ORDERS:
FINAL ORDER AND DECISION
This
matter is before the Administrative Law Court (“ALC” or “Court”) pursuant to a
Petition for injunctive relief filed on May 2, 2008, by Petitioner South
Carolina Department of Consumer Affairs (“Department”). In its Petition, the Department
alleges that Real-Estate Mortgages, LLC (“REM”) is in violation of the
Licensing Requirements Act of Certain Brokers of Mortgages on Residential Real
Property (“the Act”), S.C. Code Ann. § 40-58-10 et seq.
Specifically, the Department alleges that REM brokered at least twelve
residential mortgages for which it failed to provide disclosures as required by
law. Accordingly, the Department seeks revocation of REM’s Mortgage Loan Broker’s
license. In addition, it seeks to have this Court assess the surety bond held
by REM in the amount of $10,000.00, order REM to provide the Department with
all contracts, files and documents related to mortgages that were originated
since May 1, 2006, and fine REM in the amount of $500.00 for each alleged
violation of the Act. After timely notice to the parties, a hearing was held
before me at the offices of the ALC on May 29, 2008. After careful
consideration of the evidence presented, I conclude that the relief sought by
the Department must be denied.
FINDINGS
OF FACT
Having observed
the witnesses and exhibits presented at the hearing and closely passed upon
their credibility, taking into consideration the burden of persuasion of the
parties, I make the following findings of fact by a preponderance of evidence:
1. Laura Doro (“Ms. Doro”) is the sole member and owner of Real-Estate
Mortgages, LLC, a limited liability company located at 809 Laurens Street,
Columbia, South Carolina, 29201.
2. From February 6, 2007, through September 30, 2007, REM was licensed by
the Department to operate as a Mortgage Loan Broker in South Carolina. It sought renewal of its Mortgage Loan Broker’s license in 2007. However, that
renewal was denied and it no longer holds a license to operate as a mortgage
broker in South Carolina.
3. Upon receipt of a consumer complaint regarding third party fees charged
by REM in the brokering of a mortgage contract, in April 2007 the Department
conducted a review of REM’s files to ensure compliance with applicable laws.
As part of the review, the Department requested a listing of all of REM’s
closed files since May 1, 2006 and certain disclosures from each file. See Pet. Ex. 3. REM provided the Department with as much of the information
requested as possible.
4. After reviewing the files provided by REM, by letter dated April 16,
2007, the Department alleged that REM did not disclose certain fees as required
by law on at least twelve contracts reviewed.
5. REM maintains a special deposit bond, 1707168, in the amount of
$10,000.00 with Massachusetts Bay Insurance Company, as required by the Act.
DISCUSSION
AND CONCLUSIONS OF LAW
The
Department contends that REM violated S.C. Code Ann. §§40-58-70, 40-58-75, and
40-58-78 of the Act and Sections 37-23-70 and 37-23-75 of the South Carolina
High-Cost and Consumer Home Loans Act by failing to provide consumers with
certain disclosures. Specifically, the Department alleges that REM failed to
disclose certain fees charged to the borrower, including the amount the broker
earns on the loan, and that REM charged consumers disallowed third party fees.
Section
37-23-70 of the South Carolina High-Cost and Consumer Home Loans Act requires a
mortgage broker to provide the borrower with a document that specifies the
name, address and telephone number of the agency designated to receive
complaints or inquiries about the origination of a loan. A copy of this
disclosure form, signed by the borrower, must be maintained in the broker’s
files. Additionally, Section 37-23-75 requires that a broker disclose to a
borrower in writing the amount being earned on the loan. The Department must furnish a disclosure form for use by brokers which includes
specific information, such as the dollar amount of the yield spread premium,
the percentage of the yield spread premium in relation to the loan amount, and
an itemization and a combined total of dollar amounts for points, fees, and
commissions. Id.
Section
40-58-75 also requires that a broker disclose the total estimated charges to
the borrower and an itemization of those charges if required by RESPA, and it
requires that a broker disclose all fees earned as required by RESPA. In
addition, Section 40-58-78 requires the broker to detail services to be
performed and estimate fees the broker will receive for those services.
The
standard of proof in administrative proceedings is a preponderance of the
evidence, absent an allegation of fraud, or a statute or court rule requiring a
higher standard. Anonymous (M-156-90) v. State Bd. of Med. Examiners,
329 S.C. 371, 496 S.E.2d 17 (1998). Because this contested case involves the
imposition of penalties by the Department, including revocation of REM’s
Mortgage Broker’s License, the Department bears the burden of proof. See ALC Rule 29(B) (“In matters involving the assessment of civil penalties, the
imposition of sanctions, or the enforcement of administrative orders, the
agency shall have the burden of proof.) Therefore, the Department has the
burden of proving by a preponderance of the evidence that REM violated §§
37-23-70, 37-23-75, 40-58-75, and 40-58-78 by failing to make certain required
disclosures to borrowers.
Furthermore,
the weight and credibility assigned to evidence presented at the hearing of a
matter is within the province of the trier of fact. See S.C. Cable
Television Ass’n v. S. Bell Tel. & Tel. Co., 308 S.C. 216, 222, 417
S.E.2d 586, 589 (1992); see also Doe v. Doe, 324 S.C. 492, 502,
478 S.E.2d 854, 859 (Ct. App. 1996) (holding that a trial judge, when acting as
a finder of fact, “has the authority to determine the weight and credibility of
the evidence before him”). A trial judge who observes a witness is in the best
position to judge the witness’s demeanor and veracity and to evaluate the
credibility of his testimony. See Woodall v. Woodall, 322 S.C.
7, 10, 471 S.E.2d 154, 157 (1996).
The
Department contends that REM violated §§ 37-23-70, 37-23-75, 40-58-75, and
40-58-78 by failing to make certain required disclosures to borrowers.
However, I conclude that the Department did not meet its burden of proof in
that it did not present sufficient evidence to establish that REM failed to
make certain disclosures in the brokering of mortgage contracts. The only
evidence presented by the Department with regard to these alleged violations
was the April 16, 2007 letter from and testimony of Deputy Chief Investigator
Barbara B. Morris, which noted deficiencies she found in her review of REM’s
mortgage contracts. No copies of the contracts with the alleged deficiencies were
presented as evidence to the Court.
Further,
the Department asserts that REM violated Section 40-58-70 by charging consumers
with advanced third party fees not allowed by law, including application and
processing fees, and therefore retained unearned fees. The Department contends
that the only advanced third party fees that brokers may charge consumers are fees
for obtaining a credit report and an appraisal. Section 40-58-70(5) provides
that a mortgage broker may not:
collect any third
party fees before a conditional mortgage commitment is obtained by the mortgage
broker with the exception of normal processing expenses associated with the
making of mortgages as authorized or allowed by FNMA, FHLMC, FHA, VA, or any
additional fees authorized or allowed by the department…
However, the
Department did not present any evidence with respect to whether the mortgage
contracts reviewed were FNMA, FHLMC, FHA, or VA. Additionally, the Department
did not present the Court with any regulatory or statutory authority which only
authorizes the collection of advanced third party fees for credit reports and
appraisals. Therefore, I conclude that the Department failed to present
sufficient evidence to show that REM charged consumers with any third party
fees not allowed under the Act, and that REM is therefore not required to
return any “unearned” third party fees to consumers.
Finally,
the Department seeks to have REM’s license revoked as a result of alleged
violations of the Act. However, REM does not currently hold a Mortgage Loan
Brokers license as it expired on September 30, 2007 and its renewal was later
denied by the Department. Accordingly, the relief the Department seeks is moot. See Mathis v. South Carolina State Highway Dep’t, 260 S.C. 344,
195 S.E.2d 713 (1973) (An issue is moot when a judgment on the issue will have
no practical effect on an existing case or controversy.) Further, because I
find that the Department did not present sufficient evidence to show that REM
intentionally or repeatedly committed violations of the Act, the Court also
declines to take any action regarding REM’s bond.
ORDER
IT
IS HEREBY ORDERED that the relief sought by the Department is denied.
Additionally, all other issues raised in the proceedings but not addressed in
this order are deemed denied. See ALC Rule 29 (C).
AND
IT IS SO ORDERED.
__________________________________
June 18, 2008 Marvin
F. Kittrell
Columbia, South Carolina Chief
Judge
Ms. Doro has approximately twenty-two (22)
years of experience in the mortgage business, working in South Carolina,
Colorado and Ohio. She has previously been employed as a mortgage broker, loan
originator and title abstractor.
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