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14F-DI-215-REL · Department of Real Estate · 2017-02-13

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the Matter of the real estate activities of:

Rosita Lopez, holder of license number BR569509000, Jesse Lee Gunderson, holder of license number SA527264000, J. Colleen Gunderson, holder of License No. BR518894000,

And

Golden Globe Investments LLC dba Century 21 All Star, Realtors, holder of license number LC583868000,

Respondents.

No. 14F-DI-215-REL

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: December 13, 2016, through December 16, 2016, with the record held open until January 23, 2017.

APPEARANCES: Respondent Rosita Lopez appeared and was represented by Michael Denious. Respondent Colleen Gunderson appeared and was represented by Robert Stewart. The Arizona Department of Real Estate was represented by Assistant Attorneys General Lynette Evans and Ryan Krench. Respondents Jesse Lee Gunderson and Golden Globe Investments LLC doing business as Century 21 All Star, Realtors did not appear.

ADMINISTRATIVE LAW JUDGE: Tammy L. Eigenheer

_____________________________________________________________________

FINDINGS OF FACT

On November 2, 2016, the Arizona Department of Real Estate (Department) issued an Amended Notice of Hearing and Complaint setting the above-captioned matter for hearing to determine whether grounds existed to impose a civil penalty and any other relief against Respondents Rosita Lopez, holder of License No. BR569509000, Jesse Lee Gunderson, holder of License No. SA527264000, J. Colleen Gunderson, holder of License No. BR518894000, and Golden Globe Investments LLC doing business as Century 21 All Star, Realtors, (Golden Globe) holder of License No. LC583868000.

On or about May 17, 2001, the Department issued real estate salesperson’s license SA527264000 to Mr. Gunderson. That license expired on May 31, 2015. At all times applicable to the instant matter, Mr. Gunderson was employed as a salesperson by Golden Globe.

On or about February 22, 2007, Golden Globe was organized in Arizona as a domestic entity. Mr. Gunderson and Ms. Gunderson were members of Golden Globe at the time it was organized.

On or about April 30, 2007, the Department issued real estate license number LC583868000 to Golden Globe. That license expired on November 30, 2014.

On or about November 2, 2012, the Department issued real estate broker’s license BR569509000 to Ms. Lopez. That license expires on November 30, 2016. From November 2, 2012, through February 5, 2013, Ms. Lopez was employed as an Associate Broker for Golden Globe. From February 5, 2013, through June 27, 2014, Ms. Lopez was employed as the Designated Broker for Golden Globe. Upon becoming the Designated Broker for Golden Globe, Ms. Lopez was given a five percent ownership interest.

On or about May 2, 2013, the Department issued real estate broker’s license BR518894000 to Ms. Gunderson. That license expires on October 31, 2017. From April 30, 2007, through February 5, 2013, Ms. Gunderson was the Designated Broker for Golden Globe.

Investigation C14-000307

On or about March 10, 2014, Department staff conducted an onsite audit of Ms. Lopez and Golden Globe, including a review of financial records for August 2013 through January 2014. The results of the audit found the following issues:

Property Management Agreements (PMA): Golden Globe’s PMAs did not contain a clause stating that the PMAs could not be assigned to another licensee or licensed entity without the express written consent of the property owner.

Property Management Trust Account (PMTA):

Funds from the PMTA were not being used only for the purpose for which the monies were deposited.

Golden Globe was not following generally accepted accounting principles (GAAP) and was not performing three-way reconciliation of its accounts.

Journals and client ledgers were not in balance with each other with a total shortage, as of January 31, 2014, of $471,640.09. The Department determined that the majority of the shortage appearing to have occurred prior to the audit period of August 2013 through January 2014.

On or about April 11, 2014, Department staff conducted an investigation interview with Ms. Lopez and Mr. Gunderson. During the interview, the following information was gathered:

Ms. Lopez acknowledged the audit report and deficiency in the PMTA.

Mr. Gunderson acknowledged that he handled the property management activities for Golden Globe.

Mr. Gunderson asserted that the balance of the trust funds was being held as property equity with a current value greater than $500,000.00. Mr. Gunderson provided printouts of the properties, including a condominium in Scottsdale, Arizona, a property in the State of Washington, and two lots in Casa Grande, Arizona. Mr. Gunderson admitted that the properties were not titled in the name of the PMTA.

The Department determined after the March 10, 2014 audit that Ms. Lopez, Mr. Gunderson, and Golden Globe failed to maintain all monies held on behalf of clients and tenants in broker trust accounts, resulting in a shortage in the combined PMTAs, as of January 31, 2014, of $471,640.09; commingled and/or converted client trust monies to other than appropriate expenditures; failed to protect the interest of clients and tenants by not holding sufficient funds in the broker trust account to cover monies due to owners and tenants; and, Ms. Lopez failed to exercise reasonable supervision and control over the activities of Mr. Gunderson and Golden Globe.

On or about May 8, 2014, the Department issued a Cease and Desist Order against Mr. Gunderson, Ms. Lopez, and Golden Globe, prohibiting them from conducting property management activities in any way that would violate the law.

Mr. Gunderson, Ms. Lopez, and Golden Globe timely appealed the Cease and Desist Order.

Investigation C14-000438

Based on the findings of the audit, the Department opened an investigation on Ms. Gunderson regarding her role in the substantial shortage of Golden Globe’s PMTA.

On April 11, 2014, a Notice of Complaint/Demand Letter was mailed to Ms. Gunderson.

On April 29, 2014, Ms. Gunderson submitted a written response (Response) to the Notice of Complaint/Demand Letter. In the Response, Ms. Gunderson acknowledged and/or admitted the following:

In 2007, shortly after acquiring Golden Globe, Mr. Gunderson arranged for a line of credit from Chase Bank for approximately $300,000.00. Certificates of Deposit that were purchased with trust account funds were used as collateral in securing the line of credit. In 2009, Chase Bank declined to renew the line of credit and the Certificates of Deposit were applied to reduce or eliminate the amount due on the line of credit, creating a significant deficit in the PMTA.

Mr. Gunderson controlled Golden Globe’s property management activities, including the PMTA.

Ms. Gunderson acknowledged that, as a co-owner and the designated broker, she was ultimately responsible.

Ms. Gunderson was Golden Globe’s Designated Broker when she and Mr. Gunderson purchased two properties in Arizona in June 2012 and October 2012.

Hearing Evidence

At hearing, the Department reviewed the difference between the account reconciliation Respondents were doing and the three-way reconciliation necessary to ensure the trust fund is properly constituted. Respondents were conducting monthly account reconciliations between the bank statement and Respondents’ records of what should be in the bank account, much like an individual balancing their checkbook with their bank statement every month. Whereas, a three-way reconciliation compares that the bank statement, Respondents’ records of what should be in the bank account, and the total of Respondents’ liabilities to owners and tenants to determine if the trust account is fully funded. The Department admitted that the applicable statutes do not use the term “three-way reconciliation,” but asserted that such a reconciliation is the only way to ensure the trust account contains all of the clients’ funds.

The Department also established that a designated broker may delegate functions to an associate broker, but that the designated broker cannot delegate the ultimate responsibility for the designated broker’s duties and obligations.

The Department determined that during the audit period, the trust fund was underfunded a minimum of $423,223.08 and as much as $500,547.33, with an average shortage of $456,410.15 during the six-month period.

As part of its investigation, the Department obtained bank statements going back to January 1, 2010. A review of the banks statements reveals these notable findings:

According to the bank statement ending on January 29, 2010, Golden Globe held a commercial checking account with a balance of $350,541.56; a high yield savings account with a balance of $12,358.61; and three certificates of deposit (CDs) with balances of $53,518.47, $53,518.47, and $107,086.35; with total assets of $577,022.46.

According to the bank statement ending on April 30, 2010, Golden Globe held a commercial checking account with a balance of $134,220.14; a high yield savings account with a balance of $7,559.33; and three CDs with balances of $53,518.47, $53,518.47, and $107,086.35; with total assets of $355,902.75.

According to the bank statement ending on May 28, 2010, Golden Globe held a commercial checking account with a balance of $103,080.24; two high yield savings accounts with balances of $9,959.62 and $224,223.55; and three CDs with balances of $53,518.47, $53,518.47, and $107,086.35; with total assets of $551,386.70.

According to the bank statement ending on August 31, 2011, Golden Globe held a commercial checking account with a balance of $158,401.09; two high yield savings accounts with balances of $963.60 and $214,901.80; and three CDs with balances of $53,675.22, $53,675.22, and $107,462.84; with total assets of $589,079.77.

According to the bank statement ending on September 30, 2011, Golden Globe held a commercial checking account with a balance of $158,346.88 and two high yield savings accounts with balances of $963.63 and $214,945.89 with total assets of $374,256.40.

According to the bank statement ending on December 30, 2011, Golden Globe held a commercial checking account with a balance of $112,600.44 and two high yield savings accounts with balances of $963.71 and $65,843.02 with total assets of $179,407.21. This bank statement also showed a withdrawal from a high yield savings account of $124,200.00 on December 14, 2011, and a transfer from a high yield savings account to Golden Globe’s general sales operating account of $25,000.00 on December 22, 2011.

According to the bank statement ending January 31, 2012, one of the high yield savings account had an opening balance of $65,843.02 and an ending balance of $40,848.69.

According to the bank statement ending December 31, 2012, one of the high yield savings account had an opening balance of $40,899.62 and an ending balance of $5,901.32.

According to the bank statement ending September 30, 2013, one of the high yield savings account had an opening balance of $5,903.25 and an ending balance of $903.44.

At hearing, Ms. Lopez admitted that she did not review tenant balances and ledgers during her monthly review of the financial records. Rather, Ms. Lopez inquired whether the bank reconciliation was “in balance.” Ms. Lopez admitted that she should have looked deeper, but asserted that she was not responsible for the money going missing. Ms. Lopez testified that after the Department issued the Cease and Desist Order, Mr. Gunderson wanted to keep operating the business, but she refused. Ms. Lopez stated she had been working as a branch manager since the Cease and Desist Order.

Floyd Scott, Designated Broker, testified that when he hired Ms. Lopez as a branch manager he was aware of the Cease and Desist Order. Mr. Scott stated that he had not had any issues with Ms. Lopez and she was a very good branch manager. Mr. Scott posited that Ms. Lopez would be qualified to be a designated broker that does not handle property management. Mr. Scott testified that he would be willing to serve as Ms. Lopez’s practice monitor if she were given a provisional license.

Ms. Gunderson testified that it was her understanding that, as a designated broker, she was required to reconcile the monthly bank statements and maintain the client ledgers. Ms. Gunderson acknowledged that she did not take the next step of reconciling the client ledger against the bank statements. Ms. Gunderson stated that she reviewed the bank statements every month. Ms. Gunderson asserted that Mr. Gunderson had not given her any indication that there was a problem with the trust account. Ms. Gunderson stated that she learned of the issue from Ms. Lopez after the initial audit. Ms. Gunderson testified that when she confronted Mr. Gunderson about the audit, he assured her he was taking care of things and refused to say more. When Mr. Gunderson and Ms. Gunderson met with an attorney, Mr. Gunderson explained that he had taken a secured business line of credit with the CDs as collateral, and that when the line of credit was called due, the CDs were taken to pay off the line of credit. Ms. Gunderson indicated that she filed for divorce within 30 days, in part to protect the clients and their funds. Ms. Gunderson testified that as part of the divorce proceeding, Mr. Gunderson was required to sell different properties to pay back any remaining trust account deficiencies, but she had been unable to get an accounting from Mr. Gunderson establishing if the properties were sold and/or how the proceeds were distributed. Ms. Gunderson stated that she was an instructor at real estate school and that part of that process required her to take a broker course three times; during the three classes, trust account reconciliation was discussed at most for two and a half minutes of a three hour course. Ms. Gunderson indicated she was working as an associate broker without incident since this issue came about.

Robert C. Dikes, Designated Broker, testified that he knew Ms. Gunderson for several years and when he saw the Cease and Desist on the Department’s hotwire, he reached out to Ms. Gunderson. Mr. Dikes indicated that Ms. Gunderson assured him that she had no knowledge of Mr. Gunderson’s actions. Mr. Dikes hired Ms. Gunderson as an associate broker and has had no issues with her in the two years she has been with his brokerage. Mr. Dikes stated that he would be willing to serve as Ms. Gunderson’s practice monitor if she were given a provisional license.

Mr. Gunderson and Golden Globe did not appear at the hearing and did not present any evidence in support of their licenses.

The Department requested that Respondents’ licenses be revoked and that a $1,000.00 civil penalty be imposed for each proven violation of statute.

CONCLUSIONS OF LAW

The Department bears the burden of persuasion. A.R.S. § 41-1092.07(G)(2) and (G)(3).

The standard of proof on all issues in this matter is that of a preponderance of the evidence. A.A.C. R2-19-119.

A preponderance of the evidence is:

The greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.

Black’s Law Dictionary 1373 (10th ed. 2014).

Mr. Gunderson’s and Golden Globe’s expired licenses do not deprive the Department the authority to proceed with this disciplinary action, impose discipline, and/or assess a civil penalty. See A.R.S. § 32-2153(E).

Because Mr. Gunderson and Golden Globe did not appear at the hearing, this tribunal may draw an adverse inference from Mr. Gunderson’s failure to testify. See Gordon v. Liguori, 182 Ariz. 232-235-36, 895 P.2d 523, 527 (App. 1995) and Melissa W. v. DCS, 238 Ariz. 115, 117, 357 P.3d 150, 152 (App. 2015)

The uncontroverted evidence at hearing established that the missing funds were directly attributable to the actions of Mr. Gunderson. Through his statements to Ms. Gunderson and the Department around the time of the audit, Mr. Gunderson admitted he used the proceeds of the CDs held in the trust account to pay off the commercial line of credit. There was no evidence presented to indicate Ms. Gunderson or Ms. Lopez were involved in the conversion of the client monies.

While both Ms. Gunderson and Ms. Lopez acknowledged they did not perform monthly three-way reconciliations, they admitted they reviewed the monthly bank statement reconciliations. As detailed above, even reviewing only that information, there were alarming drops in individual account balances and in the total assets on deposit at times that should have led to further inquiry.

Furthermore, it is troubling that neither Ms. Gunderson nor Ms. Lopez considered it would be necessary, not only to review the monthly tenant ledger and the owner ledger balances, but to ensure that those balances were held in the trust account.

The preponderance of the evidence established that Mr. Gunderson converted client monies to the licensee or to another in violation of A.R.S. § 32-2153(A)(16).

The preponderance of the evidence established that Ms. Gunderson and Ms. Lopez failed as a licensed broker to exercise reasonable supervision and control over the activities for which a license is required of a limited liability company on behalf of which the broker acts as a designated broker. A.R.S. § 32-2153(A)(21).

The preponderance of the evidence established that Mr. Gunderson, Ms. Gunderson, Ms. Lopez, and Golden Globe demonstrated negligence in performing any act for which a license is required in violation of A.R.S. § 32-2153(A)(22).

The preponderance of the evidence established that Mr. Gunderson, Ms. Gunderson, Ms. Lopez, and Golden Globe demonstrated incompetence to perform any duty or requirement of a licensee under or arising from Chapter 20 in violation of A.R.S. § 32-2153(B)(8).

The preponderance of the evidence established that Mr. Gunderson, Ms. Gunderson, Ms. Lopez, and Golden Globe failed in their fiduciary duty to their clients and failed to protect and promote their clients’ interests in violation of A.A.C. R4-28-1101(A).

The preponderance of the evidence established that Ms. Gunderson and Ms. Lopez relinquished their overall responsibility for supervision and control of the acts of their employees in violation of A.A.C. R4-28-1103(E).

Based on the proven violations, the Department has authority to revoke Respondents’ licenses and to assess a civil penalty of up to $1,000.00 for each infraction. A.R.S. § 32-2160.01(A).

Considering the facts and circumstances of this matter, the Administrative Law Judge concludes that Respondents’ licenses should be revoked.

Based upon the above, grounds exist to impose a total civil penalty in the amount of $5,000.00 against Mr. Gunderson for the five violations found above, pursuant to A.R.S. § 32-2160.01, and a $5,000.00 civil penalty is determined to be reasonable and appropriate under the circumstances.

ORDER

IT IS ORDERED that Rosita Lopez’s License No. BR569509000 is revoked;

IT IS FURTHER ORDERED that Jesse Lee Gunderson’s License No. SA527264000 is revoked;

IT IS FURTHER ORDERED that J. Colleen Gunderson’s License No. BR518894000 is revoked.

IT IS FURTHER ORDERED that Golden Globe Investments LLC doing business as Century 21 All Star, Realtors’ License No. LC583868000 is revoked.

IT IS FURTHER ORDERED that within 60 days of the effective date of the Order entered in this matter, Respondent Jesse Lee Gunderson is liable to pay to the Department a civil penalty in the amount of $5,000.00, and such payment shall be made by cashier’s check or money order made payable to the Department.

In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order is five days after the date of that certification.

Done this day, February 13, 2017.

/s/ Tammy L. Eigenheer

Administrative Law Judge

Transmitted electronically to:

Judy Lowe, Commissioner

Arizona Department of Real Estate