SC Administrative Law Court Decisions

STATEMENT OF THE CASE

This is a contested case brought by Respondent David W. Stout challenging the decision of the South Carolina Department of Consumer Affairs (Department) which suspended Respondent’s Mortgage Broker License based on the discovery that Respondent was not doing business at the physical address listed on his Application and Mortgage Broker’s License, which was discovered when an Investigator for Petitioner conducted a Mortgage Broker Compliance Review. A hearing was held before me on July 27, 2006 at the offices of the Administrative Law Court (ALC or Court) in Columbia, South Carolina.

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 parties, I make the following findings of fact by a preponderance of evidence:

1. Notice of the time, date, place and subject matter of the hearing was given to Petitioner and Respondent.

2. Respondent Stout, in completing his Mortgage Broker License Application for Moneysworth Mortgage Co., listed in Response to item number 5 (South Carolina office physical address): 26 S. Forest Beach Dr., #37, Hilton Head Island, South Carolina.

3. Respondent Stout, in completing his Mortgage Broker License Application for Moneysworth Mortgage Co., listed on Supplemental Form B1 that the physical address for Moneysworth Mortgage Co. was 2 Corpus Christi, Suite 200, Hilton Head Island, South Carolina. Respondent Stout also listed on Supplemental Form B1 that the effective date of this initial application was TBD (To Be Determined), Last Quarter 2005/First Quarter 2006.

4. A letter dated August 9, 2005 was sent from the Department to Respondent Stout, containing a question regarding who would staff the South Carolina office location the required 30 hours per week per State Statute. There is a hand written response, date unknown, that states “To be determined at time office opened.”

5. Another document was sent by the Department requesting Respondent Stout to provide the Department with the zip code for the Corpus Christi address in South Carolina, the hours of operation and a fax number. Respondent Stout replied with, “a) Hours of Operation: M-F….9:00 a to 3:00 p; b) Zip Code: 29928; c) Fax Number: TBD.

6. Respondent Stout was granted a Mortgage Loan Broker license by the Department on September 13, 2005 listing the physical location as Moneysworth Mortgage Co., 2 Corpus Christi, Suite 200, Hilton Head Island, SC 29928.

7. At approximately 9:50 a.m. on January 12, 2006, Investigator Martha R. Guinyard arrived at 2 Corpus Christi, Suite 200, Hilton Head Island, SC 29928 to conduct a Mortgage Broker Compliance Review of Moneysworth Mortgage Co. None of the persons present had ever heard of Moneysworth Mortgage Co. A memorandum to this effect was created and sent by Investigator Guinyard to Charles Knight, Staff Attorney for the Department, on January 18, 2006.

8. A letter, dated January 19, 2006, was sent from Mr. Knight to Respondent Stout, assessing a penalty of $250 for failure to comply with S.C. Code Ann. § 40-58-65. A letter dated March 6, 2006, from Mr. Knight to Respondent Stout, states “Based on your failure to respond to the Department’s letter dated January 19, 2006, your Mortgage Broker license is being suspended effective January 19, 2006 pursuant to S.C. Code Ann. § 40-58-80.”

9. An email attached to the March 6, 2006 letter shows a message sent from Respondent Stout to Charles Knight on January 30, 2006 and a reply by Mr. Knight on February 3, 2006. Respondent Stout states he believes the penalty of $250 to be premature. He claims he put the Department on notice in his application that it would be either the fourth quarter of 2005 or the first quarter of 2006 before an office would be opened in South Carolina and that the Department issued the license knowing this. Mr. Knight responded that the penalty was not premature and that you must have a physical presence (location) in South Carolina to be licensed, and therefore, once a license is issued you are required to staff your licensed location at least 30 hours a week.

10. Respondent Stout was not trying to defraud the Department. Respondent Stout believed he could first obtain a Mortgage Broker’s license then make final preparations to locate a place for the business and open for business. He believed this based on his interpretation of South Carolina law and based on the fact that the Department issued his Mortgage Broker’s license after he thought he made it clear that he was not currently ready to open for business.

CONCLUSIONS OF LAW

Based upon the above findings of fact, I conclude the following as a matter of law:

1. This Court has jurisdiction over this contested case proceeding pursuant to S.C. Code Ann. § 37-6-414 (Supp. 2005), S.C. Code Ann. § 40-58-55(A) (Supp. 2005), and S.C. Code Ann. § 1-23-600(B) (Supp. 2005).

2. In presiding over this contested case, this Court serves as the finder of fact and makes a de novo determination regarding the licensing matters at issue. See S.C. Code Ann. § 1-23-600(B) (Supp. 2005); Marlboro Park Hosp. v. S.C. Dep’t of Health & Envtl. Control, 358 S.C. 573, 577-79, 595 S.E.2d 851, 853-854 (Ct. App. 2004); Brown v. S.C. Dep’t of Health & Envtl. Control, 348 S.C. 507, 512, 560 S.E.2d 410, 413 (2002).

3. Upon receipt of a Mortgage Broker’s license, the licensee is authorized to engage in the business for which the license was issued. S.C. Code Ann. § 40-58-60(B) (Supp. 2005). Each license issued to a licensee must state the address or addresses at which the business is to be conducted and must state fully the name of the licensee and the date of the license. S.C. Code Ann. § 40-58-60(C) (Supp. 2005).

4. A mortgage broker licensed pursuant to Chapter 58 must maintain at his usual place of business, books, records, and documents pertaining to the business conducted, to enable the Department to determine compliance with Chapter 58. S.C. Code Ann. § 40-58-65(A) (Supp. 2005). A mortgage broker doing business in this State shall maintain a sufficient physical presence in this State and his records must be maintained at the licensed location in this State. S.C. Code Ann. § 40-58-65(B) (Supp. 2005). (Emphasis added.)

5. If a mortgage broker fails to notify the Department of the existence or closing of a branch or satellite office, the actual operating hours of the main office or branch offices where records are kept, or the whereabouts of its records, the broker is subject to a penalty of not less than fifty dollars and not more than two hundred fifty dollars. S.C. Code Ann. § 40-58-65(E) (Supp. 2005). If after the assessment of a fine within a one-year period, the administrator finds that additional violations of this section are both intentional and repeated, the mortgage broker is subject to all of the remedies for violations of this chapter set forth in Section 40-58-80. Id.

6. The administrator of the Department may suspend the right of an individual to engage in mortgage broker activity after finding that an originator or other employee of a licensed mortgage broker has failed to comply with a provision of Chapter 58. S.C. Code Ann. § 40-58-80(F) (Supp. 2005).

7. The term of each license is one year. Licenses issued under this chapter expire on September thirtieth each year for mortgage brokers and must be renewed in accordance with the provisions of this section. S.C. Code Ann. § 40-58-110(B) (Supp. 2005). Failure to renew a license within thirty days of its expiration results in the license being canceled by the Department requiring the licensee to complete the initial licensing process, including a criminal records check. S.C. Code Ann. § 40-58-110(C) (Supp. 2005).

8. Respondent Stout argues, pursuant to S.C. Code Ann. § 40-58-65(B) (Supp. 2005), that because he was not doing business in this state, he was not required to maintain a sufficient physical presence in this state. Respondent Stout argues that the phrase “doing business” should be interpreted to mean actively engaged in selling mortgages to clients.

9. I find that the phrase “doing business”, when read together with the other provisions in Chapter 58, means holding a Mortgage Broker license issued by the South Carolina Department of Consumer Affairs and one is deemed “doing business” from the date the license is issued until the license expires, is suspended or revoked, or ceases to exist in some way. To conclude otherwise would circumvent a primary purpose of the mortgage broker’s licensing process.

Because a Mortgage Broker’s License is issued for a specific physical address, the physical address is an integral part of the license. A Mortgage Broker’s License is not freely transferable from person to person or from address to address. Therefore, one cannot arbitrarily list a physical address for the license and then plan on actually locating a physical address after the license is issued as Respondent Stout has done.

10. I realize that Respondent Stout felt that he was being clear on his application and felt that he had put the Department on notice that he was not planning on physically occupying an office immediately upon licensure. I also realize that by providing a physical address and hours of operation, Respondent Stout led the Department to believe he would be physically occupying an office at the address provided. While I am sympathetic with Respondent Stout, the licensing requirements are clear and Respondent Stout violated those requirements by applying for a license for a physical address at which his business did not exist.

ORDER

Based upon the Findings of Fact and Conclusions of Law stated above,

IT IS HEREBY ORDERED that Respondent Stout’s Mortgage Broker license is SUSPENDED and shall REMAIN SUSPENDED until Respondent Stout provides the Department with proof, deemed sufficient by the Department, of a physical address for his license.

IT IS FURTHER ORDERED that Respondent Stout shall pay the Department a fine in the amount of Two Hundred Fifty Dollars ($250.00) for violating a provision of Chapter 58.

IT IS FURTHER ORDERED that Respondent Stout shall provide the abovementioned proof of a physical address and shall pay the abovementioned fine on or before September 30, 2006, or run the risk of being assessed a late fee on his license renewal, or in the alternative, having the license renewal denied and having his Mortgage Broker’s license cancelled by the Department pursuant to S.C. Code Ann. § 40-58-110(C) (Supp. 2005).

AND IT IS SO ORDERED.

_________________________________

John D. McLeod

Administrative Law Judge

August 3, 2006

Columbia, South Carolina