

It is appropriate, in sum, to fine Respondent $2 ,000 and suspend

his appraisal license for three months, subject to probation upon

reinstatement for such a period of time and subject to such

conditions as the Florida Real Estate Appraisal Board (Board) may

specify. See Fla. Admin. Code R. 61J1 - 8.002(2) .

42. Section 455.227(3)(a) provides that, in addition to the

disciplinary penalty against Respondent, DBPR may assess costs

related to the investigation and prosecution of the case

excluding costs associated with an attorney's time. DBPR

requests that R espondent be required to pay its costs in the

amount of $1,996. However, there was no evidence as to DBPR 's

costs.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that DBPR enter a final order finding Respo ndent

subject to discipline under sections 475.624(4) (through

violations of section 475.623, USPAP , and rule 61J - 9.001) and

475.624(15) ; suspending his license for three months, subject

to probation upon reinstatement for such a period of time and

subject to such conditions as the Board may specify; fining

him $2,000 ; and assessing costs related to the investigation

and prosecution of the case s in accordance with

section 455.227(3)(a) .

DONE AND ENTERED this 26th day of October , 2012 , in

Tallahassee, Leon C ounty, Florida.

S

J. LAWRENCE JOHNSTON

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www. doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 26th day of October , 2012 .

ENDNOTE S

1/ All statutory references are t o the Florida Statutes (2006).

2/ This is the version of the rule that was in effect since

Au g ust 29, 2006.

3/ The version of this rule that was in effect in 2006 was cited

in DBPR ' s Proposed Recommended Order but was not presented in

evidence at the final hearing. In the current version,

subsections (3)(g) and (r) are the applicable citations.

4/ Rule 61J1 - 8.002(3)(g) actually states that the recommended

penalty is revocation, but clearly up to revocation was intended,

as reflected in DBPR ' s Proposed Recommended Order.

5/ See Endnote 3, supra .

COPIES FURNISHED:

Christina Ann Arzillo, Esqu ire

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399

Thomas D. Sommerville, Esquire

Law Offices of Muller and

Sommerville, P.A.

Suite 2

1150 Louisiana Avenue

Winter Park, Florida 32789

J. Layne Smith , General Counsel

Department of Business and

Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399 - 0792

Evalyn Oreto, Chair

Real Estate Appraisal Board

Department of Business and

Professional Regulation

400 West Robinson Street, Suite N801

Orlando, Florida 32801

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order sho uld be filed with the agency that

will issue the Final Order in this case.