96-003152 Division Of Real Estate vs. Joseph L. Dume And Southwest Florida Home Realty, Inc. Status: Closed Recommended Order on Monday, December 2, 1996.

Summary: Failure to perform monthly escrow-account reconciliations and existence of $35,000 escrow-account shortage results in revocation.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BUSINESS AND )

PROFESSIONAL REGULATION, )

DIVISION OF REAL ESTATE, )

)

Petitioner, )

)

vs. ) CASE NO. 96-3152

)

JOSEPH L. DUME AND SOUTHWEST )

FLORIDA HOME REALTY, INC., )

)

Respondent. )

__________________________________)

RECOMMENDED ORDER

Robert E. Meale, Administrative Law Judge of the Division of Administrative

Hearings, conducted the final hearing in Port Charlotte, Florida, on September

4, 1996.

APPEARANCES

For Petitioner: Steven D. Fieldman

Chief Attorney

Department of Business and

Professional Regulation

Division of Real Estate

Hurston Building, North Tower

400 West Robinson Street

Orlando, Florida 32801-1772

For Respondents: Frederick H. Wilsen

Gillis and Wilsen

1415 East Robinson Street, Suite B

Orlando, Florida 32801

STATEMENT OF THE ISSUE

The issue is whether Respondents are guilty of dishonest dealing by trick,

scheme or device, culpable negligence, or breach of trust in any business

transaction, in violation of Section 475.25(1)(b); failing to maintain trust

accounts in an escrow account until disbursement is authorized, in violation of

Section 475.25(1)(k); operating as a broker without holding a valid broker's

license, in violation of Sections 475.42(1)(a) and 475.25(1)(e); failing to

prepare the required written monthly escrow-statement reconciliations, as

required by Rule 61J2-14.012(2) and (3), and thus Section 475.25(1)(e); failing

to give written notice to a party to a transaction, before the party signs a

contract, that the broker is a representative of another party, in violation of

Rule 61J2-10.033 and Section 475.25(1)(q); failing to comply with Section

475.25(1)(q), and thus Section 475.25(1)(e); and, as to Respondent Dume,

engaging for a second time in misconduct that warrants his suspension or

engaging in conduct or practices that show he is so incompetent, negligent,

dishonest, or untruthful that clients and their money cannot safely be entrusted

to him, in violation of Section 475.25(1)(o). If either Respondent is guilty of

any of these alleged violations, an additional issue is what penalty should be

imposed.

PRELIMINARY STATEMENT

By Administrative Complaint dated December 15, 1995, Petitioner alleged

that Respondent Dume operated as qualifying broker of Respondent Southwest

Florida Home Realty, Inc. The Administrative Complaint alleges that the real

estate broker's license of Respondent Dume expired on September 30, 1995, and

the corporate brokerage license of Respondent Southwest Florida Home Realty,

Inc. expired on March 31, 1995. The Administrative Complaint alleges that

Respondent Dume's last license was as an involuntary inactive broker and

Respondent Southwest Florida Home Realty's last license was voided due to

nonrenewal.

The Administrative Complaint alleges that the corporate Respondent's rental

management account was short $31,450.98, as of November 1, 1995. The

Administrative Complaint alleges that Respondent Dume transferred money from the

escrow account of the corporate Respondent to an account in the name of another

corporation owned by Respondent Dume, who then used the money for personal

purposes. The Administrative Complaint alleges that Respondents failed to

prepare written monthly reconciliation statements of the escrow account and

provide their clients with agency disclosure statements.

The Administrative Complaint also alleges that the Florida Real Estate

Commission entered a final order on September 8, 1994, reprimanding Respondent

Dume, placing his license on probation for one year, fining him $300, and

requiring him to complete ten hours of post-licensing broker's education. (The

date of the order is August 8, 1994; it became effective 30 days later. The

order is thus referred to as the August 8 final order.)

Respondents did not file an answer to the Administrative Complaint.

However, they filed an Election of Rights disputing the allegations of the

Administrative Complaint. In their proposed recommended order, Respondents

asserted that they "are now and have been at all material times" licensed in

Florida as real estate brokers.

At the hearing, Petitioner called one witness, who was its investigator.

Petitioner offered into evidence one exhibit, which was admitted. The exhibit

is the final order that the Florida Real Estate Commission entered on August 8,

1994. Respondent called no witnesses and offered into evidence no exhibits.

The Administrative Law Judge admitted evidence concerning the violation of

the August 8 final order only after Petitioner stipulated that it would dismiss

with prejudice an administrative complaint alleging such a violation and would

not file charges against Respondent Dume alleging this same violation.

Respondent Dume did not appear at the final hearing. He filed a motion for

a continuance, which was denied. The only response to the initial order was

filed by Petitioner and indicated that September 4, 1996, was available for the

final hearing. Respondent Dune possibly joined in this response; the response

purports to be a joint response in the heading, although it makes no further

mention of Respondents.

If the response were a joint response, Respondent Dume indicated that he

was available on that date. If it were not a joint response, Respondent Dume

failed to set forth his dates of unavailability, which, pursuant to the initial

order, means that the final hearing "will be set . . . at a date, time and

duration established by the Division [of Administrative Hearings]."

After hearing the testimony, the Administrative Law Judge left the record

open for 16 days so that Respondents' counsel could take the deposition of

Respondent Dume, but Respondents later elected not to avail themselves of this

opportunity. The Administrative Law Judge entered an order closing the record

on September 25, 1996.

FINDINGS OF FACT

1. Respondent Dume has been licensed in Florida as a real estate broker,

and Respondent Southwest Florida Home Realty, Inc. has been licensed in Florida

as a corporate broker.

2. Petitioner did not file licensing documentation as an exhibit.

Petitioner's witness testified that the licenses expired on September 30, 1995,

for Respondent Dume and March 31, 1995, for Respondent Southwest Florida Home

Realty. This testimony is hearsay and does not establish the licensing status

of Respondents.

3. In their proposed recommended order, Respondents propose a finding that

they are now and have been at all material times licensed real estate brokers in

Florida. The evidence does not support this assertion.

4. However, the pleadings of the parties establish that Respondents were

licensed at least up to the dates alleged by Petitioner.

5. The Administrative Complaint alleges that Respondent Dume's license

expired on September 30, 1995, and Respondent Southwest Florida Home Realty's

license expired on March 31, 1995. The obvious inference from these allegations

is that Respondents were licensed up to those dates.

6. Combining these inferred allegations in the Administrative Complaint

with the assertion of Respondents in their proposed recommended order that they

are now and have been at all material times licensed, it is clear that the

parties do not dispute that Respondents were licensed at least up to the dates

set forth in the Administrative Complaint. The only real dispute as to

licensing is whether Respondents were licensed after these dates, and the record

supplies no answer to this question.

7. By final order filed August 8, 1994, the Florida Real Estate Commission

found both Respondents guilty of violating Sections 475.25(1)(b), (e), and (k)

and Rule 61J2-14.012(2) and (3). The final order is based on an administrative

complaint alleging, as of February 1 and 2, 1994, a shortage of about $6000 in

one escrow account and an overage of about $400 in another escrow account. The

administrative complaint alleges that Respondent Dume prepared written monthly

escrow-account reconciliation statements.

8. The final order reprimands each Respondent. As to Respondent Dume

only, the final order imposes a $300 fine, suspends his license until the fine

is paid, and places Respondent Dume's license on probation for one year, during

which time he was required to "enroll in and satisfactorily complete a 30-hour

broker management course." The final order states that a failure to complete

all conditions of probation may result in the filing of a new complaint.

9. The final order establishes that Respondents have been licensed brokers

in Florida, but does not establish their licensing status as of anytime after

the expiration of Respondent Dume's probation, which ended on September 8, 1995.

10. In mid-September 1995, an investigator employed by Petitioner

contacted Respondent Dume to determine whether he had complied with the final

order of August 8, 1994. Respondent Dume admitted that he had not undertaken

the required education. The investigator set up an office audit for November 1,

1995.

11. On November 1, 1995, the investigator visited Respondents' office to

conduct the audit. She had access to all relevant documents and found that

Respondent Southwest Florida Home Realty, Inc. maintained an escrow account for

real estate rental deposits. The investigator audited the period from January

31, 1995, through September 30, 1995.

12. The investigator found that neither Respondent conducted written

reconciliations of the escrow account during this period of time.

13. The investigator found checks drawn on the escrow account improperly

paid to another corporation owned by Respondent Dume and, in one case, paid to

Respondent Dume personally. Two of the checks payable to the other corporation,

which was not a licensed corporate broker, were dated September 30 and October

31, 1994. The investigator did not testify as to the date of the check paid

personally to Respondent Dume.

14. The investigator asked Respondent Dume about these disbursements. As

to the check made to him personally, he explained that a bank would not cash his

check and he needed funds.

15. All of the checks paid to the other corporation or Respondent Dume

personally were unauthorized and an improper use of escrow funds. Petitioner

proved that the two checks to the corporation owned by Respondent Dume related

to a time period not covered in the case resulting in the August 8 final order.

16. When the investigator attempted to reconcile the escrow account for

the period from January 31 through September 30, 1995, she found a shortage of

about $31,500. Respondent Dume told her that he had repaid the escrow account

about $20,000, but this was in January 1994.

17. There is no evidence that any client has suffered any losses due to

Respondents' failure to maintain the escrow account in the manner required by

law.

18. As already noted, the parties in effect agree that Respondents were

licensed until certain dates in 1995, but the evidence fails to establish that

Respondents' licenses expired after that time. But even if the evidence had

proved the alleged expiration dates, the evidence would still be less than clear

and convincing that Respondents conducted real estate business after those

dates. There is even less evidence that Respondents failed to make required

written disclosures in real estate transactions, as Petitioner has failed to

prove any real estate transactions or the absence of any such disclosures.

CONCLUSIONS OF LAW

19. The Division of Administrative Hearings has jurisdiction over the

subject matter. Section 120.57(1)(k), Florida Statutes. (All references to

Sections are to Florida Statutes.)

20. Section 475.25(1)(a), (b), (e), (k), and (o) provides that the Florida

Real Estate Commission may impose discipline if it finds that "the licensee,

registrant, permittee, or applicant:"

(a) Has violated any provision of s.

475.42 or of s. 455.227(1).

(b) Has been guilty of . . . dishonest

dealing by trick, scheme, or device,

culpable negligence, or breach of trust in

any business transaction . . .. . . . It is

immaterial to the guilt of the licensee that

the victim or intended victim of the miscon-

duct has sustained no damage or loss.

(e) Has violated any of the provisions of

this chapter or any lawful order or rule made

or issued under the provisions of this chapter

or chapter 455.

(k) Has failed, if a broker, to immediately

place, upon receipt, any money . . . entrusted

to him by any person dealing with him as a

broker in escrow with [an approved entity],

or to deposit such finds in a trust or escrow

account maintained by him with some bank . . .,

wherein such funds shall be kept until

disbursement thereof is properly authorized

. . .. The commission shall establish rules

to provide for records to be maintained by

the broker and the manner in which such

deposits shall be made.

(o) Has been found guilty, for a second

time, of any misconduct that warrants his

suspension or has been found guilty of a

course of conduct or practices which show

that he is so incompetent, negligent,

dishonest, or untruthful that the money,

property, transactions, and rights of

investors, or those with whom he may sustain

a confidential relation, may not safely be

entrusted to him.

21. Rule 61J2-14.012(2) requires a broker to prepare, at least monthly,

written reconciliation statements of his escrow accounts. Rule 61J-14.012(3)

provides, if the reconciliation uncovers any discrepancies, that the broker must

explain the discrepancies in writing on the reconciliation and record the

corrective action that he has taken.

22. Petitioner must prove the material allegations by clear and convincing

evidence.

23. The most significant shortcoming in Petitioner's proof is its failure

to prove that Respondents' licenses expired. This failure clearly means that

Petitioner cannot prevail on its claim that Respondents operated as brokers with

expired licenses. This failure also has some bearing on the remaining

allegations because of Petitioner's failure to show that certain acts or

omissions took place while Respondents were licensed. However, as previously

discussed, the Administrative Complaint and Respondents' proposed recommended

order establish that Respondents were licensed at least through the dates of the

alleged license expirations.

24. If licensed only through the two dates in 1995, Respondents

nonetheless are guilty of violations of the laws regulating licensed brokers.

25. Petitioner proved that each Respondent violated Rule 61J2-14.012(2) by

failing to perform the required written monthly reconciliations. The only

evidence of a shortage or any other discrepancy is for the end of the audit

period, which is September 30, 1995. Thus, Petitioner proved that Respondent

Dume also violated Rule 61J2-14.012(3) by failing to write on the reconciliation

the reason for the discrepancy and what he would do to fix it. However,

Petitioner's proof of a violation of Rule 61J2-14.012(3) by Respondent Southwest

Florida Home Realty fails because, by the time of the only proved discrepancy,

the record fails to show that Respondent Southwest Florida Home Realty was still

licensed and subject to this rule.

26. Thus, Petitioner has proved that each Respondent violated Section

475.25(1)(e), which requires compliance with agency rules, by failing to prepare

monthly reconciliations in violation of Rule 61J2-14.012(2). And, in the case

of Respondent Dume, Petitioner has also proved a violation of Rule 61J2-

14.012(3), and thus Section 475.25(1)(e).

27. Petitioner also proved that Respondents maintained an escrow account

on which they permitted Respondent Dume to make unauthorized disbursements, as

evidenced by the substantial shortage, Respondent Dume's admission of a specific

improper disbursement, and the investigator's finding of at least one other

improper disbursement. All of these items of proof took place while Respondent

Dume was licensed. Although the timing of the shortage is not linked to the

period of Respondent Southwest Florida Home Realty's licensure, the two checks

in the last quarter of 1994 are, so the corporate Respondent is also guilty of

this violation.

28. The unauthorized disbursements violate Section 475.25(1)(a), which

prohibits dishonest dealing, culpable negligence, or breach of trust, and

Section 475.25(1)(k), which prohibits unauthorized disbursements on an escrow

account. The shortage itself, for which Respondent Southwest Florida Home

Realty is not responsible because it was not licensed at the time, constitutes a

separate basis for finding a violation of these statutes by Respondent Dume.

29. Respondents argue that Petitioner's proof of the failure to perform

reconciliations and unauthorized disbursements fails because it failed to

introduce documentary evidence of these violations. Clear and convincing

evidence may, in appropriate circumstances, consist of a witness's testimony of

the results of her escrow-account reconciliation. Obviously, Petitioner could

not be expected to produce documentary evidence of a failure to prepare monthly

written reconciliations. And the testimony of Petitioner's witness as to

admissions of Respondent Dume regarding the use of trust funds, at least where

unrebutted, as in this case, is also capable of sustaining the relevant standard

of proof, as is her testimony concerning the several unauthorized checks and the

substantial shortage.

30. However, Petitioner has failed to prove that Respondents operated

without valid licenses or failed to provide the required written disclosures.

As noted above, the investigator's testimony on licensure is an improper basis

for a finding of fact as it is inadmissible hearsay. And her testimony as to

the absence of required written disclosures fails to show, among other things,

the transactions giving rise to the requirement to disclose.

31. As to Respondent Dume, Petitioner also proved that he has violated

Section 475.25(1)(o) because he has been found guilty for a second time of

misconduct warranting his suspension or has been found guilty of a course of

conduct or practices which show that he is so incompetent, negligent, dishonest,

or untruthful that clients may not safety entrust with him their money.

32. A serious aggravating factor in setting the discipline for both

Respondents is their commission in this case of worse escrow-account violations

than the ones for which they were disciplined in the August 8, 1994, final

order.

33. In the prior disciplinary case, Respondents performed monthly escrow-

account reconciliations and allowed an escrow shortage of $6000 to develop.

After receiving reprimands for these violations, and more serious discipline as

to Respondent Dume, Respondents are no longer performing monthly escrow-account

reconciliations and have allowed an escrow shortage of $31,500 to develop.

Another aggravating factor concerning Respondent Dume is his admitted failure to

comply with the condition of probation set forth in the August 8 final order.

34. Section 475.25(1) provides that the Florida Real Estate Commission

may, after finding a violation of any provision of Section 475.25(1), enter an

order revoking a license, suspending a license for not more than 10 years,

placing a licensee on probation, imposing an administrative fine of not more

than $1000 for each count of separate offense, and reprimanding the licensee.

RECOMMENDATION

It is

RECOMMENDED that the Florida Real Estate Commission enter a final order

revoking the licenses of Respondent Dume and Respondent Southwest Florida Home

Realty, Inc.

ENTERED on December 2, 1996, in Tallahassee, Florida

___________________________________

ROBERT E. MEALE

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

[phone] SUNCOM 278-9675

Fax Filing [phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 2nd day of December, 1996.

COPIES FURNISHED:

Steven D. Fieldman

Chief Attorney

Department of Business and

Professional Regulation

Division of Real Estate

Hurston Building, North Tower

400 West Robinson Street

Orlando, Florida 32801-1772

Frederick H. Wilsen

Gillis and Wilsen

1415 East Robinson Street, Suite B

Orlando, Florida 32801

Lynda L. Goodgame

General Counsel

Department of Business and

Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399-0792

Henry M. Solares

Division Director

Department of Business and

Professional Regulation

Division of Real Estate

400 West Robinson Street

Orlando, Florida 32802-1900

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 must

be filed with the agency that will issue the final order in this case.