ALJDEC - Licensing

23F-338-REL · Department of Real Estate · 2023-08-13

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the Matter of the Real Estate Activities of:

GORENTER.COM, LLC dba GORENTER,

holder of Limited Liability License number LC584863000,

Respondent.

No. 23F-338-REL

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: July 13, 2023

APPEARANCES: Troy Roberts, Esq. appeared on behalf of Respondent GORENTER.COM, LLC dba GORENTER. Assistant Attorneys General Lynette Evans and James Rolstead appeared on behalf of the Arizona Department of Real Estate.

ADMINISTRATIVE LAW JUDGE: Kay A. Abramsohn

_____________________________________________________________________

FINDINGS OF FACTS

1. On June 14, 2007, the Arizona Department of Real Estate (Department) issued Real Estate Limited Liability License LC584863000 to Respondent GORENTER.COM, LLC dba GORENTER (GORENTER). The license is set to expire on February 29, 2024.

2. GORENTER.COM was incorporated in Arizona on April 21, 2006. The company is a property management company dealing primarily in residential leasing of homes. The company has had a series of designated brokers.

3. On March 20, 2023, the Department issued real estate broker’s license BR662419000 to Deborah Marie Katzman (Katzman). Katzman’s license is set to expire on February 29, 2024. Prior to obtaining the broker’s license, Katzman had completed thirteen real estate education courses, eight in property management and three specific to broker management.

4. On March 31, 2023, GORENTER hired Katzman as the designated broker for GORENTER.

5. On March 31, 2023, GORENTER updated its Arizona Corporation Commission records to add Katzman as a manager. The other named principals included a manager, Carolina Lopez (Lopez), and manager and member Charles Kirkland (Kirkland), neither of whom were licensed with the Department.

6. Having seen tenant security deposits being dispersed to property owners rather than being held in trust and seeing a $30,000.00-plus withdrawal from one real estate trust account without supporting documentation, on April 10, 2023, Katzman reached out to Denise Black, an office manager at a company which Katzman understood to be related in some way. Katzman questioned why she had not received paperwork to be placed on the Trust Account and noted that she needed access to the bank accounts to be able to complete the monthly reconciliations required to be submitted to the Department. Katzman questioned/explained that monies were being misidentified and moved around which appeared to be comingling or conversion of funds.

7. Ms. Black responded that the only Kirkland could set her up on the bank accounts but did not address how to place Katzman on the real estate trust accounts. Ms. Black described a difference between a “Special Owner Trust” (SOT), holding Kirkland’s properties, and another Owners Trust as holding non-Kirkland properties; she wrote that Kirkland pulled funds out of the SOT likely because he had not received “owner distributions” for months. Ms. Black referred Katzman to discuss the matter with Kirkland.

8. Katzman responded explaining that the withdrawal had happened in the absence of the requisite process for owner distributions which had to be followed for proper accounting of the funds. In the series of communications, Katzman expressed her growing concerns regarding the improper/proper processes.

9. On April 20, 2023, staff at GORENTER reached out to Ms. Black regarding the lack of funds/access to the security deposit trust, which funds were needed to refund deposits to renters who were moving out.

10. On April 20, 2023, Katzman noticed Kirkland and Lopez with her major concerns regarding the continuing history of the use of improper processes, i.e., processes leaving GORENTER out of compliance with real estate laws and rules, with regard to security deposit funds.

11. On April 21, 2023, Katzman filed her Broker Audit Declaration which included a supplemental explanation of the “NO” answers she had indicated on the Audit paperwork. The Broker Audit Declaration contained the following affirmation:

I hereby declare and affirm all reposes herein are true, full, complete and accurate to the best of my knowledge. I further understand that any false, misleading or incomplete answers to this Audit Declaration may be considered as a violation of A.R.S. § 32-2153(A)(3), (A)(17), (A)(21), (A)(22) and/or (B)(8).

Katzman also wrote:

I have been with GoRenter for Three (3) weeks and am resigning this position due to the improper financial accounting and documentation practices that have been in effect prior to my employment. I have completed a cursory audit of leases, pmas and security deposits which has resulted in my decision to termination my association with them effective 4/21/2023 @t 11:59 p.m.

12. On April 24, 2023, Katzman filed a complaint with the Department outlining her concerns about GORENTER’s improper use of trust accounts and security deposit monies being removed from brokerage oversight and placed in a certificate of deposit by the owner. Essentially, Katzman noted that, based on the practices she observed to be in place to make up for the improper money transferring and her efforts to raise the issues and make reforms (which had been ignored), there had been a severe lack of oversight and management at the entity.

13. On April 25, 2023, department investigators Marcy Sherrill and Brent Biesenthal arrived at GORENTER offices to conduct an onsite audit. After serving a subpoena for a variety of specific standard documents, the office manager advised the investigators that she did not have access at that time, but would produce them in 48 hours. While on the premises, the investigators observed GORENTER staff interacting with customers, accepting rent payments, and discussing property management concerns with persons on the telephone.

14. For the next few days, Investigator Sherrill attempted to reach out to the GORENTER office manager, but had no success in connecting with her about the subpoenaed documents.

15. On April 28, 2023, the Department issued a Cease and Desist Order (ORDER) to GORENTER regarding engaging in any real estate acts, practices, and transactions in the absence of compliance with the applicable laws and rules. The ORDER required GORENTER, within 5 days of the ORDER, to provide a full accounting and to return all funds to each of GORENTER’s clients and, within 2 days thereof, to provide to the Department a copy of each full accounting.

16. On April 28, 2023, GORENTER updated its Arizona Corporation Commission records to remove Katzman and add Blake McKee as a manager.

17. On May 3, 2023, GORENTER updated its Arizona Corporation Commission records to remove Blake McKee as manager and add Jill Andrus as a manager.

18. Ms. Andrus holds real estate broker’s license BR665700000, set to expire on October 31, 2024.

19. On May 9, 2023, Ms. Andrus provided some documents on behalf of GORENTER to the Department.

20. According to Department records, Ms. Andrus was not hired by GORENTER until May 11, 2023.

21. On May 11, 2023, Investigator Sherrill notified Ms. Andrus that certain specific subpoenaed documents had not yet been provided and also alerted her that additional documents would likely be needed after the not-yet-produced records were received.

22. On May 12, 2023, GORENTER updated its Arizona Corporation Commission records to remove Charles Kirkland as member and manager.

23. On May 19, 2023, GORENTER updated its Arizona Corporation Commission records to remove Jill Andrus as manager. With that action, GORENTER’s only remaining manager was Lopez, who did not hold a real estate license.

24. On May 12, 2023, counsel for GORENTER had filed an appeal of the ORDER, arguing that the ORDER should be lifted because GORENTER [now] had a designated broker or, alternatively, the ORDER should be stayed pending the investigation results.

25. As of May 16, 2023, the Department had received some additional documents through counsel for GORENTER.

26. In response to the appeal, on June 8, 2023, the Department issued a Notice of Hearing regarding this matter, setting the hearing for July 13, 2023.

27. At hearing, Investigator Sherrill testified that, even at the time of the hearing, there was still a lack of sufficient records to make a determination on the investigation. Investigator Sherrill noted that Ms. Andrus had not produced more records, but had asked Investigator Sherrill to come to the GORENTER offices to find them. Investigator Sherrill further testified that there were not yet enough records to determine whether all of the property owners had received their funds and a full accounting.

28. The Department’s position is that it had received credible allegations from the then-designated broker Katzman, which GORENTER could not discount through what would have been appropriately maintained records and which records appear to the Department, after a subpoena and multiple communications, to be unavailable. The Department requested that its ORDER be upheld.

29. GORENTER presented no fact witnesses.

30. GORENTER argued that it had obtained a new designated broker after Katzman suddenly left the company so that the entity had been able to continue to operate as a property management company. GORENTER further argued that the ORDER had been premature with no evidence at that time of any wrongdoing and that the Department essentially shut down GORENTER without due process. GORENTER argued that the ORDER should be lifted or it should be found that the ORDER was improperly issued.

CONCLUSIONS OF LAW

1. Pursuant to A.R.S. Title 32, Chapter 20, the Department has the authority and duty to regulate all persons engaged in the business of, or acting in the capacity of, a real estate broker or salesperson, and to enforce all statutes, rules, and regulations relating to real estate. The Department relies on a person, once licensed, to follow any and all applicable real estate laws, rules, policies, and commissioner orders.

2. Pursuant to A.R.S. § 32-2154, the Department may issue a Cease and Desist Order if it appears that a licensee is in violation of Title 32, Chapter 20.

3. A.R.S. § 32-2154 provides as follows:

A. If it appears to the commissioner that any person has engaged, is engaging or is preparing to engage in any act, practice or transaction that constitutes a violation of this chapter or any rule adopted or order issued by the commissioner, the commissioner may issue an order directing any person to cease and desist from engaging in the act, practice or transaction or doing any act in furtherance of the act, practice or transaction, to make restitution or to take appropriate affirmative action, within a reasonable period of time as prescribed by the commissioner, to correct the conditions resulting from the act, practice or transaction.

B. A person aggrieved by a cease and desist order issued by the commissioner pursuant to this section may request a hearing pursuant to title 41, chapter 6, article 10 and the commissioner may issue the order or orders as the commissioner deems necessary to protect the public interest. The commissioner may also bring an action in any court of competent jurisdiction against the person to enjoin the person from continuing in violation of this chapter. These proceedings shall be promptly instituted and determined.

4. The hearing record established that GORENTER failed to respond in the course of an investigation by producing the requested documents or written statements, in violation of A.R.S. § 32-21523(B)(10).

5. The hearing record demonstrated that, pursuant to public record, GORENTER was engaged in business without a designated broker from April 24, 2023 until May 11, 2023. Therefore, the hearing record established that GORENTER engaged in the business of a real estate activity without holding a valid license as prescribed in this chapter, in violation of A.R.S. § 32-21523(B)(6).

6. The Administrative Law Judge concludes that hearing record established that GORENTER failed to produce sufficient appropriate records to demonstrate that Katzman’s allegations were neither credible nor serious enough for the Department to have appropriately taken action to protect the public with the Department’s April 28, 2023 Cease and Desist ORDER. Therefore, the Administrative Law Judge concludes that the Department met its burden of proving by a preponderance of the evidence that the issuance of the Cease and Desist Order was reasonable, appropriate, and in accordance with the law.

RECOMMENDED ORDER

IT IS ORDERED the Department’s April 28, 2023 Cease and Desist Order is affirmed and GORENTER’s appeal is dismissed.

Pursuant to A.R.S. § 41-1092.08(I), the licensee may accept the Administrative Law Judge Decision by advising the Office of Administrative Hearings in writing not more than ten (10) days after receiving the decision. If the licensee accepts the Administrative Law Judge Decision, the decision shall be certified as the final decision by the Office of Administrative Hearings.

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 will be forty (40) days from the date of that certification.

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Done this day, August 13, 2023.

/s/ Kay A. Abramsohn

Administrative Law Judge

Transmitted by either mail, e-mail, or facsimile to:

Susan Nicolson, Commissioner

Arizona Department of Real Estate

Attn:

[email redacted]

Daniel Roberts, Esq.

[email redacted]

Lynette Evans, Esq.

James Rolstead, Esq.

[email redacted]

By: OAH Staff