ALJDEC

98A-H1912-REL · Department of Real Estate · 1998-04-08

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 6, 1998

APPEARANCES: -Daniel B. Modeen appeared on his own behalf. -Assistant Attorney General Michael T. Denious represented the Department of Real Estate.

ADMINISTRATIVE LAW JUDGE: Casey J. Newcomb _____________________________________________________________________

On April 6, 1998, a hearing was held to determine if the Respondent’s real estate salesperson’s license should be suspended, revoked, or its renewal be denied. The Department of Real Estate (the “Department”) was represented by Assistant Attorney General Michael T. Denious. The Respondent appeared on his own behalf. Evidence and testimony were presented. Based upon a review of the entire record, the following Findings of Fact, Conclusions of Law and Recommended Decision are made.

FINDINGS OF FACT

1. Daniel B. Modeen (the "Respondent") was originally issued a real estate salesperson license on April 19, 1982. The Respondent has sold homes for fourteen years. The Respondent’s license will expire April 30, 1998.

2. On or about February 14, 1996, Clarence and Peggy Abrams (the "Abramses") entered into a Residential Resale Real Estate Purchase Contract (the “Contract”) to buy a manufactured home and lot located at 11856 Dawn Drive, Yuma, Arizona (the "Home"). Bill and Faith Orebaugh (the "Orebaughs") were the sellers of the Home.

3. The Respondent represented the Orebaughs in the sale of the Home. The Contract designates the Respondent as the agent for the Orebaughs exclusively, however, the

escrow information sheet lists the Respondent as both the "listing agent" and the "selling agent." See State's Exhibits A & B.

4. The Respondent hired Roy Vaughan of Conquest Pest & Termite Control to inspect the Home for termites. The Respondent testified that Mr. Vaughan had inspected "at least 30 to 35 homes" over a fourteen year period for the Respondent prior to this Home. Pursuant to the terms of the Contract, the Abramses had the right to hire an independent inspector to inspect the Home to determine the conditions therein. See State’s Exhibit A (lines 252- 254). However, the Abramses testified that they relied on the Respondent to arrange for the termite inspection.

5. On or about February 19 1996, Roy Vaughan inspected the Home for termites. See State's Exhibit C. Mr. Vaughan's report (the “First Report”) stated that "visible evidence of wood destroying organisms was observed. No control measures were performed. Evidence and organisms were observed: Termites under mobile form boards left under mobile." See State's Exhibit C.

6. The Respondent testified that Mr. Vaughan told him that there was a termite problem with the form boards under the Home. The Respondent testified that he interpreted the words “form boards” to mean wood that was lying under the mobile home. The Respondent testified that he told Mr. Vaughan to take care of the problem. The Respondent testified that he assumed that Mr. Vaughan or the Abramses would remove the infested form boards. The Respondent further testified that Mr. Vaughan said that he would speak to the Abramses about the termite problem.

7. On or about February 23, 1996, Mr. Vaughan returned to the Home to treat the termite problem. Mr. Vaughan's second report (the “Second Report”) stated that "visible evidence of infestation was noted; proper control measures were performed." See State's Exhibit D. In a box in the Second Report entitled "CONDITIONS CONDUCIVE TO INFESTATION", Mr. Vaughan wrote "wood form boards under mobile." Id. Finally, Mr. Vaughan wrote that he was "unable to inspect floor or wall covering" because these areas of the Home were inaccessible. Id.

8. Prior to closing, the Abramses met with the Respondent. Mr. Abrams testified that he could not recall if he ever reviewed Mr. Vaughan’s First Report. Mr. Abrams testified that he did review and sign Mr. Vaughan’s Second Report prior to closing. See State’s Exhibit D. Mr. Abrams testified that he also interpreted “form boards” to mean wood lying under the mobile home. However, Mr. Abrams testified that he is not an expert on termites. Mr. Abrams also testified that he asked the Respondent if there was any problem with termites “in the Home.” Mr. Abrams testified that the Respondent replied that there was “no sign” of any termite problem “in the Home” and that the Home “passed the inspection.”

9. Mr. Abrams also testified that the Respondent failed to disclose the warranty page of the Second Report. See State’s Exhibit D. Pursuant to this warranty, Conquest Pest and Termite Control would have been obligated to treat the Home for three additional years. Id.

10. On or about February 28, 1996, the parties closed on the Home. Prior to closing, the Abramses twice visited and briefly inspected the inside of the Home. The Abramses both testified that there were no visible signs of termites inside of the Home. The Respondent also testified that there were no visible signs of termites in the Home prior to closing.

11. The Abramses moved into the Home after closing. However, shortly thereafter, the Abramses moved to Las Vegas, Nevada for a couple of weeks for health reasons. The Abramses returned to the Home in April or May of 1996. The Abramses testified that termite infestation was clearly visible throughout the Home. See State’s Exhibits G & H.

12. Mr. Abrams testified that in May of 1996, he contacted Truly Nolen Exterminating Inc. to treat the termite problem. Mr. Abrams testified that Truly Nolen refused to treat the Home “until the Home’s infested retaining wall was removed.” Although the record is not entirely clear on this issue, the aforementioned “form boards” apparently included the retaining wall and other wood that supported the Home. Mr. Abrams testified that he cannot remove the remaining “form boards” without the Home caving in.

13. Prior to closing on the Home, the Orebaughs were required to fill out a Residential Seller's Property Disclosure Statement ("SPDS"). See State's Exhibit E. The SPDS requires that the seller disclose to the buyer all known material facts about the property. This allows the prospective buyer to make a fully informed decision about purchasing the property. This document is supposed to be signed and dated by both the seller and buyer. Id. The Abramses testified that they requested the SPDS from the Respondent prior to closing but never received it.

14. The Respondent testified that he alone filled out the SPDS and forged the Orebaughs’ and the Abramses' signatures. The Respondent testified that he completed and signed the SPDS because he wanted to quickly close the case because everything else was done. The Respondent testified that he "spaced out" when he forged the names of the buyers and seller. The Respondent testified that the SPDS was "not a serious document to me" and was "irrelevant." The Respondent testified that the Contract is the important document that should be thoroughly reviewed and signed by the seller and buyer. The Respondent conceded that he now realizes that the SPDS is an important document that should be reviewed and signed by the buyer and seller.

15. The Respondent testified that when he spoke to the Orebaughs about the Home, the issue of termites “never came up.” Despite having insufficient information from the Orebaughs regarding possible termite problems, the Respondent completed the SPDS and forged the signatures of the Abramses and Orebaughs. The Respondent testified that he had a duty to the Abramses to correct the termite problem but he had no duty to inform the Abramses of the termite problem.

16. Line 39 of the SPDS asks "Is there, or has there ever been, any wood infestation, termite, insect or pest problems? Explain" See State's Exhibit E. The Respondent testified that he answered "no" to this question because "there had never been a termite problem in the Home.” The Respondent testified that there was only a problem “under the Home.” The Respondent testified that everybody in Yuma, Arizona has termite problems underneath their homes. The Respondent testified that “you can treat them but you won’t get rid of them.”

17. The Respondent testified that he filled out line 39 of the SPDS before he received the termite reports. The Respondent testified that he completed the balance of the SPDS after receiving the termite reports but forgot to double check his answer to line 39. The Respondent testified that he probably would have changed his answer to line 39 of the SPDS if he had double checked it. The Respondent testified that he sent a copy of the SPDS to the Abramses by mail “right after closing.”

18. The Abramses testified that Mr. Vaughan never spoke to them about the termite problem. The Abramses further testified that they did not timely receive the SPDS from the Respondent. The Contract specifically stated that the Orebaughs were required to deliver the SPDS to the Abramses within five days of accepting the Contract. See State's Exhibit A (lines 225- 231). The Abramses signed the Contract on February 14, 1996. The Abramses did not receive the SPDS within five days of signing the Contract. In fact, the forged SPDS was not signed by the Respondent until February 24, 1996. More importantly, the Contract stated that the Abramses had an additional five days to terminate the Contract. Id. Despite numerous requests (before and after closing) by the Abramses to obtain the SPDS, they did not receive the SPDS until August 9, 1996.

19. The purchase price of the Home was approximately $55,000.00. The Contract stated that “the Seller agrees to pay up to one percent (1%) of the purchase price . . . for costs of treatment of infestation . . .” See State's Exhibit A (lines 298-301). If the cost of treatment exceeded one percent, then the Seller or the Buyer could terminate the Contract. The undersigned Administrative Law Judge cannot overlook the fact that $550.00 was paid for the only termite treatment on the Home. This is exactly one percent of the Home's purchase price. If the Home would have required more treatment, then the Seller or the Buyer could have terminated the Contract. In short, further termite treatment could have killed the deal. This certainly would provide the incentive to not disclose the termite problems with the Home.

20. The undersigned Administrative Law Judge finds that the Respondent's forgery on the SPDS substantially injured the Abrams. The Orebaughs were required to complete and sign the SPDS. The Orebaughs presumably would have truthfully disclosed on the SPDS the extent of the termite infestation in the Home. Upon receiving the SPDS, the Abramses undoubtedly would have terminated the Contract (pursuant to the terms of the Contract) or they would have further inquired about the extent of the termite problem. Obviously, the undersigned Administrative Law Judge is presuming that the Orebaughs would have truthfully completed the SPDS. This presumption has not been rebutted.

21. The undersigned Administrative Law Judge further finds that the Respondent's failure to timely disclose the SPDS substantially injured the Abrams. Pursuant to the terms of the Contract, the Orebaughs were required to disclose the SPDS five days after acceptance of the Contract. After disclosure, the Abramses should have had five additional days to terminate the Contract. Obviously, the timely receipt of the SPDS would have raised at least two concerns for the Abramses. First, the Abramses undoubtedly would have terminated the Contract upon seeing their forged signatures on the SPDS. Second, the Abramses would have questioned line 39 of the SPDS because it clearly contradicted the two termite reports.

22. Mr. Abrams testified that he felt that the Respondent and the Orebaughs were working together to fraudulently sell the termite infested Home. However, the undersigned Administrative Law Judge finds that there is no evidence of such a fraudulent scheme. The undersigned Administrative Law Judge further finds that at the time of closure, the Respondent probably did not have knowledge of the extent of the termite problem at the Home. However, the Respondent should have been more thorough in determining the extent of the termite problem. Furthermore, the Respondent should not have solely relied on the two termite reports where Mr. Vaughan clearly stated that his inspections were incomplete.

23. The undersigned Administrative Law Judge further finds that even though the Respondent did not have knowledge of the extent of the termite problem at the Home, the Respondent certainly knew that there was a termite problem at the Home. The undersigned Administrative Law Judge finds that the Respondent misled the Abramses by telling them that the Home had “passed the inspection” and that there was “no sign” of termites in the Home.

24. Although the undersigned Administrative Law Judge finds that the Respondent did not intentionally defraud the Abramses regarding the extent of the termite infestation in the Home, the undersigned Administrative Law Judge cannot ignore the fact that the Respondent completed, forged, and failed to timely deliver the SPDS which was crucial to the Abramses' decision-making process. Furthermore, the undersigned Administrative Law Judge cannot ignore the fact that the Respondent was not totally candid about the termite problem in the Home. These actions constitute a course of misrepresentation.

25. Assistant Attorney General Michael Denious requested that the Respondent’s license be suspended or revoked and that the Respondent be assessed a $2,000.00 civil penalty.

26. As a mitigating factor to consider in determining the Respondent’s punishment, the Respondent did disclose the Second Report to the Abramses which clearly showed that there was a termite problem at the Home. The Abramses should have been more thorough in determining the extent of the termite problem at the Home. The Respondent also has successfully resolved other problems (i.e. the septic system) at the Home. Finally, the Respondent has attempted to resolve the termite problem.

CONCLUSIONS OF LAW

1. The Department has jurisdiction over the Respondent and the subject matter of this case pursuant to A.R.S. §32-2108, et seq.

2. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that the Respondent violated provisions of Title 32, Chapter 20 of the Arizona Revised Statutes within the meaning of A.R.S. §32- 2153(A)(3).

3. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that the Respondent has violated Arizona Administrative Code R4-28-1101(A) by failing to deal fairly with all parties to the Contract.

4. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that the Respondent has violated A.R.S. §32- 2153(A)(22) by not reasonably determining the extent of the termite problem at the Home as set forth in Findings of fact #22.

5. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that the Respondent has violated A.R.S. §32- 2153(A)(25) by forging the Orebaughs’ and Abramses’ names on the SPDS.

6. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that the Respondent engaged in substantial misrepresentations or a course of misrepresentation within the meaning of A.R.S. §32-2153(A)(1) and (B)(3) as set forth in Findings of Fact #23 & 24.

7. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that the Respondent has not been found guilty (by a court of competent jurisdiction) of conduct which constitutes fraud or dishonest dealings within the meaning of A.R.S. §32-2153(B)(5).

8. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that the Respondent has not shown that he is a person of honesty, truthfulness and good character within the meaning of A.R.S. §32-2153(B)(7).

9. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that the Respondent has violated state laws, regulations and rules involving theft, substantial misrepresentations and dishonest dealings within the meaning of A.R.S. §32-2153(B)(10) as set forth in Findings of Fact #23 & 24.

10. Based upon the foregoing, the undersigned Administrative Law Judge finds that the Respondent's real estate salesperson's license should be suspended pursuant to provisions of A.R.S. §32-2153(A) and (B).

11. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that grounds exist to impose a civil penalty against the Respondent not to exceed $1,000.00 per violation of Title 32, Chapter of the Arizona Revised Statutes.

12. The undersigned Administrative Law Judge finds that the Respondent has committed eight (8) violations pursuant to A.R.S. §§32-2153(A)(1), (A)(3), (A)(22), (A)(25), (B)(3), (B)(7), (B)(10) and A.A.C. R4-28-1101(A). Therefore, the civil penalty may not exceed $8,000.00 pursuant to A.R.S. §32-2160.01(A). The undersigned Administrative Law Judge adopts the Assistant Attorney General’s recommendation to impose a $2,000.00 civil penalty against the Respondent.

RECOMMENDED DECISION

In view of the foregoing, the undersigned Administrative Law Judge recommends that the Respondent’s real estate salesperson’s license be suspended for a period of six (6) months and that the Respondent be assessed a $2,000.00 civil penalty pursuant to the Assistant Attorney General’s recommendation. The civil penalty shall be paid by money order or cashier’s check made payable to the Arizona Department of Real Estate and is due on or before the date that this Order becomes final.

Done this day, April 20, 1998.

______________________________________ Casey J. Newcomb Administrative Law Judge

Original transmitted by mail this ____ day of April, 1998, to:

Mr. Jerry Holt, Commissioner Department of Real Estate 2910 North 44th Street, Ste. 100 ATTN: Bonnie Hollon Phoenix, AZ 85018

By ___________________________ -----------------------

Office of Administrative Hearings 1700 West Washington, Suite 602 Phoenix, Arizona 85007 (602) 542-9826