ALJDEC

98A-H1980-REL · Department of Real Estate · 1999-02-11

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: January 28, 1999; 9:25 A.M.; Phoenix, Arizona APPEARANCES: Arizona Department of Real Estate: Michael T. Denious, Esq., Assistant Attorney General Respondent: Terry P. Esser, Esq. ADMINISTRATIVE LAW JUDGE: George A. Schade, Jr.

This is a disciplinary proceeding brought pursuant to Arizona Revised Statutes (“A.R.S.”) § 32-2153. Based upon the evidence presented at the hearing, Administrative Law Judge George A. Schade, Jr. submits this Recommended Decision and Order to the Commissioner of the Arizona Department of Real Estate (“Commissioner”). FINDINGS OF FACT PROCEDURAL HISTORY 1. On December 1, 1998, the Director of the Division of Administrative Actions, of the Arizona Department of Real Estate (“Department”), issued a Notice of Hearing and Complaint setting a hearing on January 28, 1999. Pursuant to A.R.S. ' 41-1092.01, the hearing was assigned to the Office of Administrative Hearings. 2. The complaint alleged violations of A.R.S. §§ 32-2153(A)(1), -(A)(3), -(A)(22), -(B)(3), -(B)(10), and Commissioner’s Rule R4-28- 1101(A), Ariz. Admin. Code. At the conclusion of the hearing, the Department withdrew the alleged violation of A.R.S. § 32-2153(B)(3). 3. On December 23, 1998, Mr. Painter answered the complaint. 4. On December 23, 1998, Mr. Painter filed (1) a motion to permit the depositions of Mr. Monte F. Graham, Mr. Bruce C. Kelly and Mrs. Erin J. Kelly, and (2) a motion to strike, or in the alternative, exclude in limine the matter involving a prior Consent Order of the Department involving Mr. Painter. The Department responded to these motions, and Mr. Painter replied. 5. On January 4, 1999, Administrative Law Judge Schade denied Mr. Painter’s motion to permit discovery and denied the motion to strike or in limine, but with the opportunity to renew it at the hearing. 6. On January 27, 1999, Mr. Painter renewed his motion in limine regarding the prior Consent Order. 7. On January 28, 1999, a hearing, which lasted ten hours, was held. The Department presented the testimony of Mr. Monte F. Graham, Pima County zoning inspector, and Mr. Bruce C. Kelly, the buyer. Mr. Painter presented the testimony of Mr. William K. Thomas, the seller; Ms. Linda Sue Hofer, a licensed real estate assistant to Mr. Painter; and Mr. Gary Hardy, Mr. Painter’s broker. Mr. Painter testified. Mr. Thomas’ testimony was given by telephonic means, as Mr. Thomas resides in Oregon. Both parties presented documentary exhibits. 8. Near the conclusion of the hearing, Mr. Painter’s motion in limine was granted, and evidence regarding the prior Consent Order was excluded. MR. DAVID A. PAINTER 9. On August 8, 1995, the Department issued a real estate broker’s license to Mr. Painter. This license will expire on August 31, 1999. 10. Since June, 1996, Mr. Painter has been employed as a licensed broker by Prudential Aegis Realty (“Prudential”) in Tucson, Arizona. 11. No complaints, other than this one, have been filed with the Department against Mr. Painter since he began working as a licensed real estate salesperson and as a broker. 12. Mr. Painter presented thirteen letters from prior clients and other individuals who are familiar with Mr. Painter’s business practices, and all the letters are complimentary and favorable. 13. Mr. Hardy, Mr. Painter’s broker and office manager, has the highest professional opinion of Mr. Painter’s work in real estate. 14. Mr. Painter completes about 75 real estate transactions annually. THE SALE OF THE PROPERTY 15. On June 5, 1997, Mr. and Mrs. William K. and Jayne Thomas (“Thomas”) listed with Mr. Painter, at Prudential, for sale a parcel of land located at 17840 South Sonoita Highway, outside Vail, Arizona. The property was a parcel of five acres of land and included a 1996 mobile home (“property”). The listing price was $144,970.00. 16. On or about July 22, 1997, Mr. Painter executed a Residential Resale Real Estate Purchase Contract and Receipt For Deposit for the sale of the property to Mr. and Mrs. Bruce C. Kelly (“Kelly”), for a purchase price of $125,000.00. Following a counteroffer, Mr. and Mrs. Kelly submitted an addendum to their offer, which Mr. and Mrs. Thomas accepted. 17. On July 22, 1997, Mr. and Mrs. Kelly also executed a Limited Dual Representation Agreement. Mr. Painter represented the Thomases and the Kellys as a dual agent. 18. The final offer accepted by Mr. and Mrs. Thomas included the sale of five acres of land, the mobile home, a corral and attached open shade stable, two storage sheds, a dog run, a screened gazebo, a built-in barbecue, and a built-in wishing well. The screened gazebo was part of the mobile home. During the hearing, this gazebo was also described as an “Arizona Room.” The room is located in the front of the mobile home. 19. Prior to close of escrow, Mr. and Mrs. Kelly raised with Mr. Painter two issues: (1) the location of the easement for legal ingress and egress to the property, and (2) the Coronado National Forest did not immediately border or touch the property. Mr. and Mrs. Kelly contended that a marketing flyer for the property stated that the “Property is bordered on sides by State/Federal land (Coronado National Forest).” Respondent’s Exhibit No. 6. And further, Mr. Painter had told them that Federal land bordered the property on the west side. It is noted that the listing agreement did not make any statement regarding the property being bordered by Federal land. Respondent’s Exhibit No. 11. Mr. and Mrs. Kelly interpreted the term “border” to mean immediately adjacent to or abutting (or touching). Mr. and Mrs. Kelly did not bring to Mr. Painter’s attention any other issues related to the impending sale of the property prior to close of escrow. 20. Mr. Painter and Ms. Hofer resolved the issue of access to the property by working with a local title company. The location of the easement was determined, and this issue was resolved to the satisfaction of Mr. and Mrs. Kelly. 21. The Coronado National Forest “surrounds” the western side of the property, but it does not abut or touch the property. The resolution of this issue depends on how the term “border” is defined, whether it means directly adjacent to (touching) or not. Although testimony was heard on this issue, the Department’s complaint did not present this issue as a separate count. This issue arose during the hearing. 22. The issue of whether the Coronado National Forest “bordered” the property was resolved by the agreement of Mr. and Mrs. Thomas to reduce the selling price from $125,000.00 to $117,500.00, a reduction Mr. and Mrs. Kelly accepted. 23. Prior to close of escrow, Mr. Painter offered Mr. and Mrs. Kelly an opportunity to inspect the property. Mr. and Mrs. Kelly declined and did not inspect the property. 24. Escrow closed on August 28, 1997. THE ZONING VIOLATIONS 25. Mr. Graham is a zoning inspector for Pima County. On April 17, 1997, after receiving a complaint regarding the use of Mr. and Mrs. Thomas’ property, Mr. Graham visited the site. Mr. Graham found “a mini frontier town” (Respondent’s Exhibit No. 10), that included the following structures: A. small stage B. chow hall that would accommodate 40-50 people C. large barbecue pit D. store-type building or front E. wishing well F. corral G. shade corral or stable for one horse.

Mr. Graham learned this mini frontier town was called “Charlie’s Mountain.” 26. Mr. Graham also saw a double wide mobile home with “awnings” on the front and rear. One of these awnings enclosed an “Arizona Room” (identified as the “screened gazebo” in the purchase contract). 27. On April 17, 1997, Mr. Graham spoke by cellular telephone with Mr. Thomas, the property owner. Mr. Graham told Mr. Thomas that “permits” were required for the frontier town structures. Mr. Graham did not clarify as to the type of permit, whether a zoning or a zoning/building permit was required. Mr. Thomas responded he was not aware permits were needed for the frontier town. [1]Mr. Thomas told Mr. Graham he had been advertising events at the property, but had not made any money yet. 28. On April 24, 1997, Mr. Graham’s supervisor received another complaint about the Thomas’ property. 29. On May 6, 1997, Mr. Thomas visited Mr. Graham at Mr. Graham’s office. Mr. Thomas indicated he “Wants to keep frontier town intact. Refuses to commit to anything specific.” Respondent’s Exhibit No. 10 (Mr. Graham’s work notes). 30. Thereafter (date unspecified), apparently the original complainant called Mr. Graham and stated two events had been held at the property, the most recent one having been held on April 24, 1997. People were cooking steaks, drinking, singing, and playing loud music past 10:00 P.M. 31. On May 20, 1997, Mr. Graham received a complaint through the Pima County Health Department that beef was being slaughtered at the Thomas’ property. It appears the health department took no action on this complaint because the health department’s inspector had refused to inspect due to “no trespassing” signs at the site. 32. On May 21, 1997, Mr. Graham received another telephone complaint call concerning the Thomas’ property. 33. On May 23, 1997, Mr. Graham spoke with Mr. Thomas by telephone. According to Mr. Graham’s notes, Mr. Thomas “Agreed to remove all of the structures in the ‘mini town’ and to permit corrals and the animal barn by the end of June.” Respondent’s Exhibit No. 10. Mr. Graham testified he told Mr. Thomas that “permits” were needed for the mini frontier town’s buildings and the mobile home. Mr. Thomas confirmed that Mr. Graham had told him about the permit required for the mobile home, but did not remember being told about permits for the buildings not associated with the frontier town. During this conversation, Mr. Graham and Mr. Thomas did not speak about setback issues. 34. On June 13, 1997, apparently the original complainant, telephoned Mr. Graham and advised that the property was being sold. The caller suggested Mr. Thomas call the realtor, Mr. Painter. At the entrance to the Thomas’ property, a realtor’s sign had been posted, showing Mr. Painter’s name, realty office and telephone number. 35. On June 17, 1997, Mr. Graham called Mr. Painter. This was the first of the two telephone conversations Mr. Graham and Mr. Painter had regarding the Thomas’ property. The conversation was “extremely brief” according to Mr. Painter. According to Mr. Graham’s work notes, Mr. Painter “confirmed that he has listed the property for sale,” and Mr. Painter “was advised of the Zoning Violations.” Mr. Painter responded “He is to talk to Thomas and advise.” Respondent’s Exhibit No. 10. Mr. Graham testified he got the “impression” Mr. Painter “did not know about the violations.” In a sworn statement given on November 25, 1997, Mr. Graham stated: “And we discussed the fact that if it was to be sold that there would have to be disclosures as to the violations and that the frontier town that Mr. Thomas had erected was in total violation and there was no means by which he could ever lawfully permit this little setting to be used commercially as he apparently intended to do.” (Emphasis added.) Respondent’s Exhibit No. 23, pages 8-9.

Mr. Graham testified that during this conversation, he “did not discuss setback issues” with Mr. Painter and “did not discuss specific buildings” requiring permits. Mr. Graham told Mr. Painter that Mr. Graham “did not have permits for the property.” Mr. Painter testified they did not discuss specific types of permits[2] for specific buildings and spoke primarily about the mini frontier town. 36. Within minutes, Mr. Painter telephoned Mr. Thomas, who informed Mr. Painter he had previously spoken with Mr. Graham, and the mini frontier town’s buildings would be shortly removed. Mr. Painter told Mr. Thomas “the frontier town had to go,” that is, be removed. 37. On July 15, 1997, Mr. Graham visited the property. He saw Mr. Painter’s realty sign and noted in his notes that “Building situation is the same.” Respondent’s Exhibit No. 10. While on the site, Mr. Graham spoke with Mrs. Jayne Thomas, Mr. Thomas’ wife. Mrs. Thomas informed Mr. Graham that an auction was going to be held during the coming week-end to sell the “buildings from the amusement town,” and that Mr. Thomas would afterwards call Mr. Graham. Respondent’s Exhibit No. 10. 38. Mr. Thomas did not call Mr. Graham thereafter, and when Mr. Graham tried to telephone Mr. Thomas, he learned that both of the telephone numbers he had for Mr. Thomas had been disconnected. 39. During the last week of August, Mr. and Mrs. Thomas packed their belongings to return to Oregon. They vacated the property by close of escrow. 40. On July 19, 1997, a public auction was held at the Thomas’ property. Both Mr. Painter and Ms. Hofer visited the property and observed part of the auction being conducted. Buildings were being sold and removed from the property. Mr. Painter testified he knew that immediate removal of purchased structures was a condition of the auction. 41. As they were leaving the Thomas’ property, Mr. Painter and Ms. Hofer met Mr. and Mrs. Kelly, who had come to visit the property. After a short conversation, Mr. Painter and Ms. Hofer left. Thereafter, Mr. and Mrs. Kelly spoke with Mr. Thomas about the property.[3] 42. On July 29, 1997, Mr. Graham telephoned Mr. Painter. This was the second and last conversation Mr. Graham and Mr. Painter had before this matter was brought by the Department. At the outset, Mr. Painter informed Mr. Graham the property had been sold. Mr. Painter did not clearly respond to Mr. Graham’s inquiry, repeated three times, as to whether the mini frontier town’s structures had all been removed from the site. Mr. Painter did not know if all of the frontier town’s structures had been sold and removed from the property. He did not clearly answer this inquiry because, as he testified, he did not know the correct answer, and he did not want to give a false or incomplete answer. In his sworn statement given on November 25, 1997, Mr. Graham stated: “Mr. Painter advised me that he had in fact sold the property. I asked him what had happened with the structures for this little mini town, and he would not commit himself. He wouldn’t indicate whether they had been sold or not, or if they had been removed from the property.” (Emphasis added.) Respondent’s Exhibit No. 23, page 10.

Mr. Graham interpreted this lack of a clear response as an evasive answer. Mr. Graham informed Mr. Painter that Mr. Graham would contact the Department if the property had been sold without disclosure of the zoning violations. Mr. Painter felt offended at this statement, and asked Mr. Graham if Mr. Graham was “threatening him” and if Mr. Graham “had a vendetta” against Mr. and Mrs. Thomas. This exchange ended when Mr. Painter hung up the telephone. This conversation lasted less than three minutes. During this second conversation, Mr. Graham and Mr. Painter did not speak about specific setback violations or specific types of permits for the structures on the property. 43. Mr. Graham testified that in this case his “primary emphasis” and objective was to resolve the “main complaint,” namely, the existence of the mini frontier town and its commercial use. 44. Following their second conversation, neither Mr. Graham nor Mr. Painter made an effort to speak with each other about the Thomas’ property. Mr. Graham deemed it unproductive to speak with Mr. Painter again, and Mr. Painter, not hearing from Mr. Graham, assumed the zoning problem with the property had been resolved. 45. On July 30, 1997, Mr. Graham visited the property. All the mini frontier town’s buildings had been removed with the exception of “a screened in dining ramada.” Respondent’s Exhibit No. 10. It is not clear, but it appears this ramada is the same as the screened gazebo or Arizona Room which is part of the mobile home. Mr. Graham observed that the following structures, which did not have permits, were still on the property: a storage shed, a garden shed, a corral, and the shade stable. Additionally, the corral and the shade stable did not meet required zoning setbacks of 50 feet from the property boundary.[4] 46. On August 7, 1997, Mr. Graham obtained citations for (1) violations of property setbacks involving the corral and the shade stable and (2) violations for lack of permits for the other structures identified in Finding of Fact No. 45. Mr. Graham did not cite for illegal commercial use because the frontier town’s structures had been removed. That same date, Mr. Graham delivered the citations to the Thomas’ property. Upon not finding anyone at the mobile home, although he heard sounds coming from inside, he taped the citations to the front door of the mobile home. To this date, no one knows what happened to the citations posted on the door. 47. On September 25, 1997, the citations were dismissed at Mr. Graham’s request, as Mr. and Mrs. Thomas no longer owned the property. 48. Subsequently, Mr. Graham informed Mr. and Mrs. Kelly that their new property had buildings which did not have required permits. 49. Mr. and Mrs. Kelly have obtained, at their expense, permits for the storage shed, garden shed and the two “awnings” (the Arizona Room and rear deck) on the mobile home. Both the built-in barbecue and wishing well did not require permits and remain on the property. 50. In November, 1997, after additional searching, a permit for the mobile home was found. A permit had been issued on August 18, 1995, or prior to the installation of the mobile home. 51. Mr. and Mrs. Kelly have removed the corral and shade stable, which did not comply with setback requirements, after they unsuccessfully sought a zoning variance. 52. On October 7, 1998, the Pima County Zoning Department closed its case. The property is in compliance with zoning requirements. 53. On December 10, 1997, Mr. and Mrs. Kelly filed a complaint against Mr. Painter with the Department, giving rise to this matter. 54. Mr. and Mrs. Kelly have not made any claims for reimbursement of expenses or other claims against Mr. and Mrs. Thomas. 55. Mr. and Mrs. Kelly were not cited for any zoning violations. 56. During their conversation at the auction, Mr. Thomas told Mr. Kelly that the mini frontier town’s buildings were being sold because Mr. and Mrs. Thomas “were not allowed to run the business,” and the structures did not comply with zoning requirements. Mr. Kelly became aware that the mini frontier town’s structures did not comply with zoning requirements. 57. No civil litigation has resulted from this matter. CONCLUSIONS OF LAW A.R.S. § 32-2153 The provisions of A.R.S. § 32-2153 pertinent to this case are: “A. The commissioner may suspend or revoke a license, deny the issuance of a license or deny the renewal or the right of renewal of a license issued under the provisions of this chapter if it appears that the holder or applicant, within five years immediately preceding, in the performance of or attempt to perform any acts authorized by the license or by this chapter, has:

1. Pursued a course of misrepresentation or made false promises, either directly or through others, whether acting in the role of a licensee or a principal in a transaction. *** 3. Disregarded or violated any of the provisions of this chapter or any rules adopted by the commissioner. *** 22. Demonstrated negligence in performing any act for which a license is required. ***

B. The commissioner may suspend or revoke a license, deny the issuance of a license or deny the renewal or the right of renewal of a license issued under the provisions of this chapter when it appears that the holder or applicant therefor has: *** 10. Violated any federal or state law, regulation or rule that relates to real estate or securities or that involves forgery, theft, extortion, fraud, substantial misrepresentation, dishonest dealings or violence against another person or failure to deal fairly with any party to a transaction that materially and adversely affected the transaction. This paragraph applies equally to violations of which the licensee was convicted in any lawful federal or state tribunal and to any admissions made in any settlement agreement by the licensee to violations.”

A.R.S. § 32-2160.01(A) states in pertinent part: “Any broker…who is subject to the jurisdiction of the department and who has violated any provision of this chapter or any rule or order adopted or issued by the commissioner…may be assessed a civil penalty by the commissioner, after a hearing, in an amount not to exceed one thousand dollars for each infraction.”

Rule R4-28-1101(A), Ariz. Admin. Code, states “A licensee owes a fiduciary duty to his client and shall protect and promote the interests of the client. The licensee shall also deal fairly with all other parties to a transaction.” CONCLUSIONS OF LAW 1. The Commissioner has authority to enter an appropriate order in this matter. Mr. Painter holds a real estate broker’s license and did so during 1997. A.R.S. §§ 32-2107 and 32-2153. 2. The standard of proof on all issues is by a preponderance of the evidence. Culpepper v. State, 187 Ariz. 431, 930 P.2d 508 (App. 1996), review denied (1997); Troutman v. Valley Nat. Bank of Arizona, 170 Ariz. 513, 826 P.2d 810 (App. 1992). A “preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” Morris K. Udall, Arizona Law of Evidence, ' 5 (1960). It “is evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.” BLACK’S LAW DICTIONARY 1182 (6th ed. 1990). 3. The preponderance of the evidence does not show or establish that Mr. Painter violated A.R.S. §§ 32-2153(A)(1), -(A)(3), -(A)(22), -(B)(10), or Rule R4-28-1101(A), Ariz. Admin. Code. The evidence does not establish that Mr. Painter “pursued a course of misrepresentation” or “demonstrated negligence” in his dealings with these parties. Vivian Arnold Realty Co. v. McCormick, 19 Ariz. App. 289, 506 P.2d 1074 (1973); Norville v. Palant, 25 Ariz. App. 606, 545 P.2d 454 (1976). The allegations of “substantial misrepresentation” were withdrawn at the conclusion of the hearing. The evidence shows Mr. Painter was not aware of the specific zoning violations of setbacks and lack of permits for the structures not associated with the mini frontier town. Mr. Graham’s “primary emphasis” was resolving the “main complaint” - the frontier town. The frontier town’s structures did not comply with zoning requirements. Mr. Graham conveyed this point to Mr. Painter, and Mr. Painter understood it. Beyond this point, the communications between Mr. Graham and Mr. Painter were not clear. The evidence does not establish that Mr. Graham specifically discussed setback violations or the need for and kinds of permits for the structures not associated with the frontier town. A general discussion of permits, during two brief telephone conversations, cannot be enhanced or strengthened to lead to a conclusion that Mr. Painter failed - negligently or otherwise - to disclose zoning violations to Mr. and Mrs. Kelly. There is insufficient evidence to sanction Mr. Painter’s broker’s license. 4. Grounds do not exist for the assessment of a civil penalty pursuant to A.R.S. § 32-2160.01(A). RECOMMENDED ORDER It is recommended that the Commissioner dismiss the complaint. SUBMITTED this 11th day of February, 1999.

George A. Schade, Jr. Administrative Law Judge

The original Recommended Decision and Order of the Administrative Law Judge was mailed on February 11, 1999, for distribution to the parties, to:

Jerry A. Holt Real Estate Commissioner Arizona Department of Real Estate 2910 North 44th Street, Suite 100 Phoenix, Arizona 85018

George A. Schade, Jr. ----------------------- [1] Mr. Thomas supposedly spent $20,000.00 building the frontier town.

[2] Pima County has “zoning permits” and “zoning/building permits.”

[3] This conversation was later used by Mr. Thomas to claim he had obtained the buyer and persuade Mr. Painter to reduce his broker’s commission from 7% to 3.5%.

[4] The corral and the shade stable were built on the property line due to the contour of the terrain.

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