ALJDEC

98A-H1936-REL · Department of Real Estate · 1998-04-14

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 9, 1998

APPEARANCES: -The Respondent 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 9, 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. David F. Sturgeon (the "Respondent") was originally issued a real estate salesperson's license on January 19, 1988. The Respondent is presently employed as a real estate salesperson by West USA Realty. The Respondent's license was due to expire on January 31, 1998. However, the Respondent has submitted a timely application for renewal. The Department has not approved his application.

2. In approximately July of 1995, the Respondent approached property owner Percy York ("York") to list York's property located at 722 West Grove Circle, Mesa, Arizona (the "Property"). The Respondent promised York that if he could not sell the Property within a certain time period, then the Respondent would purchase the Property.

3. York had actually purchased the Home through a wraparound mortgage on a Veterans Administration ("VA") loan. Pursuant to the terms of the VA loan, the Property could not be transferred again without triggering a due-on- sale clause. See State's Exhibit N. The VA loan also was not assumable without the approval of the Department of Veterans Affairs. Id.

4. The Respondent eventually purchased the Property. A check in the amount of $10,000.00 was given to York from Roy L. Carpenter (the "Carpenter"). Carpenter is a minister and the Respondent's friend. Carpenter and York entered into an Agreement to Sell Real Property (the "First Agreement"). See State's Exhibit H. Pursuant to the First Agreement, Carpenter paid the $10,000.00 down and assumed the existing mortgage which had an unpaid balance of $70,000.00. Id. The $10,000.00 came from the Respondent.

5. The Respondent verbally agreed to make the $570.00 monthly mortgage payment on the Property except for two months when York's girlfriend lived on the Property.

6. On or about August 28, 1995, upon receipt of the $10,000.00, York signed a quitclaim deed with no named grantee. See State's Exhibit B. The Respondent notarized the quitclaim deed. Id. The Respondent testified that this arrangement was irregular because York needed to leave town immediately for health reasons.

7. The Respondent subsequently placed a West USA Realty sign on the Property and began advertising it for sale. The Respondent did so without signing a listing agreement and without the knowledge of his broker, West USA Realty. In approximately August of 1995, Herbert and Sherry Thayer answered a newspaper advertisement placed by the Respondent for the sale of the Property. The Respondent admitted that he "was acting for the Thayers as a real estate agent."

8. On or about August 28, 1995, the Thayers signed an Agreement to Sell Real Property (the "Second Agreement"). See State's Exhibit C. The Thayers paid a $14,000.00 deposit and down payment on the Property. Id. Mr. Thayer testified that none of the blanks in the Second Agreement were filled in. Mr. Thayer further testified that the seller's signature line was blank. Mr. Thayer also testified that the handwritten phrase "No Real Estate Agent Involved" on line 16 of the Second Agreement was inserted after he signed the Second Agreement.

9. Mr. Thayer testified that he thought that York was the owner and seller of the Property. Mr. Thayer testified that he did not know that the Respondent was the real owner and seller of the property. In fact, Mr. Thayer testified that he thought that the Respondent was his real estate agent.

10. The Respondent completed the aforementioned quitclaim deed by inserting the Thayers' names in the empty blank. See State's Exhibit B.

11. Mr. Thayer testified that the Respondent told him that he was purchasing the Property with an assumable, non-qualifying loan. Mr. Thayer further testified that the Respondent told him that he would not need title insurance. Mr. Thayer testified that whenever he asked the Respondent if he should retain an attorney, the Respondent replied that an attorney was not necessary.

12. The transfer of the Property was a violation of the terms of the VA mortgage existing on the Property. See State's Exhibit N. The Respondent failed to obtain an agreement signed by the buyer and seller disclosing the nature of the loan. See Respondent's Exhibit 8. Mr. Thayer testified that he was never told that there was a VA mortgage on the Property. The Respondent testified that he disclosed this information to the Thayers.

13. After the purchase of the Property, the Thayers made their mortgage payments to United Title Company. The Thayers thought that this was their mortgage company. The Thayers subsequently received a $126.98 monthly increase (for "Forced Insurance") in their mortgage payment. See State's Exhibit O. The Thayers contacted United Title Company to change insurance carriers. The Thayers eventually learned that Charter Bank For Savings (the "Charter Bank") was the actual mortgagee for the Property.

14. The Thayers subsequently contacted Charter Bank. Mr. Thayer testified that Charter Bank informed him that the Property was never sold to York. Charter Bank told the Thayers that Robert Fletcher and Karen Hill were the mortgagors on the Property. Mr. Thayer testified that Charter Bank had never heard of York, Carpenter or the Thayers.

15. Mr. Thayer testified that Charter Bank informed him that the sale of the Property to York and the subsequent sale to the Thayers may have triggered the VA loan’s due-on-sale clause. Mr. Thayer testified that he feared that he would lose the Property. Mr. Thayer also testified that he was scared that he would lose his $14,000.00 down payment and the $35,000.00 paid for improvements on the Property.

16. The Thayers subsequently learned that they would have to qualify to assume the VA loan. After several months of filling out applications, the Thayers were able to assume the VA loan. See State's Exhibits L & M. However, Mr. Thayer testified that he is still not sure if he has "clear title" to the Property. Mr. Thayer testified that it will cost him $2,000.00 to $5,000.00 to "quiet title" on the Property.

17. The Respondent testified that he made several mistakes in this transaction. The Respondent testified that he circumvented the legal forms, rules and policies at West USA Realty because he was trying to help two parties who were in desperate situations. The Respondent testified that York needed to sell the Property quickly because he had to leave town for health reasons. The Respondent testified that the Thayers needed a non- qualifying assumable loan because they were having credit problems. However, Mr. Thayer testified that he did not have credit problems at the time of this transaction. The Respondent testified that he has a reputation for finding creative solutions to difficult situations.

18. The Respondent testified that the Thayers created most of their troubles (arising from the purchase of the Property) because they directly contacted Charter Bank. The Respondent testified that Charter Bank never would have considered enforcing the due-on-sale clause if the Thayers simply would have continued making the mortgage payments to United Title Company. The Respondent testified that he could have resolved the additional $126.98 mortgage payment for the "Forced Insurance" by simply making a few phone calls.

19. The Respondent testified that Charter Bank never heard of York or the Thayers because an "Agreement for Sale" was used by York and the Thayers to purchase the Property. The Respondent testified that the mortgage company is rarely notified when an Agreement for Sale is used to transfer ownership in property. The Respondent testified that an Agreement for Sale is an installment contract for the sale of land. The Respondent testified that the seller of the property has legal title until the contract is paid in full. The buyer has equitable title during the contract term. The Respondent conceded that he was not knowledgeable "in the complexities" associated with VA loans or Agreements for Sale at the time that the Property was sold to the Thayers.

20. The Respondent testified that the Thayers really had nothing to worry about regarding the ownership or the transfer of ownership of the Property. The Respondent testified that the Thayers had equitable title in the Property pursuant to the Contract (which is an Agreement for Sale). The Respondent testified that the Thayers can legally transfer or sell this equitable interest. See Respondent's Exhibit 4. The Respondent testified that Charter Bank probably would not have executed the due-on-sale clause in the VA loan as long as the Thayers timely made their payments.

21. The Respondent testified that the Thayers spoke to a lower level, unsophisticated employee at Charter Bank who needlessly scared the Thayers. The Respondent testified that he spoke to a supervisor at Charter Bank who clearly understood the situation. The Respondent further testified that he spoke to an employee at the Veterans Association who also understood the situation. The Respondent testified that he could have easily resolved the misunderstanding between Charter Bank and the Thayers but unfortunately, the Thayers retained an attorney who would not allow Mr. Sturgeon to speak to the Thayers.

22. The Respondent testified that the Thayers were not harmed by purchasing the Property. The Respondent testified that he disclosed to the Thayers a "Property Profile" showing all the liens on the Property. See State's Exhibit A. The Respondent testified that he disclosed this Property Profile to the Thayers prior to selling the Property to them. Mr. Thayer testified that he did not see the Property Profile until after he had purchased the Property.

23. The Respondent testified that in his opinion the Thayers did not need title insurance on the Property and did not need to hire an attorney. The Respondent testified that he made these statements to the Thayers to help them save money.

24. The Respondent testified that he is currently obtaining a title report on the Property from Chicago Title Insurance Company. See Respondent's Exhibit 2. The Respondent testified that the title report will show that the Thayers have clear title or equitable title in the Property.

25. The Respondent testified that he filed bankruptcy on August 4, 1995. The Respondent testified that he purposely misled the Thayers into thinking that Carpenter or York was the real owner of the Property. The Respondent testified that he concealed his ownership in the Property because he was facing bankruptcy. The Respondent testified that Carpenter collected and deposited the Thayers’ $14,000.00 down payment (which included Sturgeon's $4,000.00 profit) in Carpenter's account because the Respondent was anticipating the bankruptcy.

26. Assistant Attorney General Michael Denious requested that the Respondent’s license be revoked and that the Respondent be assessed no less than a $3,000.00 civil penalty.

27. The undersigned Administrative Law Judge finds that the Respondent breached his fiduciary duty to the Thayers and that he intentionally failed to deal fairly with the Thayers by (1) not disclosing his ownership interest in the Property and (2) by not disclosing the terms and possible consequences associated with the VA loan, the due-on-sale clause, and the agreements for sale. The undersigned Administrative Law Judge finds that this behavior constitutes a course of substantial misrepresentations by the Respondent.

28. The undersigned Administrative Law Judge finds that the Respondent failed to disclose information materially affecting the consideration paid by the Thayers pursuant to the Contract. Clearly, the Thayers would have avoided or paid less for this Property if they had known that the Respondent was the Property’s real owner and that there was a VA loan (with a due-on-sale clause) on the Property.

29. The undersigned Administrative Law Judge finds that the Respondent acted as a principal in the sale of the Property without properly notifying the Thayers that he had a real estate license and was acting as a principal.

30. The undersigned Administrative Law Judge finds that the Respondent placed a sign on the property without written authority from York. The undersigned Administrative Law Judge further finds that the Respondent failed to maintain a complete written record of the sale of the Property.

31. The undersigned Administrative Law Judge finds that the Respondent was negligent in not thoroughly investigating and disclosing the complexities associated with VA loans and agreements for sale. This negligence has injured the Thayers financially and has caused the Thayers mental anguish.

32. The undersigned Administrative Law Judge finds that the Respondent’s attempt to conceal both the Property and the $4,000.00 profit from the bankruptcy court (and his creditors) shows that he is a person who lacks honesty, truthfulness and good character.

33. As a mitigating factor to consider in determining the Respondent’s punishment, the Respondent conceded that he made substantial mistakes in this transaction. The Respondent also testified that this was the only transaction in which he has circumvented the policies and procedures established at West USA Realty. Furthermore, the Respondent’s Broker, Clay Fouts, wrote that this is the only blemish on the Respondent’s stellar work record since he joined West USA Realty in 1990. See Respondent’s Exhibit 5.

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) as set forth in Findings of Fact #27.

4. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that the Respondent has violated Arizona Administrative Code R4-28-1101(B) as set forth in Findings of Fact #28.

5. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that the Respondent has violated Arizona Administrative Code R4-28-1101(E) as set forth in Findings of Fact #29.

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 #27.

7. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that the Respondent has violated A.R.S. §32- 2153(A)(12) as set forth in Findings of Fact #30.

8. The undersigned Administrative Law Judge finds that the preponderance of the evidence shows that the Respondent has violated A.R.S. §32- 2153(A)(18) as set forth in Findings of Fact #30.

9. 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) as set forth in Findings of Fact #31.

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

11. 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) as set forth in Findings of Fact #27, 28, 29 & 32.

12. 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 #27, 28, 29 & 32.

13. 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).

14. 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.

15. The undersigned Administrative Law Judge finds that the Respondent has committed eleven (11) violations pursuant to A.R.S. §§32-2153(A)(1), (A)(3), (A)(12),(A)(18),(A)(22), (B)(3), (B)(7), (B)(10) and A.A.C. R4-28- 1101(A)(B)(E). Therefore, the civil penalty may not exceed $11,000.00 pursuant to A.R.S. §32-2160.01(A).

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 twelve (12) months and that the Respondent be assessed a $7,000.00 civil penalty. 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 21, 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