DOB: Frederick Cornelius d/b/a Focus Mortgage Findings of Fact

The above-referenced matter was initiated upon charges brought by John P. Burke, Banking Commissioner ("Commissioner"), to revoke the mortgage licenses of Respondent. (DOB Exs. 4 and 5.) Respondent, a sole proprietorship with an office at 637 Park Road, West Hartford, Connecticut, is licensed by the Department of Banking ("Department") to do business in the state of Connecticut as a "first mortgage broker" and a "first mortgage lender" within the meaning of Sections 36a-485(3) and 36a-485(5) of the Connecticut General Statutes, respectively, and a "secondary mortgage broker" within the meaning of Section 36a-510(7) of the Connecticut General Statutes.

After due notice, a hearing was held on March 18, 2004, at the Department before Joan K. Willin, the duly appointed Hearing Officer. (Tr. at 4, DOB Exs. 1 and 2.) Nirja Savill, Principal Attorney, was assigned to act as counsel to the Hearing Officer on or about March 11, 2004. The hearing was conducted in accordance with the "Uniform Administrative Procedure Act", Sections 4-166 to 4-189, inclusive, of the Connecticut General Statutes, and the Department's contested case regulations, Sections 36-1-11 to 36-1-32, inclusive, of the Regulations of Connecticut State Agencies.

The Commissioner issued charges against Respondent in this matter that were set forth in two documents: an Order of Summary Suspension, Notice of Intent to Revoke First Mortgage Lender/Broker License and Notice of Right to Hearing dated January 5, 2004; and a Notice of Intent to Refuse to Renew Secondary Mortgage Broker License and Notice of Right to Hearing dated January 5, 2004. (DOB Exs. 4 and 5.) The charges are that during the period from June 5 to July 22, 2003, Respondent submitted at least 14 appraisal reports under the name "Camilleri Appraisal Company" to various lenders to support mortgage loan applications with the signature of Brian Camilleri ("Camilleri"), a principal of Camilleri Appraisal Company, without Camilleri's knowledge, consent or authorization.

The undersigned, having read the entire record in the above-referenced matter, including testimony of the witnesses and having examined the documentary evidence, makes the following findings of fact based on substantial evidence in the record.

Procedural Findings

On January 5, 2004, the Commissioner issued an Order of Summary Suspension, Notice of Intent to Revoke First Mortgage Lender/Broker License and Notice of Right to Hearing against Respondent. (DOB Ex. 4.)

Prior to the issuance of the order and notice described in paragraph 1 above, by letter dated December 15, 2003, Deputy Commissioner Alan J. Cicchetti gave Respondent written notice, pursuant to Section 4-182(c) of the Connecticut General Statutes, by certified mail that it appeared Respondent submitted at least 14 appraisal reports to various lenders under the name "Camilleri Appraisal Company" and with a signature purporting to be that of Brian Camilleri to support mortgage loan applications without Camilleri's knowledge, consent or authorization and that such conduct would provide a basis for revocation of Respondent's first mortgage lender/broker license pursuant to Section 36a-494 of the Connecticut General Statutes ("Notice"). (Tr. at 137-139, DOB Ex. 30.)

Respondent received the Notice. Counsel for Respondent responded to the Notice by a letter dated December 30, 2003. (Tr. at 140-143, DOB Ex. 31.)

On January 5, 2004, the Commissioner issued a Notice of Intent to Refuse to Renew Secondary Mortgage Broker License and Notice of Right to Hearing against Respondent. (DOB Ex. 5.)

On January 20, 2004, the Department received appearances and requests for a hearing filed by Attorney Kerry M. Wisser on behalf of Respondent. (DOB Ex. 6.)

On February 3, 2004, William Nahas, Jr., was appointed Hearing Officer. (DOB Exs. 7 and 8.)

On March 1, 2004, the Commissioner issued Redesignations of Hearing Officer appointing Administrative Attorney Joan K. Willin as Hearing Officer. (DOB Exs. 1 and 2.)

On March 5, 2004, Hearing Officer Willin granted the Department's motion for consolidation of the hearings of the matters scheduled for March 18, 2004. (DOB Ex. 13.)

Attorney Kerry M. Wisser appeared at the hearing on March 18, 2004, on behalf of Respondent. (Tr. at 6.)

10.

Attorney Doniel Kitt appeared on behalf of the Department. (Tr. at 5-6.)

The Licensee

11.

On July 25, 2001, Respondent became licensed by the Division to engage in the business of making first mortgage loans and to act as a first mortgage broker in Connecticut pursuant to Section 36a-489 of the Connecticut General Statutes, first mortgage lender/broker license number 7666. (DOB Exs. 4 and 30.)

12.

Effective October 1, 2002, Respondent renewed first mortgage lender/broker license number 7666 to engage in the business of making first mortgage loans and to act as a first mortgage broker as a sole proprietorship in Connecticut pursuant to Chapter 668, Part I(A) of the Connecticut General Statutes at an office located at 637 Park Road, West Hartford, Connecticut 06107 for the period of time from October 1, 2002 to September 30, 2004. (DOB Ex. 14.)

13.

On June 24, 2003, Respondent filed with the Division a renewal application for secondary mortgage broker only license number 10464 to act as a secondary mortgage broker as a sole proprietorship in Connecticut pursuant to Chapter 668, Part I(B) of the Connecticut General Statutes at an office located at 637 Park Road, West Hartford, Connecticut 06107 for the period of time from July 1, 2003 to September 30, 2004. In the renewal application, Respondent indicated he employed three loan originators "recently registered, only for first mortgages". (DOB Ex. 14.)

The Investigation by the Division

14.

Beginning in the summer of 2003, pursuant to Section 36a-17 of the Connecticut General Statutes, the Commissioner, through Aslam Lodi ("Lodi"), Associate Banking Examiner of the Division, conducted an investigation regarding Respondent in response to a complaint received by the Division from Camilleri. (Tr. at 118-119.)

15.

Camilleri of 39 Long View Drive, Simsbury, Connecticut 06070, is a general real estate appraiser certified by the State of Connecticut Department of Consumer Protection, License #: RCG.103 effective 05/01/2003 to 04/30/2004. (Tr. at 28-30, DOB Ex. 15.)

16.

General real estate appraiser licenses are issued pursuant to Chapter 400g, Sections 20-500 to 20-528, inclusive, of the Connecticut General Statutes, "Real Estate Appraisers", and the regulations promulgated thereunder (Sections 20-504-1 to 20-504-12, inclusive, and Sections 20-512-1 to 20-512-11, inclusive, of the Regulations of Connecticut State Agencies) ("Appraisers' Regulations").

17.

Real estate appraisers are required to observe certain rules and standards of conduct, including the Uniform Standards of Professional Appraisal Practice ("USPAP").

18.

Camilleri is self-employed as one of two partners of Camilleri Appraisal Company, 85 Foxridge Road, West Hartford, Connecticut 06107. Camilleri's wife, Deborah, is the other partner. The business consists solely of the two partners. (Tr. at 28-29, DOB Ex. 18.)

19.

Camilleri has worked as a real estate appraiser since 1985. (Tr. at 29.)

20.

Camilleri performed approximately 100 real estate appraisals for Respondent during the period of time from approximately 1999 until May 2003. (Tr. at 31 and 51.)

21.

At no time did Camilleri authorize Respondent to sign his name on any appraisals which Camilleri did not perform. (Tr. at 44.)

22.

At no time did Camilleri sign his name on any appraisals or submit any appraisals under his name which he did not perform. (Tr. at 44.)

23.

Camilleri performed his last real estate appraisal for Respondent in May 2003. (Tr. at 31 and 34, DOB Ex. 18.)

24.

Deborah Camilleri performed her last real estate appraisal for Respondent in May 2003. (Tr. at 31 and 34, DOB Ex. 18.)

25.

No real estate appraisals were performed by Camilleri, Deborah Camilleri or any other authorized representative of Camilleri Appraisal Company for Respondent after May 12, 2003. (DOB Ex. 18.)

26.

During the summer of 2003, Camilleri became aware that a Uniform Residential Appraisal Report dated July 3, 2003 ("July 3, 2003, Appraisal"), had been submitted to New Century Mortgage Corporation ("New Century'), which listed his name and a signature purporting to be his without his knowledge or authorization. (Tr. at 35-36 and 39, DOB Ex. 16.)

27.

Camilleri did not prepare or sign the July 3, 2003, Appraisal and did not authorize the use of his name on it. (Tr. at 35-36 and 39, DOB Ex. 16.)

28.

New Century is located at 18400 Von Karman, Suite 1000, Irvine, California 92612. (DOB Ex. 25.)

29.

Camilleri filed a complaint regarding the unauthorized use of his name and forged signature on the July 3, 2003, Appraisal with the West Hartford Police Department, 103 Raymond Road, West Hartford, Connecticut 06107 ("Police"). (Tr. at 36-37, 55-56 and 58-60.)

30.

Camilleri also filed a complaint regarding the July 3, 2003, Appraisal with the Connecticut Real Estate Commission and the Department. (Tr. at 37 and 40.)

31.

The Police assigned investigation of the complaint to Detective Robert E. Moylan. (Tr. at 55-58.)

32.

The Police executed two search warrants on Respondent's business locations in West Hartford, Connecticut and Simsbury, Connecticut. (Tr. at 60-70.)

33.

The Police seized documents from more than 14 mortgage loan files at Respondent's business locations pursuant to the warrants, including 13 sets of mortgage loan documents included as DOB Exs. 19A through 19M. (Tr. at 73-74, DOB Exs. 19A through 19M.)

34.

Lodi reviewed and photocopied many of the documents seized by the Police from Respondent's offices. (Tr. at 83-84 and 121.)

35.

Each set of mortgage loan documents marked DOB Exs. 19A through 19E includes a "Desktop Underwriter Quantitative Analysis Appraisal Report" on a "Fannie Mae Form 2055 9-96" ("Appraisal Report") with the name Camilleri Appraisal Company at the top of each page, the name Brian Camilleri, a signature purporting to be that of Camilleri, the name and address of the Camilleri Appraisal Company, and information regarding Camilleri's Connecticut appraisal license in the certification section of the Appraisal Report. (DOB Exs. 19A through 19E.)

36.

The sets of documents marked DOB Exs. 19F through 19M each include a "Desktop Underwriter Property Inspection Report" on a "Fannie Mae Form 2075 7-97" ("Inspection Report") with the name Camilleri Appraisal Company at the top of each page, the name Brian Camilleri, a signature purporting to be that of Camilleri, the name and address of the Camilleri Appraisal Company, and information regarding Camilleri's Connecticut appraisal license in the certification section of the Inspection Reports. (DOB Exs. 19F through 19M.)

37.

Twelve of the Appraisal Reports and Inspection Reports, those included in DOB Exs. 19A through 19D and 19F through 19M, were dated between June 5, 2003 and July 21, 2003. The remaining Appraisal Report, included in DOB Ex. 19E, was dated November 1, 2002. (DOB Exs. 19A through 19M.)

38.

Camilleri did not prepare or sign the Appraisal Reports or Inspection Reports included in DOB Exs. 19A through 19M. (Tr. at 47, 50 and 85, DOB Exs. 19A through 19M.)

39.

Standards Rule 2 of the USPAP requires appraisals to include an appraiser's certification of certain representations to ensure the accuracy of the appraisal, compliance with professional standards in its preparation and performance of the appraisal by an unbiased, impartial, disinterested and qualified appraiser.

40.

The Appraisal Reports and Inspection Reports included in DOB Exs. 19A through 19M included an "Appraiser's Certification" section in which the appraiser certifies, among other things, that the appraiser personally inspected the subject property and stated in the report only the appraiser's own personal, unbiased and professional analysis, opinions and conclusions. (DOB Exs. 19A through 19M.)

41.

Camilleri and his company use the Win Total Software program of Ala Mode Software Company to produce appraisal reports. Camilleri and his company do not use either the Polaroid Digital Solutions or the ACI Development Rapidforms TM system software to produce appraisal reports. (Tr. at 33-34, 52 and 82, DOB Exs. 19A through 19M.)

42.

The Appraisal Reports and Inspection Reports included in DOB Exs. 16 and 19A through 19M were not produced by the Win Total Software program of the Ala Mode Software Company. The Appraisal Reports included in DOB Exs. 16 and 19A through 19E were produced using Polaroid Digital Solutions software. The Inspection Reports included in DOB Exs. 19F through 19M were produced using ACI Development Rapidforms TM system software. (Tr. at 34 and 82, DOB Exs. 16, 19A through 19M.)

43.

DOB Exs. 19A through 19L include pages from a four-page Uniform Residential Loan Application ("Loan Application"). None of these exhibits includes page four of the Loan Application, DOB Exs. 19A, 19B and 19K do not include page two of the Loan Application, and DOB Exs. 19H and 19L do not include page three of the Loan Application. DOB Ex. 19G includes documentation for two loan transactions, one on a Glastonbury, Connecticut, property and the other on a Granby, Connecticut, property. Hereinafter, all references to documents in DOB Ex. 19G are to documents pertaining to the Glastonbury property. DOB Ex. 19M does not include a Loan Application. (Tr. at 101-103, 106, and 108-110, DOB Exs. 19A through 19M.)

44.

DOB Exs. 19A, 19C and 19D include Loan Applications with the signature of Frederick Cornelius under "Interviewer's Signature", the telephone number (860) 561-3450 as the "Interviewer's Phone Number" and the name and address of Focus Mortgage as the "Name and Address of Interviewer's Employer" on page three. (DOB Exs. 19A, C and D.)

45.

DOB Exs. 19B, 19F, 19G, 19I, 19J and 19K each include a Loan Application with the name and address of Focus Mortgage as the "Name and Address of Interviewer's Employer" and the telephone number (860) 561-3450 as the "Interviewer's Phone Number" but with no name or signature of the "Interviewer" on page three. (Tr. at 101-103, 106, and 108-110, DOB Exs. 19B, 19F, 19G, 19I, 19J and 19K.)

46.

Respondent's renewal application for a secondary mortgage only license dated June 23, 2003, listed Respondent's business telephone number as (860) 561-3450. (DOB Ex. 14.)

47.

DOB Exs. 19F, 19H through 19J and 19L each include a Property Inspection Report and an unsigned copy of a U.S. Department of Housing & Urban Development HUD-1 Settlement Statement ("HUD Statement"). Each HUD Statement indicates that an "Appraisal Fee" of $175 was paid by Focus Mortgage to Sheary Appraisal. (Tr. at 103-105, and 110-111, DOB Exs. 19F, 19H through 19J and 19L.)

48.

DOB Ex. 19G includes a HUD Statement, which indicates that the broker paid an "Appraisal Fee" of $175 to Sheary Appraisal Services. (Tr. at 106-107, DOB Ex. 19G.)

49.

Each HUD Statement in DOB Exs. 19F, 19H through 19J and 19L indicates that a credit report fee was paid by Focus Mortgage to "CIS". (DOB Exs. 19F, 19H through 19J and 19L.)

50.

DOB Ex. 19G includes a HUD Statement which indicates that the broker paid a credit report fee to "CIS Services". (DOB Ex. 19G.)

51.

The loan documents contained in the following exhibits indicate the transactions were first mortgage loans: DOB Exs. 19C through 19G, 19I, 19J and 19L. (DOB Exs. 19C through 19G, 19I, 19J and 19L.)

52.

The loan documents contained in the following exhibits are insufficient to establish whether the transactions were first mortgage loans or secondary mortgage loans: DOB Exs. 19A, 19B, 19H and 19K. (DOB Exs. 19A, 19B, 19H and 19K.)

53.

The HUD Statements in DOB Exs. 19F through 19J and 19L list Provident as the lender. (DOB Exs. 19F through 19J and 19L.)

54.

Provident Funding Associates, L.P., a mortgage lending company, is located at 1633 Bayshore Highway, Suite 155, Burlingame, California 94010 ("Provident"). (DOB Ex. 29.)

55.

During the period of time from August 2003 through March 11, 2004, Lodi requested information and documentation from Provident regarding various loan customers including those referenced in DOB Exs. 19A through 19M. (Tr. at 123-127 and 132-136, DOB Exs. 21, 22, 26 and 28.)

56.

Penelope Dunn ("Dunn") is Provident's Vice President and Compliance Manager located in California. (Tr. at 149-150, DOB Exs. 22, 26, 28 and 29.)

57.

Dunn provided the Division with a notarized statement dated March 15, 2004 ("Certification") certifying that "the attached copies of the appraisal reports for the loans listed below are true copies of the original reports provided by Focus Mortgage in each applicable loan file". (Tr. at 136, DOB Ex. 29.)

58.

The six borrowers' names listed in the documents attached to the Certification correspond to the Inspection Reports and HUD Statements included at DOB Exs. 19F through 19J and 19L. The HUD Statements included in DOB Ex. 29 are signed copies. (DOB Exs. 29, 19F through 19J and 19L.)

59.

The Certification includes the dates Provident received the completed files for the listed loans, which, in accordance with Provident's procedures, must include the appraisal. (Tr. at 147, DOB Exs. 27 and 29.)

60.

Respondent submitted the loan documentation referenced in the Certification to Provident for the purpose of obtaining mortgage loan funding for the borrowers from Provident. (DOB Ex. 29.)

61.

Provident received the June 19, 2003, Inspection Report included in DOB Ex. 19F from Respondent on or before June 25, 2003, and provided funds in the amount of $260,000 for the loan documented in DOB Ex. 19F. (DOB Exs. 19F, 27 and 29.)

62.

Provident received the June 18, 2003, Inspection Report on the Glastonbury property included in DOB Ex. 19G from Respondent on or before July 18, 2003, and provided funds in the amount of $115,300 for the loan documented in DOB Ex. 19G. (DOB Exs. 19G and 29.)

63.

Provident received the June 25, 2003, Inspection Report included in DOB Ex. 19H, from Respondent on or before July 2, 2003, and provided funds in the amount of $78,000 for the loan documented in DOB Ex. 19H. (DOB Exs. 19H and 29.)

64.

Provident received the June 5, 2003, Inspection Report included in DOB Ex. 19I from Respondent on or before June 16, 2003, and provided funds in the amount of $246,000 for the loan documented in DOB Ex. 19I. (DOB Exs. 19I and 29.)

65.

Provident received the June 5, 2003, Inspection Report included in DOB Ex. 19J from Respondent on or before June 13, 2003, and provided funds in the amount of $172,700 for the loan documented in DOB Ex. 19J. (DOB Exs. 19J and 29.)

66.

Provident received the June 5, 2003, Inspection Report included in DOB Ex. 19L from Respondent on or before June 19, 2003, and provided funds in the amount of $302,000 for the loan documented in DOB Ex. 19L. (DOB Exs. 19L and 29.)

67.

The HUD Statements in DOB Exs. 19F, 19H through 19J and 19L and the HUD Statements for the corresponding loans documented by Provident in DOB Ex. 29 indicate the following payments by Provident to Focus Mortgage as "Yield Adjustment Credit": $4,550; $780; $5,535; $4,101.63; and $3,020 respectively. (DOB Exs. 19F, 19H through 19J, 19L and 29.)

68.

The HUD Statement in DOB Ex. 19G and the HUD Statement for the same loan documented by Provident in DOB Ex. 29 indicate a payment of $1,297.13 was made by Provident to Focus Mortgage as "Yield Spread Premium". (DOB Exs. 19G and 29.)

III. CONCLUSIONS OF LAW

The Commissioner is charged with the administration of Part I(A) of Chapter 668, Sections 36a-485 to 36a-498a, inclusive, of the Connecticut General Statutes, "Nondepository First Mortgage Lenders, Brokers and Originators" ("First Mortgage Act"), and Part I(B) of Chapter 668, Sections 36a-510 to 36a-524, inclusive, of the Connecticut General Statutes, "Secondary Mortgage Lenders, Brokers and Originators" ("Secondary Mortgage Act"). The Commissioner's broad regulatory authority includes the power to suspend, revoke or refuse to renew first and secondary mortgage lender/broker licenses.

Section 36a-51(a) of the Connecticut General Statutes provides, in pertinent part, that:

The commissioner may . . . revoke or refuse to renew any license issued by the commissioner under any provision of the general statutes by sending a notice to the licensee by registered or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt.

Section 36a-51(b) of the Connecticut General Statutes provides, in pertinent part, that:

If a hearing is requested within the time specified in the notice, the commissioner shall hold a hearing upon the matters asserted in the notice unless the licensee fails to appear at the hearing. After the hearing, the commissioner shall . . . revoke or refuse to renew the license for any reason set forth in the applicable licensing provisions of the general statutes if the commissioner finds sufficient grounds exist for such . . . revocation or refusal to renew. . . . No such license shall be . . . revoked except in accordance with the provisions of chapter 54.

Revocation of First Mortgage Lender/Broker License

The Department seeks to revoke the first mortgage lender/broker license of Respondent pursuant to Section 36a-494(a)(1) of the Connecticut General Statutes, which provides, in pertinent part, that:

The commissioner may . . . revoke . . . any [first mortgage lender/broker] license, in accordance with the provisions of section 36a-51, for any reason which would be sufficient grounds for the commissioner to deny an application for a license under sections 36a-485 to 36a-498, inclusive, or if the commissioner finds that the licensee or any . . . employee or agent of such licensee has done any of the following: . . . (B) committed any fraud . . . or misrepresented, concealed, suppressed, intentionally omitted or otherwise intentionally failed to disclose any of the material particulars of any first mortgage loan transaction, including disclosures required by subdivision (6) of subsection (a) of section 36a-493, or part III of chapter 669 or regulations adopted pursuant thereto, to anyone entitled to such information . . . .

Section 36a-489(a) of the Connecticut General Statutes provides, in pertinent part, that:

If the commissioner finds, upon the filing of an application for a [first mortgage lender/broker ] license, that the applicant meets the requirements of subsection (a) of section 36a-488, and that the financial responsibility, character, reputation, integrity and general fitness of the applicant . . . are such as to warrant belief that the business will be operated soundly and efficiently, in the public interest and consistent with the purposes of sections 36a-485 to 36a-498, inclusive, the commissioner may thereupon issue the applicant the license. If the commissioner fails to make such findings . . . the commissioner shall not issue a license, and shall notify the applicant of the denial and the reasons for such denial.

Statutory basis for denial as grounds for revocation

The Department alleged that during the period from June 5 to July 22, 2003, Respondent submitted at least 14 appraisal reports under the name "Camilleri Appraisal Company" to lenders to support mortgage loan applications with the signature of Camilleri without Camilleri's knowledge, consent or authorization. The Department has charged that the submission of these reports is grounds for denial of Respondent's license inasmuch as the Commissioner would be unable to find that the character, reputation, integrity and general fitness of Respondent are such as to warrant belief that Respondent's business would be operated soundly and efficiently, in the public interest and consistent with the purposes of Sections 36a-485 through 36a-498, and, therefore, such conduct constitutes grounds pursuant to Section 36a-494(a)(1) to revoke Respondent's license.

The credible testimony of Camilleri establishes that the Appraisal Reports and Inspection Reports contained in the loan files seized by the Police from Respondent's office locations were false in that they purported to be prepared, certified and signed by Camilleri but were not. Essentially these documents were forged. At least 13 loan files seized by the Police from Respondent's offices contained such forged Appraisal Reports or Inspection Reports, 12 of them dated between June 5, 2003 and July 22, 2003. (Tr. at 47, 50, 60-70 and 85, DOB Exs. 19A through 19D and 19F through 19M.)

The Department's allegation that Respondent submitted false appraisal reports to lenders in support of mortgage loan applications is corroborated by copies of the loan documentation for six loans provided to the Department by Provident. Dunn, who sent the Department the loan documentation certified that the appraisal reports that were included had been provided to Provident by Respondent. These copies of the appraisal reports were identical to the forged Inspection Reports for the corresponding loans that were in the files that the Police seized from Respondent. (DOB Exs. 19F through 19J and 19L.) Respondent provided no rebuttal evidence on this critical point.

The loan documentation for the six loans provided by Provident and the files for the corresponding loans seized by the Police establish that these loans were brokered by Respondent. (DOB Exs. 26 and 19F through 19J and 19L). The documents provided by Provident for these loans include signed copies of the same HUD Statements contained in the files for the corresponding loans seized from Respondent. The HUD Statements indicate that Provident was the lender and show payments made by Provident to Respondent that are designated as a "Yield Adjustment Credit" or "Yield Spread Premium". These payments constitute compensation to Respondent for brokering the loans. As discussed above, Provident's file for each of the six loans has the same Inspection Report, falsely purporting to be a Camilleri report, that was in the file for the corresponding loan seized by the Police from Respondent's offices. Finally, the Loan Applications in four of the seized files, DOB Exs. 19F, 19G, 19I and 19J, specify Respondent, Focus Mortgage, as the employer of the interviewer on page three of the Loan Application. (DOB Exs. H and L do not include page three of the Loan Application). A reasonable inference can be drawn from this evidence that Respondent brokered these loans and submitted the false appraisals to Provident in support of the loans.

Thus, the record establishes that Respondent submitted at least six appraisals in support of mortgage loan applications that were not prepared or signed by the person who purportedly prepared and signed them. Since, as discussed below, this constitutes sufficient grounds for revocation of the license, it is not necessary to consider the remaining appraisals about which evidence was admitted at the hearing.

In order to revoke Respondent's first mortgage lender/broker license based on the grounds for denial it must be shown that Respondent's conduct in submitting these appraisals precludes a finding that Respondent's character, reputation, integrity and general fitness are such as to warrant a belief that Respondent's first mortgage lender/broker business will be operated soundly and efficiently, in the public interest and consistent with the purposes of the First Mortgage Act. The submission of the six false appraisals obviously impugns the character, reputation, integrity and, at the very least, the general fitness of Respondent. The question remains whether, as a consequence, it cannot be found that Respondent's business would be operated soundly and efficiently, in the public interest and consistent with the purposes of the First Mortgage Act.

"Public interest" is not defined in Section 36a-489(a), nor has any Connecticut court had occasion to construe the phrase as it is used in the statute. However, in Briggs Corp. v. Public Utils. Comm'n, 148 Conn. 678, 680-1 (1961), the Connecticut Supreme Court stated that the meaning of the phrase "not inconsistent with the public interest" in a statute governing the issuance of permits for contract carriers for the transportation of property for hire "should be determined in connection with the transportation policy of this state and the relation which the phrase bears to the statutes which have been enacted to promote that policy." See also, NAACP v. Federal Power Comm'n, 425 U.S. 662 (1976). Thus, the phrase "in the public interest" in Section 36a-489(a) must be construed in light of the state's policy regarding first mortgage lenders and brokers and the relation of the phrase to the statutory scheme enacted to promote that policy.

The policy underlying the First Mortgage Act, which was originally enacted as Public Act 85-399, is the protection of the public. Testifying before the Banks Committee, Commissioner Woolf stated that the bill, a Department proposal, was needed because the Department had received numerous complaints with respect to first mortgage lenders and believed it was imperative that the Department get jurisdiction over such lenders because of the abuses seen by the Department. (Banks Committee Proc. at 119-120). Public Act 89-347 amended the First Mortgage Act to extend its licensing and other requirements to first mortgage brokers. Thus, the policy of the First Mortgage Act is to protect the public from possible abuses by nondepository first mortgage lenders and brokers in connection with the making of first mortgage loans. To achieve this public policy, the Commissioner is required by Section 36a-489 to make certain findings regarding the character, reputation, integrity and general fitness of the licensee before issuing or renewing a first mortgage lender or broker license. Section 36a-494(a) ensures the continued protection of the public by authorizing the Commissioner to revoke a license if the licensee, because of its conduct, ceases to meet the licensing standards. "The object of an administrative proceeding aimed at revoking a license is to protect the public, that is, to determine whether a licensee has exercised his privilege in derogation of the public interest, and to keep the regulated business clean and wholesome. Small v. Smith, as Real Estate Comm'r, 16 Cal. App. 3d 450, 457; 94 Cal. Rptr. 136, 140 (1971).

A certified real estate appraisal on the property securing the loan serves the interests of the borrower by advising the borrower of the value of the property. It also assures that the lender has adequate security for the loan. The authenticity of the appraiser's signature on the report is essential to protect the interests of the lender, borrower and general public. In fact, the USPAP expressly defines "signature" as "personalized evidence indicating authentication of the work performed by the appraiser and the acceptance of the responsibility for content, analyses, and the conclusions in the report."

In addition to threatening the public interests sought to be protected by the First Mortgage Act, the use of forged appraisals threatens similar interests sought to be protected by the statutes and regulations governing real estate appraisers. Respondent's submission of false appraisals endangered the interests of lenders and loan customers because the misrepresentation called into question the validity of the loans. There was a clear threat to the business and reputation of the lender, Provident, because Respondent's conduct undermined the integrity of the process and could result in the loss of loan customers. "Forgery of appraisals intended to be relied upon by lending institutions is, by its nature, a matter that endangers the public health, safety and welfare". Talley v. Office of Real Estate Appraisers, State of California, 2001 Cal. App. Unpub. LEXIS 402, 3 (2001). Here Respondent utilized at least six forged appraisals.

Respondent contends that there was no harm done to the public or lenders because the loans were issued and the lenders were getting paid as if the appraisals were real. (Tr. at 168.) However, a finding that Respondent's conduct actually harmed the public is not necessary to revoke a license under the First Mortgage Act. Moreover, Respondent's contention overlooks the harm done to the integrity of the lending process and to Camilleri and the Camilleri Appraisal Company who have a proprietary interest in their professional name and reputation. The unauthorized and uncompensated use of Camilleri's name clearly constitutes a harm to the business and individuals. In addition, the use of forged appraisals subjected Camilleri to potential liability for appraisals he did not perform.

Based on the foregoing, Respondent's submission of the six false appraisals precludes a finding that the character, reputation, integrity and general fitness of Respondent warrant a belief that the business would be operated soundly and efficiently, in the public interest and consistent with the purposes of the First Mortgage Act. Therefore, this conduct constitutes grounds to revoke Respondent's first mortgage lender/broker license pursuant to Section 36a-494(a)(1).

Commission of fraud and misrepresentation as grounds for revocation

The Department has also charged that the submission of the appraisal reports constitutes the commission of fraud and the misrepresentation of the material particulars of first mortgage loan transactions on the part of Respondent, which constitutes grounds pursuant to Section 36a-494(a)(1)(B) to revoke Respondent's license.

Connecticut courts have not yet provided an interpretation of Section 36a-494(a)(1)(B). However, it is well established, under common law, that the elements of fraud are (1) a false representation was made as a statement of fact; (2) it was untrue and known to be untrue by the party making it; (3) it was made to induce the other party to act upon it; and (4) the other party did act upon that false representation to his injury. Leonard v. Commissioner of Revenue Servs., 264 Conn. 286, 296 (2003); see also, Suffield Dev. Assocs. Ltd. Partnership v. National Loan Investors, L.P., 260 Conn. 766, 777 (2002). The record does not establish the existence of all of these elements. Although it can be inferred that Provident relied on the false appraisals since it made the loans, there was no evidence that Provident sustained injury as a result. Therefore, the record does not support a finding that Respondent committed fraud.

The next question is whether by submitting the six false Inspection Reports to Provident, Respondent misrepresented any of the material particulars of first mortgage loan transactions to any person entitled to such information within the meaning of Section 36a-494(a)(1)(B).

The statute does not define "material" and there are no cases construing the meaning of the term as used in the statute. A representation is "material" if it is "relating to [a] matter which is so substantial and important as to influence [the] party to whom [it is] made". Black's Law Dictionary 880 (5th ed. 1979).

As discussed above, a certified appraisal on the property securing a loan assures the lender that there is adequate security for the loan. It follows that the authenticity of the appraisal, which includes the true identity of the appraiser, is material to a lender's decision whether or not to extend the requested loan, inasmuch as it would be likely to affect the lender's decision as to whether to extend the funds. Therefore, the Inspection Reports were material.

The remaining issue is whether Respondent misrepresented the particulars of a first mortgage loan transaction when it submitted the six false Inspection Reports to Provident. At least five of these reports were submitted in support of first mortgage loan transactions (DOB Exs. 19F, 19G, 19I, 19J and 19L). The First Mortgage Act does not define the word "misrepresented", however, Section 1-1(a) of the Connecticut General Statutes states that "[i]n the construction of the statutes, words and phrases shall be construed according to the commonly approved usage of the language . . . ". Merriam-Webster's Collegiate Dictionary 743 (10th ed. 2001) defines "misrepresent" to mean, inter alia, "to give a false or misleading representation of usu. with an intent to deceive or be unfair". The five Inspection Reports provided to Provident gave a false and misleading representation of the appraisal because they purported to have been prepared and signed by Camilleri when, in fact, they were not. As far as the element of intent to deceive is concerned, it can hardly be disputed that the person who forged the Inspection Reports intended to deceive the recipient as to who had prepared the appraisal. While the record did not establish whether Respondent personally forged the appraisals or whether the forgery was done by an employee, "courts have repeatedly held that licensees are responsible for the acts of their employees." Ford Dealers Ass'n v. Department of Motor Vehicles, 32 Cal. 3d 347, 360; 650 P.2d 328, 335 (1982). See also, NME Properties, Inc. v. Rudich, 840 So. 2d 309 (2003). In California Ass'n of Health Facilities v. Department of Health Servs., 16 Cal. 4th 284, 295; 940 P.2d 323, 330 (1997), the court observed that the rule of nondelegable duties of licensees was "akin to the rule of respondeat superior in tort law", a doctrine that is recognized by Connecticut courts. See, Larsen Chelsey Realty Co. v. Larsen, 232 Conn. 480 (1995). "The essential justification for . . . [the] rule [of nondelegable duties of licensees] is one of ensuring accountability of licensees so as to safeguard the public welfare . . . [and] the prevention of future harm to the public by giving the licensees strong incentives to ensure that their employees' conduct conforms to law." California Ass'n of Health Facilities, supra at 296; 330. Moreover, under Section 36a-494(a)(1)(B), a license may be revoked based on a finding that a licensee or an employee or agent of the licensee misrepresented the material particulars of a first mortgage loan transaction. Accordingly, Respondent misrepresented the material particulars of at least five first mortgage loan transactions by submitting forged appraisals to Provident, which was entitled to such appraisals, which constitutes an additional basis to revoke Respondent's first mortgage lender/broker license.

Refusal to Renew Secondary Mortgage Lender/Broker License

The Department also seeks to refuse to renew the secondary mortgage broker license of Respondent, pursuant to Section 36a-517(a)(1) of the Connecticut General Statutes, which provides, in pertinent part, that:

The commissioner may . . . refuse to renew any [secondary mortgage broker] license, in accordance with section 36a-51, for any reason which would be sufficient grounds for the commissioner to deny an application for a license under sections 36a-510 to 36a-524, inclusive, or if the commissioner finds that the licensee or any . . . employee or agent of such licensee has done any of the following: . . . (B) committed any fraud . . . or misrepresented, concealed, suppressed, intentionally omitted or otherwise intentionally failed to disclose any of the material particulars of any secondary mortgage loan transaction, including disclosures required by part III of chapter 669 or regulations adopted pursuant thereto, to anyone entitled to such information . . . .

Section 36a-513(c) of the Connecticut General Statutes provides, in pertinent part, that:

If the commissioner finds, upon the filing of an application for a [secondary mortgage broker ] license, that the applicant meets the requirements of subsection (a) of this section, and that the financial responsibility, character, reputation, integrity and general fitness of the applicant . . . are such as to warrant belief that the business will be operated soundly and efficiently, in the public interest and consistent with the purposes of sections 36a-510 to 36a-524, inclusive, the commissioner may thereupon issue the applicant the license. If the commissioner fails to make such findings, . . . the commissioner shall not issue a license, and shall notify the applicant of the denial and the reasons for such denial.

Statutory basis for denial as grounds for refusal to renew

The Department has charged that the submission of the above-described 14 appraisal reports is grounds for refusal to renew Respondent's license inasmuch as the Commissioner would be unable to find that the character, reputation, integrity and general fitness of Respondent are such as to warrant belief that Respondent's business would be operated soundly and efficiently, in the public interest and consistent with the purposes of the Secondary Mortgage Act, and, therefore, such conduct constitutes grounds pursuant to Section 36a-517(a)(1) to refuse to renew Respondent's license.

The effect of the submission of six false appraisals on the character, reputation, integrity and general fitness of Respondent must be viewed in light of the public interest and the purpose of the Secondary Mortgage Act. As discussed above, in the absence of a definition of "public interest" in Section 36a-513(c), the phrase must be interpreted in light of the state's policy regarding secondary mortgage lenders and brokers and its relation to the statutory scheme enacted to promote that policy. Briggs, supra.

In Solomon v. Gilmore, 248 Conn. 769, 776, 781-784 (1999). The Connecticut Supreme Court observed that:

[T]he secondary mortgage act . . . serves three purposes. First . . . to protect consumers by prohibiting certain unscrupulous lending practices. Second . . . [it] serves an integral role in the statutory scheme through which the legislature exercises control over the secondary mortgage industry in Connecticut. Third . . . [it] serves as a deterrent to persons who might otherwise avoid the licensing requirement in order more readily to engage in unscrupulous lending. . . .

The evolution of the secondary mortgage act . . . affirms that the legislature increasingly has viewed the secondary mortgage act's licensing requirement as integral to the overall objective of protecting consumers against unscrupulous secondary mortgage lenders. . . .

In 1980, as indicated in the legislative history of Public Acts 1980, No. 80-67, the legislature sought to regulate more closely the secondary mortgage industry. . . . [T]he legislature recognized that a more rigorous licensing scheme would be an effective means of achieving this end. In explaining the proposed bill, Representative John P. Sponheimer stated: "This bill would further regulate the second mortgage industry. It would allow the Banking Commissioner to investigate when a person applies for a second mortgage license. . . . It would allow the Commissioner, if he believes that a second mortgage lender is violating the provisions of the statute, to take . . . action. . . . What this has done is further tighten up a field which many people believe needs further regulation. . . ." 23 H.R. Proc., Pt. 3, 1980 Sess., pp. 873-74. Public Act 80-67, § 2, subsequently amended the secondary mortgage act to include what is now § 36a-513 (c), mandating that the commissioner investigate the facts stated in an application for a license and only to "issue a license if the commissioner finds that the applicant is in all respects properly qualified and of good character and that granting such license would not be against the public interest. . . ." In 1990, . . . the legislature again strengthened the licensing provision . . . .

Thus, the changes made . . . over the past twenty-two years evidence a trend toward strengthening the protection afforded to credit consumers under the secondary mortgage act by making the licensing requirement more rigorous in terms of both the process through which a license is obtained and the penalties available for assessment against violators.

(Emphasis in original; footnotes omitted.)

Public Act 02-111 made the licensing requirements even more rigorous by imposing minimum tangible net capital and experience requirements.

Thus, the policy underlying the Secondary Mortgage Act is essentially the same as that underlying the First Mortgage Act, namely, the protection of the public from abuses by mortgage lenders and brokers. In addition, the grounds for denial set forth in Section 36a-513(c) are essentially the same as those set forth in Section 36a-489(a). Accordingly, for the reasons discussed above in connection with the first mortgage lender/broker license, the submission by Respondent of the six false Inspection Reports to Provident supports a finding that the character, reputation, integrity and general fitness of Respondent are not such as to warrant a belief that the business of Respondent would be operated soundly and efficiently, in the public interest and consistent with the purposes of the Secondary Mortgage Act. Therefore, Respondent's conduct constitutes grounds, pursuant to Section 36a-517(a)(1), to refuse to renew Respondent's license to act as a secondary mortgage broker in Connecticut.

Commission of fraud and misrepresentation as grounds for refusal to renew

The Department has also charged that the submission of the 14 appraisal reports constitutes the commission of fraud and the misrepresentation of the material particulars of secondary mortgage loan transactions on the part of Respondent which constitutes grounds pursuant to Section 36a-517(a)(1)(B) to refuse to renew Respondent's license.

As discussed above in connection with the revocation of the first mortgage lender/broker license, the record does not support a finding of fraud since there was no evidence that Provident sustained any injury as a result of the submission of the appraisals. In addition, the record does not establish that any of the 13 appraisals dated between June 5, 2003 and July 21, 2003, were submitted in support of secondary mortgage loan transactions. Therefore, the charge of misrepresentation of the material particulars of secondary mortgage loan transactions also is not supported by the evidence.

IV. ORDER

Having read the record, I hereby ORDER, pursuant to Sections 36a-51, 36a-494(a) and 36a-517(a) of the Connecticut General Statutes, that:

1.	The license of Frederick Cornelius d/b/a Focus Mortgage to engage in the business of granting first mortgage loans and to act as a first mortgage broker in Connecticut be REVOKED.
2.	The license of Frederick Cornelius d/b/a Focus Mortgage to act as a secondary mortgage broker in Connecticut NOT BE RENEWED.

This Order was sent by certified mail,
return receipt requested, to Respondent's
attorney on June 18, 2004.

Kerry M. Wisser, Esq.
Weinstein & Wisser, P.C.
29 South Main Street, Suite 207
West Hartford, CT 06107