STATE OF MINNESOTA OFFICE OF ADMINISTRATIVE HEARINGS FOR THE COMMISSIONER OF COMMERCE

Transcription

1 Link to Final Agency Decision OAH Docket No STATE OF MINNESOTA OFFICE OF ADMINISTRATIVE HEARINGS FOR THE COMMISSIONER OF COMMERCE In the Matter of Christopher Douglas Dorpat, Real Estate Appraiser License No FINDINGS OF FACT, CONCLUSIONS AND RECOMMENDATION The above-entitled matter came on for hearing before Administrative Law Judge Kathleen D. Sheehy on December 19, The OAH record closed on January 23, 2006, upon receipt of the final post-hearing submission. Michael J. Tostengard, Assistant Attorney General, 1200 NCL Tower, 445 Minnesota Street, St. Paul, MN , appeared on behalf of the Minnesota Department of Commerce (Department). Edward M. Cohen, Jr., Esq., Cohen & Friedberg, Ltd., 3015 Ottawa Avenue South, St. Louis Park, MN 55416, appeared on behalf of Christopher Douglas Dorpat (Respondent). NOTICE 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 Recommendation. Under Minn. Stat , 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. [1] 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 Kevin Murphy, Deputy Commissioner, Minnesota Department of Commerce, 85 Seventh Place East, Suite 500, St. Paul, MN to ascertain the procedure for filing exceptions or presenting argument to the Commissioner. 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 , subd. 2a (2004). 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.

2 Under Minn. Stat , 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. STATEMENT OF ISSUES 1. Did the Respondent demonstrate untrustworthiness in violation of Minn. Stat , subd. 7, by submitting an appraisal containing non-existent comparable home sales? 2. Did the Respondent fail to exercise reasonable diligence in violation of Minn. Stat. 82B.20, subd. 2 (5) and (6), by submitting an appraisal using non-existent comparable homes sales? 3. Did the Respondent demonstrate negligence and incompetence in violation of Minn. Stat. 82B.20, subd. 2 (7), by submitting an appraisal using non-existent comparable home sales? 4. Did the Respondent fail to personally inspect comparables in violation of Minn. R , subp. 3.A. (3), by submitting an appraisal using non-existent comparable home sales? 5. Did the Respondent use inappropriate comparables in violation of Minn. R , subp. 3.A. (4), by submitting an appraisal using non-existent comparable home sales? 6. Did the Respondent develop a valuation conclusion that is not supported by available market data in violation of Minn. R , subp. 3.A. (8), by submitting an appraisal using non-existent comparable home sales? 7. Did the Respondent violate Minn. Stat , subd. 7, by failing to provide the Department with the appraisal file for the property in question? Based upon all of the files, records and proceedings herein, the Administrative Law Judge makes the following: FINDINGS OF FACT 1. The Respondent is currently licensed as a real estate appraiser by the Department, License No The Respondent s company, opened in 2000, is called Rapid Appraisals. During 2002 the Respondent operated the company from a basement office in his residence at 9592 Zircon Court in Maple Grove, Minnesota. 2. The Respondent did not conduct most of the appraisals performed by his company. Rapid Appraisals subcontracted with registered appraisers; the Respondent, as the licensed appraiser, reviewed their work for accuracy and signed off on the appraisals as a supervising appraiser. During 2002, the Respondent contracted with eight or nine individuals who were each performing between three and ten appraisals per week. By operation of law, the Respondent remained responsible for the content of the appraisals. [2]

3 3. The appraisal business has become increasingly electronic. The registered appraisers who performed appraisals for Rapid Appraisals sent them by to the Respondent, who reviewed them for accuracy and made any necessary changes. When his review was completed, the Respondent scanned his signature onto the document, and forwarded it by to the party who requested it. [3] 4. The Respondent uses a software package called TOTAL for Windows. [4] The sketching software in this package is called Apex. Each of the Respondent s subcontractors is licensed to use this software in preparing appraisals. 5. In October 2003, a review appraiser named Ed Caffrey submitted a complaint to the Department concerning an appraisal of property located at County 7 Boulevard in Welch, Minnesota. Mr. Caffrey had discovered that the appraisal in question contained information about comparable residential properties, as required by law, for properties that did not exist. [5] 6. The appraisal, dated January 25, 2002, provides that it was submitted to Gateway Mortgage at the request of the homeowner, for purposes of a refinancing transaction. The appraisal appears to have been performed by Rapid Appraisals and identifies the Respondent as the actual appraiser (not as a supervisor). The appraisal contains what appears to be the Respondent s electronic signature and license number. It is missing a number of documents that are typically attached to an appraisal, including a map identifying the location of the subject property and the comparables, the appraiser s certification of compliance with USPAP, and the invoice for preparation of the appraisal. [6] 7. Department investigator Pat Stock was assigned to the complaint. As part of the investigation, Ms. Stock verified with Goodhue County that the three properties listed as comparables on the January 25, 2002, appraisal did not exist. [7] Ms. Stock does not know where Caffrey obtained the appraisal from, why he had it, or who his employer is. She has no information about the source of the appraisal, why it was prepared, for whom it was prepared, or to whom it was submitted, other than what is contained on the face of the document itself. [8] 8. Ms. Stock called the Respondent in for questioning, and on December 10, 2003, she and Julie Kosmalski (another Department investigator), the Respondent, and the Respondent s attorney, Edward Cohen, Jr., met to discuss the complaint. Ms. Stock provided the Respondent with a Tennessen warning by letter before the meeting. [9] 9. The parties versions of what was discussed at this meeting vary significantly. Ms. Stock testified that the Respondent did not deny preparing the appraisal, admitted that he performed the appraisal but left Welch before obtaining information about comparable properties, and later relied on a telephone call to a local real estate agent to obtain unverified data concerning comparable homes. Ms. Stock also testified that the Respondent apologized for his actions and said that he had made a mistake. [10]

4 10. The Respondent and his attorney testified that at no time during the December 10 meeting did the Respondent admit to creating the appraisal and that he explained that the signature appeared to be his, but that there were irregularities that made him question whether he had produced it. The signature is not positioned correctly, and there is a line below it that makes it appear, on both the cover letter and the appraisal itself, that the signature was pasted on and the document copied thereafter. It was the Respondent s belief that Ms. Stock had set up the meeting to discuss how his signature might have been used to generate a fraudulent appraisal. The Respondent testified further that any statements he made about the comparables on the appraisal were merely speculation on how someone might go about generating false comparables, and that Ms. Stock misconstrued this discussion as an admission that he had performed the appraisal and obtained the information about comparables in this manner. When asked to produce all working papers relating to the appraisal, the Respondent told her that he could not confirm or deny that he had any, because many of his paper files had been lost in a flood of his basement office, and many of his electronic files had been damaged when the hard drive on his computer crashed. He maintained he apologized only for the failure to have all of his backup files. [11] 11. At some point, possibly before, during, or after this meeting, Ms. Stock obtained a copy of a similar appraisal for the same property dated February 11, 2002, addressed to Northern Lights Mortgage. She wrote on the back of it Dorpat 12/3/03, but believes this date to be erroneous. She does not recall exactly how she obtained it, but believes the Respondent provided it to her in response to her request for working papers relating to the appraisal, and that he printed it off of the restored hard drive on his computer. Because it was not folded, Ms. Stock presumes it was hand-delivered to her, probably at the December 10 meeting. [12] 12. The second appraisal contains the Respondent s name but no signatures, electronic or otherwise. It contains color photographs of the subject property and the alleged comparable properties. It contains a sketch of the subject property s floor plan that is different than that in the first appraisal. It also contains the appraiser s certification and an incomplete invoice in the amount of $ The Department s investigation concluded at the December 10, 2003 meeting. The Department did not seek to obtain any further information from the homeowner, Gateway Mortgage, Northern Lights Mortgage, or Mr. Caffrey. 14. Neither the first nor the second appraisal of the property appears to have been prepared using the Apex sketching software used by the Respondent, which contains the Apex IV notation on the sketch page and calculates square footage in a different manner. [13] 15. On March 18, 2005, 15 months later, the Commissioner of Commerce issued a Notice of and Order for Hearing, Order for Prehearing

5 Conference, and Statement of Charges. The Notice of and Order for Hearing provides that the Department initiated this action to determine whether Respondent violated Minn. Stat , subd. 7(4) and 82B.20, subd. 2 (5), (6), and (7), and Minn. R , subp. 3A (3), (4), and (8), subjecting him to disciplinary action. 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 Respondent under Minn. Stat , subd. 7, 82B.07, and (2004). 2. Respondent received due, proper and timely notice of the charges against him, and of the time and place of the hearing. This matter is, therefore, properly before the Commissioner and the Administrative Law Judge. 3. The Department has complied with all relevant procedural requirements. 4. The Commissioner may deny, revoke, or suspend the license of a real estate appraiser if the licensee has engaged in an act or practice, whether or not the act or practice directly involves the business which the person is licensed or authorized, which demonstrates that the applicant or licensee is untrustworthy, financially irresponsible, or otherwise incompetent or unqualified to act under the authority or license granted by the commissioner. [14] 5. The license of a licensed real estate appraiser may be denied, revoked, suspended, or otherwise disciplined if the licensee engages in a violation of any of the standards for the development or communication of real estate appraisals as provided by statute; fails or refuses without good cause to exercise reasonable diligence in developing an appraisal, preparing an appraisal report, or in communicating an appraisal; or engages in negligence or incompetence in developing an appraisal, in preparing an appraisal, or in communicating an appraisal. [15] 6. A licensed real estate appraiser must not knowingly engage in any of the following unacceptable appraisal practices:... (3) unless otherwise disclosed in the appraisal report, use comparables in the valuation process that the appraiser has not at least personally inspected from the exterior by driving by them; (4) select and use inappropriate comparable sales or fail to use comparables that are physically and by location the most similar to the subject property;... or (8) develop a valuation conclusion that is not supported by available market data.... [16]

6 7. The Department has the burden to prove by a preponderance of the evidence that the Respondent violated the statutes and rules as alleged in its Notice of and Order for Hearing. [17] 8. The Department has failed to establish by a preponderance of the evidence that the Respondent engaged in an act which demonstrates that the Respondent is untrustworthy, financially irresponsible, or otherwise incompetent or unqualified to act as a licensed real estate appraiser in violation of Minn. Stat , subd. 7(a)(4). 9. The Department has failed to establish by a preponderance of the evidence that the Respondent engaged in a violation of any of the standards for the development or communication of real estate appraisals as provided by statute; failed or refused without good cause to exercise reasonable diligence in developing an appraisal, preparing an appraisal report, or in communicating an appraisal; or engaged in negligence or incompetence in developing an appraisal, in preparing an appraisal, or in communicating an appraisal in violation of Minn. Stat. 82B.20, subd. 2 (5), (6), and (7). 10. The Department has failed to establish by a preponderance of the evidence that the Respondent knowingly made any of the following unacceptable appraisal practices: (3) unless otherwise disclosed in the appraisal report, used comparables in the valuation process that the appraiser has not at least personally inspected from the exterior by driving by them; (4) selected and used inappropriate comparable sales or fail to use comparables that are physically and by location the most similar to the subject property;... or (8) developed a valuation conclusion that is not supported by available market data in violation of Minn. R , subp. 3.A. (3), (4), or (8). Based upon the foregoing Conclusions, the Administrative Law Judge makes the following: RECOMMENDATION IT IS HEREBY RECOMMENDED: that the Commissioner of Commerce dismiss the complaint against the Respondent s Real Estate Appraiser license. Dated this 22nd day of February, s/kathleen D. Sheehy KATHLEEN D. SHEEHY Administrative Law Judge Reported: Tape recorded (one tape). MEMORANDUM The violations alleged here are extremely serious and deserving of investigation by the Department. If this appraisal was in fact prepared and

7 submitted to a lending institution, there is no question but that it would constitute a financial fraud. The Department s evidence consisted of the two versions of the appraisal in question, one of which contains signatures and one that does not. The investigator has no independent information about how or why the appraisal came to be prepared or to whom it was submitted. To prove its case, the Department has relied heavily on the testimony of Ms. Stock as to what admissions were made at the December 10, 2003, meeting. The Administrative Law Judge concludes that none of the testimony concerning what happened during this meeting more than two years ago is deserving of much credit. Ms. Stock clearly had a difficult time remembering what happened and how she came to have the second appraisal, and her notes made at the time (which were not offered into evidence) did not assist her recollection. The Respondent s testimony about the meeting was more specific, as was his attorney s, but their testimony could well be influenced by obvious biases. The Respondent also offered what might be described as convenient and not entirely credible testimony concerning the destruction of his back-up files. The Administrative Law Judge concludes that the appraisal documents are the most meaningful evidence in this case. There do appear to be irregularities in the manner in which the Respondent s signature is attached to the first one, and the sketch pages are different in both versions than those typically produced by the Apex software. Respondent also presented evidence regarding fraud in the appraisal industry, and the ease with which it is perpetrated. It is possible that someone else attached the Respondent s signature to the first appraisal, although that person would have to have had access to the same appraisal software. [18] The Department s obligation is to prove its allegations by a preponderance of the evidence. The Minnesota Supreme Court has observed that while the proper standard of proof in professional licensing matters is a preponderance of the evidence, the agency s decision must be supported by evidence with heft or significance: Even so these proceedings brought on behalf of the state, attacking a person s professional and personal reputation and character and seeking to impose disciplinary sanctions, are no ordinary proceedings. We trust that in all professional disciplinary matters, the finder of fact, bearing in mind the gravity of the decision to be made, will be persuaded only by evidence with heft. [19] After a careful review of the limited evidence presented in this matter, the Administrative Law Judge finds that the Department has failed to demonstrate by a preponderance of the evidence that the Respondent prepared or submitted the appraisal at issue. The conflicting testimony regarding what occurred at the December 10, 2003, meeting is not sufficiently weighted in favor of the

8 Department that the Administrative Law Judge can conclude by a preponderance of the evidence that the Respondent is responsible for the appraisal. K. D. S. [1] Unless otherwise noted, all references to Minnesota Statutes are to the 2004 edition and all references to Minnesota Rules are to the 2005 edition. [2] Testimony of Respondent; Minn. Stat. 82B.02, subd. 16 (Uniform Standards of Professional Appraisal Practice (USPAP)); 82B.04. [3] Testimony of Respondent. [4] Id. [5] Testimony of Patricia Stock; Ex. 1. [6] Id. [7] Testimony of Patricia Stock. [8] Id. [9] Id. [10] Testimony of Patricia Stock. [11] Testimony of Respondent; Testimony of Ed Cohen. Mr. Cohen was allowed to testify as a fact witness after the Department waived any argument that he should be disqualified as counsel for the Respondent. [12] Ex. 2; Testimony of Patricia Stock. Ms. Stock testified that she made the fold in the original document herself after receiving it. [13] Compare sketch pages contained in Exs. 1 & 2 with that contained in Ex. 3. [14] Minn. Stat , subd. 7(a)(4). [15] Minn. Stat. 82B.20, subd. 2 (5), (6), and (7). [16] Minn. R , subp. 3.A (3), (4), and (8). [17] Minn. R , subp. 5. [18] Ex. 3; Affidavit of Mark Lanterman. [19] In re Wang, 441 N.W.2d 489, (Minn. 1989).