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OAH 3-1005-22003-2 |
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Commerce
MO17677/MPB |
STATE
OF
OFFICE OF ADMINISTRATIVE HEARINGS
FOR THE COMMISSIONER OF COMMERCE
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In the Matter of the Mortgage Originator License of Meredian Financial Corporation; Fortis Title Solutions Corporation; James T. Assali; and and Paul Ferris |
FINDINGS OF FACT, CONCLUSIONS AND RECOMMENDATION |
This matter came on before
Administrative Law Judge Kathleen D. Sheehy on May 31, 2011, for a prehearing
conference at the Office of Administrative Hearings,
Christopher
M. Kaisershot, Assistant Attorney General,
STATEMENT OF ISSUES
May
the Department discipline the Respondents because:
1. By misrepresenting the availability and
cost of mortgage loans, misrepresenting their relationship with customers’
existing lenders, and failing to pay refunds of rate lock fees when loans were
offered on different and less favorable terms, the Respondents violated
standards of conduct, engaged in fraudulent, coercive, deceptive, or dishonest
acts or practices, or otherwise demonstrated untrustworthiness, financial
irresponsibility, or incompetence, as provided in Minn. Stat. §§ 45.027, subd.
7(a)(4), 58.12, subd. 1(b)(2)(iv)-(v), and 58.13, subds. 1(a)(6) & (9)
(2010);[1]
2. By failing to deposit advance fees into
trust accounts and failing to notify consumers of their statutory right to
rescind loan contracts, the Respondents violated standards of conduct and
engaged in practices that demonstrated incompetence, financial
irresponsibility, or untrustworthiness, as provided in Minn. Stat. §§ 45.027,
subd. 7(a)(4), 58.12, subd. 1(b)(2)(i), (iv)-(v), 58.13, subd. 1(a)(1)-(2)
& (4), and 58.16, subds. 2(a)(5)-(6), 3 & 4;
3. By engaging in unlicensed mortgage
origination activities, Respondent Fortis Title Solutions violated Minn. Stat.
§§ 58.02, subds. 19 & 23, 58.04, subds. 1 & 3, and 58.12, subd.
1(b)(2)(i);
4. By creating and using Fortis Title
Solutions as a shell company to deceive the credit card industry into accepting
charges for rate lock fees on behalf of Meredian, Respondents Meredian, Assali,
and Ferris engaged in fraudulent, coercive, deceptive, or dishonest acts or
practices, and otherwise demonstrated untrustworthiness, financial
irresponsibility, or incompetence, as provided in Minn. Stat. §§ 45.027, subd.
7(a)(4), 58.12, subd. 1(b)(2)(iv)-(v), 58.13, subd. 1(a)(6) & (9);
5. By failing to provide affiliated business
disclosure statements describing the common ownership of Meredian and Fortis
Title Solutions, the Respondents violated 12 U.S.C. §§ 2602(7) and 2607, 24
C.F.R. § 3500.15, and Minn. Stat. §§ 58.12, subd. 1(b)(2)(iv)-(v), and 58.13,
subd. 1(8);
6. By providing false, incomplete, and
misleading information to the Commissioner, and by refusing to respond to an
administrative subpoena issued by the Department, the Respondents violated
Minn. Stat. §§ 45.027, subd. 7(a)(3), and 58.12, subd. 1(b)(2)(ix); and
7. By engaging in mortgage origination
activities that resulted in cease and desist orders in
Based
upon the files, records, and proceedings herein, the Administrative Law Judge
makes the following:
FINDINGS OF FACT
1.
On April 29, 2011, a copy of the Notice and Order for
Prehearing Conference was sent by first-class mail to the Respondents and their
counsel in
2.
The Respondents failed to appear at the prehearing
conference, did not obtain prior approval from the Administrative Law Judge to
be absent from the prehearing conference, did not file a Notice of Appearance,
and did not request a continuance or any other relief.
3.
The Notice and Order for Prehearing Conference contained the
following notice:
Respondents’ failure to appear at the prehearing conference . . . may
result in a finding that Respondents are in default, that the Department’s
allegations contained in the Statement of Charges may be accepted as true, and
that Respondents may be subject to discipline by the Commissioner, including debarment,
revocation, suspension, censure, or the imposition of civil penalties.[3]
4.
Because Respondents failed to appear at the prehearing
conference, they are in default.
5.
Pursuant to Minn. R. 1400.6000, the allegations contained in
the Statement of Charges are taken as true and incorporated by reference into
these Findings of Fact.
6.
The Statement of Charges alleges that Respondent Meredian
Financial Corporation is a licensed mortgage originator in Minnesota and that
its license became inactive in 2011 after it failed to pay an assessment; that
Fortis Title Solutions Corporation is not licensed as a residential mortgage
originator in Minnesota and is consequently precluded from collecting rate lock
fees from Minnesota residents; and that James Assali was the owner and
president of Meredian and Fortis until October 2, 2007, when he transferred his
ownership interests to Paul Ferris, the current owner.
7.
The Statement of Charges also alleges that the Respondents contacted
Minnesota homeowners and misrepresented the Respondents’ relationship with the
lenders currently holding mortgages on their homes; the Respondents induced
Minnesota residents to pay “rate lock” fees for new residential mortgage loans,
the terms and availability of which were misrepresented; the Respondents failed
to deposit these funds into trust accounts, and failed to refund at least
$30,406 in advance fees paid by 12 Minnesota residents when the loans were
offered on different and less favorable terms; Respondents Meredian, Assali,
and Ferris created Fortis Title Solutions Corporation as a conduit for these
rate lock fees in order to deceive credit card issuers, after the credit card
industry refused to process further charges on behalf of Meredian; Respondent
Fortis Title Solutions issued rate lock letters and collected advance fees on
mortgage loans from at least 45 Minnesota residents, despite its unlicensed
status; the Respondents failed to provide the affiliated business disclosures and
other disclosures required in connection with making these loans; the
Respondents failed to notify customers of their statutory right to rescind
these loan agreements; and the Respondents provided misleading and incomplete
information to the Department in response to an information request and failed
to respond to an administrative subpoena regarding their mortgage business in
Minnesota.
Based
upon the foregoing Findings of Fact, the Administrative Law Judge makes the
following:
CONCLUSIONS
1.
The Administrative Law Judge and the Commissioner of
Commerce are authorized to consider the charges against Respondents under Minn.
Stat. §§ 14.50; 45.024; 45.027, subd. 1; and 58.12.
2.
The Respondents received due, proper, and timely notice of
the charges against them, and of the time and place of the prehearing
conference. This matter is, therefore,
properly before the Commissioner and the Administrative Law Judge.
3.
The Department has complied with all relevant procedural
legal requirements.
4.
Under Minn. R. 1400.6000, a contested case may be decided
adversely to a party who defaults. A
default occurs when a party fails to appear without the prior consent of the
judge at a prehearing conference. On
default, the allegations of and the issues set out in that Notice of and Order
for Hearing or other pleading may be taken as true or deemed proved without
further evidence.
5.
The Respondents are in default herein as a result of their
failure, without the prior consent of the Administrative Law Judge, to appear
at the prehearing conference.
6.
Residential mortgage originators who solicit or receive an
advance fee in exchange for assisting a borrower located in Minnesota in
obtaining a loan secured by a lien on residential real estate, or who offer to
act as an agent of the borrower in obtaining a loan secured by such a lien,
shall be considered to have created a fiduciary relationship with the borrower.[4] The terms of any such contract are subject to
disclosure requirements and cancellation rights described in Minn. Stat. §
58.16, subds. 2 and 3.
7.
No person acting as a residential mortgage originator or
servicer shall charge a fee for a product or service where the product or
service is not actually provided.[5] In addition, no person acting as a
residential mortgage originator shall make or cause to be made, directly or
indirectly, any false, deceptive, or misleading statement or representation in
connection with a residential loan transaction, including, without limitation,
a false, deceptive, or misleading statement or representation regarding the
borrower’s ability to qualify for any mortgage product.[6]
8.
By representing that customers were pre-approved for
residential mortgage loans at favorable interest rates, holding themselves out
as the existing lender or agent of the existing lender, and failing to provide refunds
of rate lock fees when loans were offered on different and less favorable terms,
the Respondents charged a fee for a product not actually provided and misled Minnesota
consumers, in violation of Minn. Stat. §§ 58.13, subd. 1(a)(6) & (9). This conduct also demonstrates that
Respondents engaged in fraudulent, deceptive, or dishonest acts or practices
and are untrustworthy, financially irresponsible, or otherwise incompetent or
unqualified to act under authority or license granted by the Commissioner, as
provided in Minn. Stat. §§ 45.027, subd. 7(a)(4), and 58.12, subd. 1(b)(2)(iv)-(v)
(Count I).
9.
No person acting as a residential mortgage originator or
servicer shall fail to maintain a trust account to hold trust funds received in
connection with a residential mortgage loan; fail to deposit all trust funds
into a trust account within three business days of receipt, commingle trust
funds with other funds, or use trust account funds for any purpose other than
that for which they are received; or fail to disburse funds according to its
contractual or statutory obligations.[7] A residential mortgage originator shall
deposit into a trust account all fees received before the time a loan is
actually funded. The trust account must
be in a financial institution located within the state of
10.
Any written contract made between a residential mortgage
originator and borrower must contain a statement that notifies the borrower of
the unconditional right to cancel the contract and disclose the cancellation
rights and procedures required by statute, and must disclose, with respect to
the 12-month period ending ten business days before the date of the contract in
question, the percentage of the mortgage originator’s customers for whom loans
have actually been funded as a result of the residential mortgage originator’s
services.[9]
11.
By failing to deposit
advance fees into trust accounts as required by law, and by failing to include
mandatory contractual language in their agreements with homeowners, the
Respondents violated Minn. Stat. §§ 58.13, subd. 1(a)(1), (2) & (4), and
12.
Assisting or offering to assist a borrower in applying for a
residential mortgage loan, or negotiating or offering to negotiate the terms or
conditions of a residential mortgage loan with a lender on behalf of a
borrower, for compensation or gain or expectation of compensation or gain, is
activity that constitutes mortgage brokering, and it requires a residential
mortgage originator license in Minnesota.[10]
13.
Fortis Title Solutions engaged in unlicensed residential
mortgage origination activities by issuing rate lock letters and collecting
advance fees from
14.
By creating and using Fortis Title Solutions as a conduit to
deceive the credit card industry into accepting charges made on behalf of
Meredian, Respondents Meredian, Assali and Ferris engaged in fraudulent,
coercive, deceptive, or dishonest acts or practices, and otherwise demonstrated
untrustworthiness, financial irresponsibility or incompetence, in violation of
Minn. Stat. §§ 45.027, subd. 7(a)(4), 58.12, subd. 1(b)(2)(iv)-(v), and 58.13,
subd. 1(a)(6) & (9) (Count IV).
15.
No person shall give and no person shall accept any portion,
split, or percentage of any charge made or received for the rendering of a real
estate settlement service in connection with a transaction involving a
federally related mortgage loan other than for services actually performed.[11] An affiliated business arrangement is not
prohibited under this section so long as a disclosure is made of the existence
of such an arrangement to the person being referred and, in connection with
such referral, such person is provided a written estimate of the charge or
range of charges generally made by the provider to which the person is
referred.[12] The written disclosure must describe the
nature of the relationship between the provider of settlement services (or
business incident thereto) and the person making the referral and of an
estimated charge or range of charges generally made by such provider. The disclosures must be provided no later
than the time of each referral.[13]
16.
By failing to provide the mandatory affiliated business
disclosure statements with regard to the common ownership of Meredian and
Fortis Title Solutions, the Respondents violated 12 U.S.C. § 2607 and 24 C.F.R.
§ 3500.15. This same conduct constitutes
a violation of Minn. Stat. §§ 58.12, subd. 1(b)(2)(iv)-(v), and 58.13, subd.
1(8) (Count V).
17.
Persons subject to the authority of the Commissioner of
Commerce must comply with requests for information, documents, or other
requests from the department within the time specified in the request.[14] The Commissioner may take disciplinary action
against a person who has provided false, misleading, or incomplete information
or has refused to allow a reasonable inspection of records or premises.[15]
18.
By providing false, misleading, and incomplete information
in response to a request by the Commissioner, the Respondents violated Minn.
Stat. § 45.027, subd. 7(a)(3) and 58.12, subd. 1(b)(2)(ix) (Count VI).
19.
The Commissioner may take disciplinary action against any
person who has been the subject of disciplinary action, an order of suspension
or revocation, a cease and desist order or injunction order, or order barring
involvement in an industry or profession issued by any state or federal
regulatory agency.[16]
20.
The Respondents are subject to discipline in
21.
Disciplinary action against the Respondents is in the public
interest.
Based upon the foregoing Conclusions, the Administrative Law Judge makes the following:
RECOMMENDATION
IT IS HEREBY
RECOMMENDED: that the Commissioner of the Department of Commerce take adverse
action against the Respondents.
Dated: June 7, 2011
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s/Kathleen D. Sheehy |
|
KATHLEEN D. SHEEHY |
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Administrative Law Judge |
Reported: Default (not recorded)
This
Report is a recommendation, not a final decision. The Commissioner of Commerce will make the
final decision after reviewing the record and may adopt, reject or modify these
Findings of Fact, Conclusions, and Recommendations. Under Minn. Stat. § 14.61, the Commissioner’s
decision shall not be made until this Report has been available to the parties
to the proceeding for at least ten (10) 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 Mike
Rothman, Commissioner, Minnesota 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. To comply with Minn. Stat. § 14.62, subd. 2a, the Commissioner must then return the record to the Administrative Law Judge within 10 working days to allow the Judge to determine the discipline to be imposed.
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.
[1] All references to Minnesota Statutes are to the 2010 edition.
[2] Affidavit of Service by First Class Mail (Apr. 29, 2011).
[3] Notice and Order for Prehearing Conference at 17.
[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11] 12 U.S.C. § 2607(c).
[12] 12 U.S.C. § 2607(4).
[13] 24 C.F.R. § 3500.15(b)(1).
[14]
[15]
[16]