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OAH 8-1005-19548-2 |
STATE OF
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE DEPARTMENT OF COMMERCE
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In the Matter of American Wholesale Lending, LLC, John Searle and Brian Matheson, individually, and d/b/a Mortgage & Investments Consultants
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FINDINGS
OF FACT, CONCLUSIONS
AND RECOMMENDATION |
This matter came on for a hearing before
Administrative Law Judge Eric L. Lipman on April 23, 2008, at the
Christopher M. Kaisershot, Assistant Attorney
General,
STATEMENT OF THE
ISSUES
1. Whether, as part of transactions relating to certain real estate in Otsego, Minnesota and Ramsey, Minnesota, the Respondents violated a standard of conduct, engaged in a fraudulent, coercive, deceptive, or dishonest acts, and otherwise engaged in acts that demonstrate untrustworthiness, financial irresponsibility, or incompetence, in violation of Minn. Stat. §§ 58.12, subd. 1(b)(2)(iv)-(v), and 58.13, subd. 1(a)(9) (2006)?
2. Whether, by failing to satisfy a judgment in the amount of $322,078.58, Respondents demonstrated untrustworthiness, financial irresponsibility, or incompetence, in violation of Minn. Stat. §§ 45.027, subd. 7(a)(4), and 58.12, subd. 1(b)(2)(v) (2006)?
3. Whether, by failing to notify the Department as to Stonecreek Funding Corporation’s lawsuit within 10 days of service of that suit, failed to apprise the Department of material changes to the information submitted in its most recent application, in violation of Minn. Stat. §§ 58.06, subd. 2(c)(1)(iii), 58.12, subd. 1(b)(2)(iii), and 58.14, subd. 1 (2006)?
4. Whether Respondent Searle is subject to regulatory discipline under Minn. Stat. § 58.12, subd. 1(b)(2)(vi) (2006), for engaging in acts of moral turpitude?
5. Whether Respondents American Wholesale Lending, LLC and Searle failed to timely notify the Department that Searle had been charged with Felony Harassment-Stalking and Felony Disturbing the Peace, in violation Minn. Stat. §§ 58.06, subd. 2(c)(1)(iii), 58.12, subd. 1(b)(2)(iii), and 58.14, subd. 1 (2006)?
6. Whether it is appropriate to take disciplinary action against the mortgage originators and residential mortgage originators licenses held by the Respondents?
Based upon the
evidence in the hearing record, the Administrative Law Judge makes the
following:
FINDINGS OF FACT
1. On March 11, 2008, a Notice of and Order for Hearing, Order for Prehearing Conference, and Statement of Charges (Notice of and Order for Hearing) in this matter was mailed to the Respondents’ last known addresses.[1] The Notice of and Order for Hearing indicated that a Prehearing Conference would be held in this matter on April 23, 2008.[2]
2. The Notice and Order for Hearing in this matter includes the following statements:
Respondent’s failure to appear at the prehearing conference, settlement conference, or the hearing, or failure to comply with any order of the Administrative Law Judge, may result in a finding that Respondent is in default, that the Department’s allegations contained in the Statement of Charges may be accepted as true, and that Respondent may be subject to discipline by the Commissioner, including revocation, suspension, censure or the imposition of civil penalties.
….
Under Minn. Stat. § 45.027, subd. 6 (2006), Respondent may be subject to a civil penalty not to exceed $10,000 per violation upon a final determination that Respondent violated any law, rule or order related to the duties entrusted to the Commissioner.[3]
3. No one appeared at the April 23, 2008 hearing on behalf of American Wholesale Lending, LLC, John Searle, Brian Matheson or Mortgage & Investments Consultants. No prehearing request was made for a continuance, nor was any communication received by the undersigned from American Wholesale Lending, LLC, John Searle, Brian Matheson or Mortgage & Investments Consultants.
4. The Statement of Charges alleges that:
(a) On November 20, 2003, the Department issued Brian Matheson, individually, and d/b/a Mortgage & Investment Consultants, a mortgage originator’s license, No. 20418820. Matheson’s license was not renewed, and automatically lapsed on October 30, 2007.
(b) On or about September 26, 2005, Matheson and John Searle filed a residential mortgage originator’s license application for American Wholesale Lending, LLC (“AWL”) with the Department. On the license application, Searle was identified as AWL’s secretary/treasurer and Matheson was identified as AWL’s president. After Respondents were required to supplement AWL’s incomplete application, on December 21, 2005, the Department issued AWL a mortgage originator’s license, No. 20553168. AWL’s license was not renewed, and automatically lapsed on October 30, 2007.
(c) Between August 7 and August 25, 2006, six real estate closings occurred involving mortgages originated by Respondents for Linda Clewette, a “straw borrower,” to purchase the following homes:
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Property Address |
Date Purchased: |
Lender |
Amount |
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8/7/06 |
Impac
Funding Corp. |
$288,731 |
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8/10/06 |
First
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$288,466 |
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8/11/06 |
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$328,724 |
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8/23/06 |
Guaranteed
Rate, Inc. |
$309,001 |
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8/24/06 |
Suntrust
Mortgage, Inc. |
$309,880 |
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8/25/06 |
BNC
Mortgage, Inc. |
$288,940 |
(d) Respondents provided false information on each loan application by indicating that Clewette was purchasing each property as her “primary residence.” Similarly, Respondents overstated Clewette’s income by more than $5,700 a month on five applications, and by more than $4,200 on a sixth application.
(e) Respondents submitted each of the six loan applications to a different lender, and none of the applications disclosed the other pending applications. As the loans closed, Respondents neglected to notify the lenders on the pending loans that Clewette had incurred significant liabilities and monthly payments. This is important because the debt-to-income ratio is a key underwriting criterion to determine eligibility for most mortgage loans, and the omission of liabilities artificially lowered Clewette’s debt ratio. These undisclosed liabilities significantly affected Clewette’s ability to repay each loan and increased the risk of default. Likewise, the rapid succession of six closings in eighteen days ensured that the new mortgages would not appear on her credit report during each lender’s check on her credit-worthiness.
(f) Each of the six properties that Clewette purchased is either in foreclosure proceedings or has already been foreclosed upon.
(g) In sum, Respondents obtained mortgage loans for Clewette totaling approximately $1,813,742 by fraudulently (a) misrepresenting her occupancy status, (b) overstating her income, and (c) failing to disclose liabilities. For their efforts, Respondents received commissions and fees at the six closings totaling approximately $44,695.
(h) As AWL’s officers, Matheson and Searle participated in, directed, or authorized, or failed to learn about, diligently investigate, or prevent the mortgage fraud scheme involving Clewette. Indeed, Matheson is listed as the “interviewer” on four of Clewette’s loan applications, and Searle is listed as the ‘interviewer” on one of Clewette’s loan applications.
(i) On July 13, 2007, Stonecreek Funding Corporation (“Stonecreek”) sued AWL in United States District Court, District of Minnesota for breach of contract and indemnity (Civil No. 07-3327 (DWF/AJB)).
(j) Respondents failed to provide the Department with notice of Stonecreek’s lawsuit within 10 days as required by law. See Minn. Stat. §§ 58.06, subd. 2(a)(2), and 58.14, subd. 1 (2006).
(k) Stonecreek’s lawsuit relates to a Wholesale Mortgage Broker Agreement (“Agreement”) between Stonecreek and AWL. Searle executed the Agreement on AWL’s behalf on September 15, 2006.
(l) The Agreement facilitated a business arrangement whereby AWL would submit mortgage loan applications to Stonecreek, which was in the business of making loans and other extensions of credit. Included in its obligations, AWL warranted that it would fully and diligently investigate the representations made in each loan application, including any information about the borrower or the borrower’s credit standing that could “be reasonably expected to cause private institutional lenders to reject the mortgage loan, cause the mortgage loan to become delinquent, or adversely affect the mortgage loan’s value or marketability.”
(m)
Stonecreek alleged that AWL breached the
Agreement and was obligated to indemnify Stonecreek in relation to a March 27,
2007 loan that it purchased from AWL concerning an individual identified as
“W.R.” for a property located at
(n) Stonecreek’s audit revealed that AWL’s loan documents overstated W.R.’s gross income by $5,500 a month. Stonecreek asserted that W.R. was “not a bona fide purchaser, but was rather a strawbuyer who was paid $5,000 to purchase the subject property.” Stonecreek claimed that AWL’s multiple misrepresentations breached the Agreement and obligated AWL repurchase the W.R. loan.
(o)
Moreover, on information and belief, AWL made
similar misrepresentations regarding W.R.’s liabilities, income, and occupancy
status to the lenders who provided mortgage loans to W.R. for the properties
located at
(p) On November 16, 2007, United States District Court Judge Richard H. Kyle entered a $322,078.58 default judgment against AWL. To date, on information and belief, AWL has failed to satisfy Stonecreek’s judgment.
(q) As AWL’s officers, Matheson and Searle participated in, directed, or authorized, or failed to learn about, diligently investigate, or prevent the mortgage fraud scheme involving W.R.
(r) On April 4, 2007, Searle was charged with 2 counts of Felony Harassment/Stalking and 2 counts of Felony Disturbing the Peace in Hennepin County District Court (File No. 27-CR-07-019394). On information and belief, these charges stemmed from an incident that occurred on September 1, 2006.
(s) AWL and/or Searle were required to disclose these criminal charges against Searle within 10 days. Minn. Stat. §§ 58.06, subd. 2(a)(2), and 58.14, subd. 1 (2006). AWL and Searle failed to notify the Department about Searle’s pending felony charges.
(t) On November 15, 2007, Searle pleaded guilty to both counts of Felony Harassment/Stalking. On the first felony, Searle was sentenced to serve 35 months in prison. On the second felony, Searle had an additional 21 months in prison stayed for 3 years based on the following conditions: (a) no video camera in possession; (b) no use of alcohol/controlled substances; (c) no contact with victim; (d) random drug testing; (e) remain law-abiding; (f) supply DNA sample; and (g) maintain employment or educational program.
(u)
Searle’s current anticipated release date from
the
5. The allegations contained in the Statement of Charges are deemed proven and are incorporated into these Findings by reference.
Based upon these Findings of Fact, the Administrative Law Judge makes the following:
CONCLUSIONS
1. The Administrative Law Judge and the Commissioner of Labor and Industry have jurisdiction in this matter pursuant to Minn. Stat. §§ 14.50, 45.027 and 58.12 (2006).
2.
Respondents
received notice of the charges against them and of the time and place of the evidentiary
hearing. This matter is, therefore,
properly before the Commissioner and the Administrative Law Judge.
3.
Respondents
are default as a result of their failure, without the Administrative Law Judge’s
prior consent, to appear at the scheduled evidentiary conference.
4.
Pursuant
to Minn. R. 1400.6000, a contested case may be decided adversely to a party who
defaults. Upon default, the allegations
and claims set forth in the Statement of Charges may be taken as true or deemed
proved without further evidence.
5.
Based upon the facts set forth in the statement of charges, as
part of transactions relating to certain real estate in Otsego, Minnesota and
Ramsey, Minnesota, Respondents violated standards of conduct, engaged in
fraudulent, deceptive and dishonest acts, and otherwise engaged in acts that
demonstrate untrustworthiness, financial irresponsibility, or incompetence, in
violation of Minn. Stat. §§ 58.12, subd. 1(b)(2)(iv)-(v), and 58.13, subd. 1(a)(9)
(2006).
6.
Based upon the facts set forth in the statement of charges, by
failing to satisfy a judgment in the amount of $322,078.58, Respondents demonstrated
untrustworthiness, financial irresponsibility, or incompetence, in violation of
Minn. Stat. §§ 45.027, subd. 7(a)(4), and 58.12, subd. 1(b)(2)(v) (2006).
7.
Based upon the facts set forth in the statement of charges, by
failing to notify the Department as to Stonecreek Funding Corporation’s lawsuit
within 10 days of service of that suit, failed to apprise the Department of material changes to the information submitted in
its most recent application, in violation of Minn. Stat. §§ 58.06, subd.
2(c)(1)(iii), 58.12, subd. 2(c)(1)(iii), and 58.14, subd. 1 (2006).
8.
Based upon the facts set forth in the statement of charges, by
engaging in acts of moral turpitude, Respondent Searle is subject to regulatory
discipline under Minn. Stat. § 58.12, subd. 1(b)(2)(vi) (2006).
9.
Based upon the facts set forth in the statement of charges,
Respondents American Wholesale Lending, LLC and Searle failed to timely notify
the Department that Searle had been charged with Felony Harassment-Stalking and
Felony Disturbing the Peace, in violation Minn.
Stat. §§ 58.06, subd. 2(c)(1)(iii), 58.12, subd. 1(b)(2)(iii), and 58.14, subd.
1 (2006).
10.
11.
The imposition of a disciplinary action against
Respondents is in the public interest.
Based upon these Conclusions, and for
the reasons explained in the accompanying Memorandum, the Administrative Law
Judge makes the following:
RECOMMENDATION
Based
upon these Conclusions, the Administrative Law Judge recommends that
disciplinary action be taken against Jason Ray Jacobs, individually, doing
business as Jacobs Exteriors.
Dated: May 7, 2008
__s/Eric
L. Lipman_______________
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ERIC
L. LIPMAN Administrative
Law Judge |
Reported: Digital Recording
No transcript prepared
NOTICE
This report is a recommendation, not a
final decision. The Commissioner of the
Minnesota Department of Commerce will make the final decision after a review of
the record. The Commissioner may adopt,
reject or modify the Findings of Fact, Conclusions, and Recommendations. Under Minn. Stat. § 14.61, the final decision
of the Commissioner shall not be made until this Report has been made available
to the parties to the proceeding for at least ten days. An opportunity must be afforded to each party
adversely affected by this Report to file exceptions and present argument to
the Commissioner. Parties should contact
Glenn Wilson, Commissioner, Department of Commerce,
If the Commissioner fails to issue a final decision within 90 days of the close of the record, this report will constitute the final agency decision under Minn. Stat. § 14.62, subd. 2a. The record closes upon the filing of exceptions to the report and the presentation of argument to the Commissioner, or upon the expiration of the deadline for doing so. The Commissioner must notify the parties and the Administrative Law Judge of the date on which the record closes.
Under Minn. Stat. § 14.62, subd. 1, the agency is required to serve its final decision upon each party and the Administrative Law Judge by first class mail or as otherwise provided by law.