SC Administrative Law Court Decisions

STATEMENT OF THE CASE

This matter is before me pursuant to a request for a contested case hearing filed by Angela W. Whitmire (Petitioner).  Petitioner challenges a decision by the South Carolina Department of Consumer Affairs (Department) prohibiting her from being employed in any capacity by any mortgage broker in the State of South Carolinapursuant to S.C. Code Ann. §§ 40-58-55(A) and 40-58-80(F). Pursuant to Petitioner’s request for an expedited hearing, a hearing was held on November 7, 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 the parties, I make the following findings of fact by a preponderance of evidence:

1.         Petitioner resided in Pennsylvania until 2005.  While living there she worked as a mortgage originator for approximately four (4) years.  She was employed with General Mortgage for approximately two months after she moved back to South Carolina in 2005.  Petitioner did not perform the duties of an mortgage originator while employed there.  In May 2006, Petitioner was hired by First South Mortgage, Inc. (First South) in Columbia, South Carolina (First South) to work as a mortgage originator.  However, at no time while she was employed there did she engage in the activities or perform the duties of a mortgage originator. Her duties consisted solely of those of a loan processor.

2.         Petitioner desired to be employed with First South as a mortgage originator.   In May 2006 she submitted an application for an Originator License for Mortgage Broker Company Originators to the Respondent.   Petitioner checked the “NO” box beside the following question on the application:  “Have you ever been convicted of a felony or of an offense involving breach of trust, moral turpitude or dishonest dealings within the last ten years?” 

            3.         Petitioner’s arrest record on file with the South Carolina Law Enforcement Division (SLED) lists six convictions within the last ten years for fraudulent checks. All six convictions occurred in 2005 and were for amounts less than $500.  Petitioner did not disclose these convictions on her application because she believed, based upon conversations she had with the attorney representing her in these fraudulent check cases, as well as comments made by the magistrate hearing the cases, that the charges had been dropped after she picked up the checks (paid to the payee on each check the amount owed) and paid the associated court costs (to the magistrate’s court).  There is no listing on the SLED arrest records of any fines assessed by the court against Petitioner based upon these fraudulent check charges, only court costs. 

            4.         The Department denied Petitioner’s application for licensure as a mortgage originator based upon the SLED report listing the six fraudulent check convictions and Petitioner’s failure to disclose them on her application. In its denial letter, the Department notified Petitioner that she was prohibited from working atfor First South Mortgage, Inc. or any other mortgage broker in the State of South Carolina and that she would not be able to originate any mortgages in South Carolina.

5.         At the time that the fraudulent check charges were madearose in Greenville  County, Petitioner was living in a safe-house in another state due to marital difficulties.  She was unaware of the fraudulent check charges until her return to South Carolina.  When she was pulled over for a possible traffic violation, she was placed under arrest based upon the outstanding warrants issued on the fraudulent check charges. 

6.         Petitioner did draft some of the checks but not all of them.

7.         After her arrest, Petitioner was provided an in camera bond hearing.  Because she did not have sufficient funds to post bond, Petitioner remained in jail for approximately eighty (80) days while waiting for a hearing before a magistrate on the fraudulent check charges. She was incarcerated in the Greenville County jail for approximately two (2) weeks and thereafter spent an additional sixty (60) plus days in a correctional institution.  After her parents retained legal representation for her on the charges, she was returned to the Greenville County jail and given a hearing on the fraudulent check charges before magistrate James E. Hudson.  At the hearing, Petitioner was required to pay court costs of $41.00 each for four of the six fraudulent check charges.

8.         After Respondent denied Petitioner’s application for licensure as a mortgage originator, she continuesd to work for a short time as a loan processor for First South.  She believed that she was legally able to work in that position.  As a loan processor, Petitioner had limited contact with loan applicants by telephone and she was paid a flat fee for every loan that culminated in a closing.  Petitioner did not quote rates in her job as a loan processor.

9.         When First South subsequently sought to renew its Mortgage Broker’s Company License, the Department notified it that it would not renew the license because of Petitioner’s employment with First South.   Petitioner Respondent based its denial on the provisions of S.C. Code Ann. § 40-58-80(F) (Supp. 2005).  

10.       On October 27, 2006, Petitioner was terminated from employment at First South.

11.       The Department takes the position that Petitioner is not authorized to work in any position, even as a receptionist, with any mortgage broker in this state.

CONCLUSIONS OF LAW

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

            1.         S.C. Code Ann. §§ 40-58-80(F) (Supp. 2005), 1-23-310 et seq. (2005), and 1-23-600 (2005) grant jurisdiction to the Administrative Law Court to hear this contested case.

2.         Chapter 58 of Title 40, entitled “Registration of Mortgage Loan Brokers,” governs the licensure of Mortgage Loan Brokers and Originators.  Its caption reads “Registration of Mortgage Loan Brokers”. 

3.         S.C. Code Ann. §  40-58-20 defines “Mortgage broker” and “Originator” as follows:

(3) “Mortgage broker” means a person or organization in the business of soliciting, processing, placing, or negotiating mortgages for others or offering to process, place, or negotiate mortgages for others. Mortgage broker also includes a person or organization who brings borrowers or lenders together to obtain mortgages or renders a settlement service as described in 24 CFR Part 3500.2(a)(16)(ii).

…

(14) “Originator” means an employee of a mortgage broker whose primary job responsibilities include direct contact with and informing mortgage applicants of the rates, terms, disclosure, and other aspects of the mortgage, including accepting or offering to accept applications for mortgages. It does not mean an employee, including processors, whose job responsibilities are limited to clerical and administrative tasks and who does not solicit borrowers or negotiate the rates, terms, disclosure, or other aspects of a mortgage on behalf of the employer which do not require licensure.  

(Emphasis added.)

Furthermore, Section 40-58-20 defines “Processor” as follows:

(15) “Processor” means an employee of a mortgage broker whose primary job responsibilities are mortgage processing and may include direct contact with applicants but does not include informing applicants of rates, terms, disclosure, or solicitation of mortgages.

4.         S.C. Code Ann. § 40-58-30 provides for the licensing of mortgage brokers and originators. Section 40-58-30(C) specifically exempts persons employed by a mortgage broker from these licensing requirements.  See S.C. Code Ann. § 40-58-20(5)(a) and (c).

5.         S.C. Code Ann. § 40-58-50 (A) (Supp. 2005) requires an applicant for a mortgage broker license that is a partnership, association, limited liability company, corporation, or other form of business organization to provide to the Department the names and complete business and residential addresses of each member, director, and principal officer and a list of all employees who engage in direct brokerage activity including, but not limited, originators.  The remaining subsections [(B) through (D)] of this sectionSection 40-58-50 list specific requirements applicants must meet to be licensed either as a mortgage broker or as an originator.^[1]

6.         S. C. Code Ann. § 40-58-55(A)  (Supp. 2005) provideSs that a person whose application for a license or for the renewal of a license may request a contested case hearing before this Court when Respondent determines that the applicant has violated a provision of Title 40, Chapter 58, an order of Respondent, withheld material information in connection with an application for a license or its renewal, or made a material misstatement in connection with the application, or been convicted of a felony or of an offense involving breach of trust, moral turpitude, fraud, or dishonest dealing within the past ten years. 

7.         S. C. Code Ann. § 40-58-60 (A) (Supp. 2005) provides that Respondent shall issue a license to an applicant if it finds that the financial responsibility, experience, character, and general fitness of the applicant, and of the members if the applicant is a copartnership, association, or limited liability company, and of the officers and directors if the applicant is a corporation, are such as to command the confidence of the community and to warrant belief that the business may be operated honestly, fairly, and efficiently according to the purposes of this chapter.   

8.         S.C. Code Ann. § 40-58-80(F) (Supp. 2005) provides that Respondent “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 this chapter.”   This subsection further provides that an originator or other employee of a licensed mortgage broker may request a hearing with the Administrative Law Court after an action by Respondent pursuant to this section.

9.         S.. C. Code Ann. § 40-58-70 (Supp. 2005) contains six activities in which licensees are prohibited from engagingin. 

10.       Petitioner does not challenge the Department’s denial of her application for licensure as a mortgage originator. Rather, Petitioner challenges the Department’s decision to prohibit her from being employed in any position, including a processor, by First South or any other mortgage broker in the State of South Carolina. The Department relies on S.C. Code Ann. § 40-58-80(F) for authority to prohibit Petitioner from working with First South or any other mortgage broker in this Sstate and to prohibit any mortgage broker from employing Petitioner for any work. 

11.       The purpose of Title 40, Chapter 58 of the S.C. Code of Laws, “Registration of Mortgage Loan Brokers,” is to regulate the activities of Mmortgage brokers and Ooriginators in their soliciting, processing, placing, or negotiating a mortgage loan for others or offering to process, place or negotiate mortgages for others so as to protect the public from unscrupulous dealings. Title 40, Chapter 58Chapter 58  of the S. C. Code of Laws provides solely for the licensing of mortgage brokers and originators only.  S. C. Code Ann. §40-58-20 (Supp. 2005).  Further, Section 40-58-30(C) specifically exempts from licensure persons who are employed by a mortgage broker.  See also S. C. Code Ann. §§ 40-58-20(5)(a) and (c).

            Although there is no licensing requirement in this State for loan processors or any other employees of a mortgage broker, other than that of an originator,^[2] Rethe Department argues that the term employee as used in Section 40-58-80(F) means any employee working for a mortgage broker. spondent posits that the phrase employee as used in Title 40, Chapter 58, means any employee working for a mortgage broker who solicits, processes, places or negotiates mortgages for others.  It Further, it opines that a loan processor participates in mortgage broker activities because they participatein the processing of the loans.  While the definition of “Mortgage broker” found in S.C. Code Ann. § 40-58-20 includes a person or organization in the business of processing loans, the definition of “Originator” contained in the same section specifically exempts from its definition “an employees, including processors, whose job responsibilities are limited to clerical and administrative tasks and who does not solicit borrowers or negotiate the rates, terms, disclosure, or other aspects of a mortgage on behalf of the employer which do not require licensure.” See S.C. Code Ann. § 40-58-20(3) and (14). (Emphasis added.)  Further, Section 40-58-20(15), defines “Processor” as an “employee of a mortgage broker whose primary job responsibilities are mortgage processing and may include direct contact with applicants but does not include informing applicants of rates, terms, disclosure, or solicitation of mortgages.” 

“The cardinal rule of statutory interpretation is to ascertain the intent of the legislature.” State v. Scott, 351 S.C. 584, 588, 571 S.E.2d 700, 702 (2002).  A statute should be given a reasonable and practical construction consistent with the purpose and policy expressed in the statute.  Davis v. NationsCredit Fin. Servs. Corp., 326 S.C. 83, 484 S.E.2d 471 (1997).  Furthermore, all rules of statutory construction are subservient to the one that legislative intent must prevail if it can be reasonably discovered in the language used, and that language must be construed in the light of the intended purpose of the statute.  McClanahan v. Richland County Council, 350 S.C. 433, 567 S.E.2d 240 (2002).  The determination of legislative intent is a matter of law.  Charleston County Parks & Recreation Comm’n. v. Somers, 319 S.C. 65, 459 S.E.2d 841 (1995).     

            The legislature’s intent should be ascertained primarily from the plain language of the statute.  State v. Landis, 362 S.C. 97, 606 S.E.2d 503 (Ct. App. 2004).  The language used should be given its plain and ordinary meaning without resort to subtle or forced construction to expand or limit the scope of the statute.  Berkebile v. Outen, 311 S.C. 50, 426 S.E.2d 760 (1993). 

            However, the language must also be read in a sense which harmonizes with its subject matter and accords with its general purpose.  Mun. Ass’n of South Carolina v. AT&T Communications of Southern States, Inc., 361 S.C. 576, 606 S.E.2d 468 (2004).  “Once the legislature has made [a] choice, there is no room for the courts to impose a different judgment based upon their own notions of public policy.”  South Carolina Farm Bureau Mut. Ins. Co. v. Mumford, 299 S.C. 14, 19, 382 S.E.2d 11, 14 (Ct. App. 1989).  “The Court should not consider the particular clause being construed in isolation, but should read it in conjunction with the purpose of the whole statute and the policy of the law.”  State v. Gordon, 356 S.C. 143, 152, 588 S.E.2d 105, 110 (2003).   In construing a statute, the court looks to the language as a whole in light of its manifest purpose.  Adams v. Texfi Industries, 320 S.C. 213, 464 S.E.2d 109 (1995). 

            It is clear from these definitional provisions that although the processing of mortgages is an activity of a mortgage broker, loan processors/employees are not required to be licensed provided if they do not engage in solicitation of mortgages or negotiating of rates, terms, or disclosure, or solicitation of mortgages and their job responsibilities are limited to clerical and administrative tasks.  Since By requiring that only mortgage brokers and mortgage originators be regulated through licensing, the public is protected from dishonest dealings because mortgage brokers and originators are the only members of a mortgage brokerage firm that have direct contact with applicants regarding the solicitation and negotiation of mortgages seeking mortgage loans, the public is protected from dishonest dealings by only requiring that only they be regulated through licensing.  Our legislature has determined that there is no need to require the licensure of employees of mortgage brokers since they do not have direct contact with the loan applicants, do not negotiaterates and terms, do not make disclosures or solicit the loans, and since their work duties are limited to clerical and administrative tasks.  Since the duties of these employeesBecause the duties of loan processors and other employees of a mortgage broker a are limited,to these duties,  and since they arenot paid commissions, our legislature has determined they pose no risk to the general public.   Further, in S. C. Code Ann. § 40-58-70 (Supp. 2005), the gGeneral Aassembly delineated the various actions and activities that were prohibited.   A review of these provisions reflects the intent that ourof Ggeneral Aassemblymeant  for them to apply only to those who had personal, direct contact with loan applicants regarding the solicitation of mortgages or negotiating of rates, terms, or disclosure, i.e. mortgage brokers and their originators.

personal contact with loan applicants, i.e…mortgage brokers and their originators.

            12.       Pursuant to S. C. Code Ann. § 40-58-80(F), Respondent may suspend the license of a mortgage broker if it finds that an originator or another employee has failed to comply with a provision of Title 40, Chapter 58.  Respondent never sought to suspend the license of First South.  Thus, since Respondent never suspended or sought to suspend the license of First South, its reliance on Section 40-58-89(F) to deny Petitioner the right to work for First South is misplaced and without statutory support. 

                        13.       Instead, when First South sought to renew its mortgage broker’s license, in   put date in here     , Respondent informed First South that it would deny the renewal because its agent (Petitioner herein) had violated the provisions of S. C. Code Ann. § 40-58-55 (Supp. 2005) when she filed her application for licensure as a mortgage originator.  As such, Respondent would not renew First South’s license while Petitioner remained in employment there. informed First South that if Petitioner were not an employee, the license would be renewed.   Shortly thereafter Petitioner was fired from her job as a loan processor and was denied an opportunity to work for First Southor any mortgage broker in the State in any capacity.

            S. C. Code Ann. §40-58-55 (Supp. 2005) states wWhen Respondent denies an application request by an applicant for a license or the renewal of a license based upon a violation of certain listed provisions by either the applicant “or his agent,”, S.C. Code Ann. §40-58-55 (Supp. 2005) provides that the applicant can request a contested case hearing.  In this matter, Respondent asserts has never asserted that the management or officers of First South committed a violation of any of the provisions of Section 40-58-55; however, it asserted that Petitioner was an agent of First South and that the failure ofPetitioner’s failure Respondent to divulge its her prior fraudulent check violations in her application were imputed to First South.  In order to have its license renewed, First South thereafter fired terminated Petitioner’s employment and Respondent renewed First South’s mortgage broker’s license.  First South did not have to seek relief by requesting a hearing with the Court. 

The question the Court must consider is whether Petitioner was an agent of First South and/or whether she was an agent when she prepared and filed her application.  The legal definition of “agent” is “one who is authorized to act for or in place of another.”.  Black’s Law Dictionary, 7^th Edition, p. 64. “Corporate agent” is defined as “an agent authorized to act on behalf of a corporation; broadly, all employees and officers who have the power to bind the corporation.”.  Black’s Law Dictionary, 7^th EditionId,. p. 64.  There is no evidence that Petitioner had been delegated or assigned authority to formulate policy, supervise employees, or act in place of First South.  To the contrary, Petitioner’s duties were largely ministerial, i.e. p…processing applications originated by those engaged in sales (originators) at First South. 

Looking at Tthe plain meaning of Section 40-58-55, is that it is clear that unless there is a violation either by the mortgage broker or by its agent, the license must be renewed.  There is no room for any other construction.  The Court does not find any evidence showing that Petitioner was acting as an agent for First South while she was performing her duties as a loan processor or when she filed her application for licensure as a mortgage originator.  Further, there is no evidence that any agent of First South (officer, mortgage broker, originator, or otherwise) committed any of the violations provided for in Section 40-58-55 (Supp. 2005).  Accordingly, Respondent acted outside its statutory authority when it refused to renew First South’s mortgage broker license unless First South fired Petitioner and refused to let her Petitioner work for it First South in any capacity. 

143.     The purpose of S.C. Code Ann. § 40-58-80(F)(Supp. 2005) is clearly not intended to penalize an employer based upon an improper application being filed by an employee.  Rather, its purpose is to penalize an employer for allowing improper or unlawful activities of an employee while that person is acting within the scope of employment related to mortgage broker activities. Section 40-598-70 lists many of the activities that are prohibited.  .  There is no evidence that Petitioner acted outside the scope of her duties as a loan processor while she was employed with First South.

 nor that she engaged in any of the prohibited activities listed in Section 40-58-70. 

154.     For all the reasons stated above, I find that Petitioner is not prohibited from working in the capacity of a loan processor for First South or any other mortgage broker in the State of South Carolina.  Petitioner was denied a mortgage originator license because she incorrectly answered a question on her application.   That does not amount to any statutory violation of a statuteof a statue--only the denial of the application.

Further, Petitioner is not required to be licensed to perform the duties of a loan processor since they are clerical, administrative and purely ministerial.  Further, the duties of this job do not include negotiating rates, terms, disclosure, or the solicitation of mortgages.  Also, while working as a loan processor, Petitioner will not receive any commissions.  Although the definition of a “Processor” in Section 40-58-20(15) includes having some limited direct contact with applicants, Petitioner indicated that she would not have direct contact with applicants if she were allowed to return to employment with a mortgage broker as a processor.

ORDER

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

IT IS HEREBY ORDERED that Petitioner may work in the capacity of a loan processor for First South or any other mortgage broker in the State of South Carolina provided Petitioner does not receive any commissions for processing loans and her job duties are limited to those described in Section 40-58-20(15).

AND IT IS SO ORDERED.

                                                                        _________________________________

                                                                        Marvin F. Kittrell

November 16, 2006                                                                                                                Chief Administrative Law Judge

November 15, 2006

Columbia, South Carolina