902 DOS 09

STATE OF NEW YORK

DEPARTMENT OF STATE

OFFICE OF ADMINISTRATIVE HEARINGS

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In the Matter of the Complaint of

DEPARTMENT OF STATE

DIVISION OF LICENSING SERVICES,

                                                Complainant,                                      

                        -against-                                                                                  DECISION

NOVELTY REALTY INC., DEAN MOHAMMED,

ANELE NWANYANWU, and MOHAMED A. HACK,

                                                Respondents.

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            The above noted matter came on for hearing before the undersigned, Roger Schneier, on November 8, 2007 and April 7, June 22, and September 1, 2009 at the office of the Department of State located at 123 William Street, New York, New York.

            Novelty Realty Inc. and Dean Mohammed were represented by Richard A. De Brosse, Esq., Debrosse & Studley, LLP, 182-38 Hillside Avenue, Jamaica Estates, New York 11432, on November 8, 2007. Mr. Mohammed appeared pro se and on behalf of Novelty Realty Inc. (hereinafter “Novelty”) on April 7, 2009. Neither Mr. Mohammed nor Mr. De Brosse appeared on June 22 or September 1, 2009.

            Mohammed A. Hack was represented at all hearing sessions by Larry Blisko, Esq., appearing of counsel to Naimark & Tannenbaum, 321 Meacham Avenue, Elmont, New York 10003.

            Anele Nwanyanwu, an attorney at law admitted to practice in the State of New York, appeared pro se at all hearing sessions.

            The complainant was represented by Senior Attorney Linda D. Cleary, Esq.

COMPLAINT

            The complaint alleges that: Mr. Hack, a licensed Real Estate Salesperson associated with Novelty, a licensed Real Estate Broker represented by Mr. Mohammed, failed to provide Everton Whyte, a home owner with an agency relationship disclosure statement when he accepted a listing of real property for sale; Mr. Hack falsely informed Mr. Whyte that Mr. Hack’s wife would purchase the property, which was facing foreclosure, in a short sale; Mr. Hack received $1,800.00 from Mr. Whyte the purpose of which was never explained to Mr. Whyte and for which Mr. Hack never accounted, and that Mr. Hack retained the funds as an unearned commission; Mr. Hack fraudulently represented to the mortgagee bank that the property was being sold for $242,000.00 as a short sale, with the result that the bank agreed to a reduced mortgage payoff of $205,920.00; Mr. Hack gave Mr. Whyte last minute notice of the closing at which Mr. Whyte appeared without counsel and was directed to sign a contract of sale for $300,000.00 and to authorize the release of money to “Shazam Holdings” without explanation of what the payment was for; the respondents failed to provide Mr. Whyte with copies of any of the documents signed in connection with the sale; Mr. Hack retained $56,030.92 of the excess sale proceedings and Novelty and Mr. Mohammed received a $5,000.00 commission; Mr. Whyte is responsible for capital gains taxes in connection with a sale in which he received no money; Mr. Hack failed to cooperate with the investigation of Mr. Whyte’s complaint by making false and misleading statements to the complainant’s investigator; Mr. Hack acted as the Vice President and General Manager of Novelty when licensed as a Real Estate Salesperson; Mr. Mohammed was aware of a permitted the alleged violations by Mr. Hack and is vicariously liable for them and for failure to adequately supervise Mr. Hack; Mr. Nwanyanwu failed to cooperate with the complainant’s investigation by failing to return telephone calls and respond to a letter sent to him by the complainant’s investigator.

FINDINGS OF FACT

            1) Notices of hearing together with copies of the complaint were served on the respondent’s by certified mail delivered in or about April 2007 (State’s Ex. 1).

            2) Since October 16, 2003 Dean Mohammed has been duly licensed as a Real Estate Broker representing Novelty. His license is due to expire on October 16, 2009 (State’s Ex. 2 and 26).

            3) Mohamed A. Hack was duly licensed as a Real Estate Salesperson in association with Novelty from some time prior to April 28, 2001 until he terminated his association with Novelty on September 8, 2003. He was subsequently licensed in association with MBZ Realty until a termination of that association was filed on January 28, 2009. His licensed expired on June 13, 2009 (State’s Ex. 2 and 27) and as of the date of the last hearing session he had not submitted a renewal application because he had not been able to complete the required education for health reasons.

            4) Anele O. Nwanyanwu was duly licensed as a Real Estate Broker from December 8, 2000 to September 22, 2008 (State’s Ex. 2). I take official notice of the records of the Department of State that as of the date of the last hearing session the license had expired and had not been renewed.

            5) In or about 1999 Jennive Ferguson was having difficulties with the mortgage on her two family house located at 4736 Matilda Avenue, Bronx, New York (hereinafter “the property”). She arranged for title to be transferred to her brother, Everton Whyte, and their sister, Radica Ellis, so that she could remain in the house. However she subsequently experienced new problems and was contacted by Mr. Hack, who had obtained her name from a lis pendens provided to him by Mr. Mohammed, and he offered to assist her. Mr. Hack advised Ms. Ferguson that if she could come up with some money he would try to save the property for her, but she said that she could not and would like to sell the property to protect Mr. Whyte’s and Ms. Ellis’s credit. Mr. Hack agreed to assist her in arranging a short sale, but told her that Mr. Whyte would have to execute any documents.

            6) On January 10, 2001 Mr. Ferguson gave Mr. Hack $900.00 towards a legal fee of $1,800.00 charged by the attorney who was retained to negotiate a possible short sale with the mortgagee bank (State’s Ex. 3). She never paid the balance. Mr. Hack participated in the negotiations with the bank (State’s Ex. 31), but it is not clear to what extent.

            7) An agency relationship disclosure statement regarding the subject transaction was issued by Mr. Hack on January 18, 2001, and a copy of the form was placed and maintained in Novelty’s files. None of the required information other than the date in one location and the signature of Mr. Whyte has been filled in (State’s Ex 14) . At the same time an exclusive right to sell agency agreement on a Novelty form was executed by Mr. Whyte and Mr. Hack. That agreement provided for a sales price of $249,000.00 but was later altered, by whom it was not established, to show a sales price of $220,000.00 (other than the price alteration and a correction to the expiration date the two copies of the listing agreement placed in evidence are identical) (State’s Ex. 15).

            7) On October 18, 2001 Mr. Hack agreed to pay Ms. Ferguson $8,000.00 “upon resale” of the property (State’s Ex. 4). According to Ms. Ferguson that promise related to an arrangement pursuant to which Mr. Hack’s wife was going to buy the property for an unspecified amount and then re-sell it. According to Ms. Ferguson she eventually received $4,000.00 although, as discussed below, Mr. Hack testified that he gave her $3,500.00.

            8) On the afternoon of January 31, 2002 Mr. Hack, acting at the direction of Mr. Mohammed, telephoned Mr. Whyte and told him that Mr. Whyte, who lives in Brooklyn, had to immediately go to The Bronx for a closing on the sale of the property. Mr. Whyte asked Mr. Hack if Ms. Ferguson knew about it, and Mr. Hack said yes, she would be there. Mr. Whyte telephoned Ms. Ferguson to confirm that, but he was unable to reach her.

            Mr. Whyte went to Novelty’s office and met with two men who he did not know. He then followed them in his car to the closing, which took place in Hempstead, New York. Included in those present were Mr. Mohammed, Mr. Nwanyanwu, who, although Mr. Whyte thought, pursuant to what Mr. Nwanyanwu told him, was representing him, was representing the buyer, James Jones, Jr., who was also present and of whose identity Mr. Whyte had not previously been aware, Robert Reda, Esq., representing the bank, Shazam Husain, owner of Shazam Holdings, and Learie Wilson, Esq., who represented Mr. Whyte at the request of Mr. Husain (State’s Ex. 29) although he had never before met or spoken with Mr. Whyte and apparently had little if any understanding of what Mr. Whyte had agreed to. Mr. Whyte had understood, pursuant to what Mr. Hack had previously told him, that Mr. Hack’s wife was purchasing the property. Radica Ellis and Mr. Hack were not present. Mr. Whyte continued to try to contact Ms. Ferguson, but to no avail, but he continued with the closing because he was told (by whom it is not clear from the record) that if the closing did not take place that day the property would be foreclosed upon the next day.

            Mr. Nwanyanwu gave Mr. Whyte a contract dated November 24, 2001 providing for the sale of the property by him and Ms. Ellis to Mr. Jones for $300,000.00 and had him sign it (State’s Ex. 6). Mr. Whyte does not know who signed what purports to be the signature of Ms. Ellis although he did hold her power of attorney.

            9) According to the first page of the HUD-1 statement (State’s Ex. 7) the property sold for $300,000.00 (with a loan in that amount) less a sellers’ concession of $18,000.00, with a payoff of the mortgage of $205,000.00 and a cash payment of $59,720.00 due the sellers. However Mr. Whyte signed, as directed by Mr. Learie, a handwritten statement which either he or Mr. Nwanyanwu had written which authorized the payment of that money to Shazam Holdings (State’s Ex. 9). Shazam Holdings subsequently authorized the release to Mr. Hack of $53,625.00 of that money, and on February 27, 2002 a check in that amount was issued to Mr. Hack from the IOLA account of Mr. Wilson. (State’s Ex. 19), who had received a check from Mr. Reda for $56,030.92 (State’s Ex. 28). Mr. Hack testified that he believes that the payment was made by Shazam Holdings in settlement of debts it owed to Novelty and Mr. Mohammed, although Mr. Mohammed denies that there were any such debts (State’s Ex. 17) and denied to the complainant’s investigator authorizing the payment to Mr. Hack. Why any money from the subject transaction was authorized to be paid to Shazam Holdings in the first place was not explained. According to Mr. Hack, although no documents were presented to support the assertion, the property was sold first to Shazam Holdings which re-sold it to Mr. James (State’s Ex. 25). Mr. Hack also received $,3,500.00 in cash from Shazam Husain and, at the direction of Mr. Mohammed, gave that money to Ms. Ferguson for moving expenses.

            10) A closing statement issued by Mr. Wilson,, indicates that at a closing held on January 31, 2002 there was a sale for $300,000.00 less a sellers’ concession of $18,000.00 plus taxes of $225.00, with a balance due the seller of $282,225.00 and disbursements of $5,000.00 to Novelty , $8,505.00 for the title bill and closer, $209,000.00 to payoff the mortgage, and $56,030.92 to Learie Wilson as attorney (State’s Ex. 13, Resp. Ex. A). However, additional documents offered as part of the same exhibit but clearly not issued contemporaneously, show that the mortgagee bank, Washington Mutual, agreed to a short sale by Mr. Whyte and Ms. Ellis which purportedly closed on February 28, 2002 with a sales price of $220,000.00 and, after several deductions, a net to the bank of $205,920.00. An additional document which is part of the same exhibit but dated March 6, 2002 memorializes the commitment to accept a mortgage payoff after a short sale for $220,000.00

            11) A deed dated (apparently in error) January 31, 2001 but notarized with the date of January 31, 2002 by Mr. Learie, who also drew up the deed, was issued at the closing (State’s Ex. 8). Mr. Whyte acknowledges that it bears his signature as seller, but denies that he also affixed the purported signature of Ms. Ellis as her agent.

            12) When the closing was over Mr. Whyte left without receiving either any money or any copies of the documents which he signed, and he was never provided with such copies until the attorney whom he retained later was able to obtain copies. Although he did not receive any money, the Internal Revenue Service issued a notice of assessment for taxes, interest, and a penalty for the money he purportedly received (State’s Ex. 10). That matter was, however, apparently resolved without any payment.

            13) In conversations with the complainant’s investigator both Mr. Hack and Mr. Mohammed stated that Novelty did not receive a commission on the subject transaction.

            14) In or about August 2000 Mr. Hack became Vice President and General Manager of Novelty with the intent of permitting Mr. Mohammed, who was President of Novelty, to devote himself to his separate mortgage company (State’s Ex. 12, 22, 23, and 24).

            15) On May 3, 2004 Senior License Investigator Rosalind Young wrote to Mr. Nwanyanwu at his residence address, an address at which according to the Postal Service mail is delivered, and requested that he telephone her (State’s Ex. 21). He failed to respond and she made no further attempts to contact him. She testified that she did not attempt to contact him at his business address as his license as a Real Estate Broker had expired, however the license certification provided by the complainant (State’s Ex. 2) shows that the license did not expire until December 8, 2004.

OPINION AND CONCLUSIONS OF LAW

            I- The expiration of Mr. Hack’s and Mr. Nwanyanwu’s licenses does not deprive the tribunal of jurisdiction to adjudicate the charges against them. Albert Mendel & Sons, Inc. v N.Y. State Department of Agriculture and Markets, 90 AD2d 567, 455 NYS2d 867 (1982); Main Sugar of Montezuma, Inc. v Wickham, 37 AD2d 381, 325 NYS2d 858 (1971).

            II- When Mr. Hack, acting on behalf of Novelty, agreed to assist Ms. Ferguson and Mr. Whyte in the sale of the property, Mr. Hack and Novelty became the agents of Ms. Ferguson and Mr. Whyte. The relationship of agent and principal is fiduciary in nature, "...founded on trust or confidence reposed by one person in the integrity and fidelity of another." Mobil Oil Corp. v Rubenfeld, 72 Misc.2d 392, 339 NYS2d 623, 632 (Civil Ct. Queens County, 1972). Included in the fundamental duties of such a fiduciary are good faith and undivided loyalty, and full and fair disclosure. Such duties are imposed upon real estate licensees by license law, rules and regulations, contract law, the principals of the law of agency, and tort law. L.A. Grant Realty, Inc. v Cuomo, 58 AD2d 251, 396 NYS2d 524 (1977). The object of these rigorous standards of performance is to secure fidelity from the agent to the principal and to insure the transaction of the business of the agency to the best advantage of the principal. Dubbs v Stribling & Assoc., 96 NY2d 337, 728 NYS2d 413 (2001); Department of State v Short Term Housing, 31 DOS 90, conf'd. sub nom Short Term Housing v Department of State, 176 AD 2d 619, 575 NYS2d 61 (1991); Department of State v Goldstein, 7 DOS 87, conf'd. Sub nom Goldstein v Department of State, 144 AD2d 463, 533 NYS2d 1002 (1988).

            III- Being an artificial entity created by law, Novelty can only act through it officers, agents, and employees, and it is, therefore, bound by the knowledge acquired by and is responsible for the acts committed by its Salesperson, Mr. Hack, and its Representative Broker, Mr. Mohammed, within the actual or apparent scope of their authority. Roberts Real Estate, Inc. v Department of State, 80 NY2d 116, 589 NYS2d 392 (1992); A-1 Realty Corporation v State Division of Human Rights, 35 A.D.2d 843, 318 N.Y.S.2d 120 (1970); Division of Licensing Services v First Atlantic Realty Inc., 64 DOS 88; RPL § 442-c.

            IV- A Real Estate Broker is obligated to supervise the real estate brokerage activities of the Salespersons association with him. RPL §441(1)(b), 19 NYCRR 175.21. That supervision must consist of

"regular, frequent and consistent personal guidance, instruction, oversight and superintendence by the real estate broker with respect to the general real estate brokerage business conducted by the broker, and all matters relating thereto." 19 NYCRR 175.21(a).

That duty has been affirmed judicially, Division of Licensing Services v Giuttari, 37A DOS 87, conf'd. 535 NYS2d 284 (AD 1st Dept. 1988); Friedman v Paterson, 453 NYS2d 819 (1982), aff'd. 58 NY2d 727, 458 NYS2d 546, and has been restated in numerous determinations of the Department of State. Division of Licensing Services v Misk, 64 DOS 92; Division of Licensing Services v Gelinas, 38 DOS 92; Division of Licensing Services v Levenson, 52 DOS 91; Division of Licensing Services v Capetanakis, 42 DOS 90; Division of Licensing Services v Shulkin, 4 DOS 90. That duty must, of necessity, extend beyond Salespersons to the supervision of support staff who would otherwise be free to do, or not do, whatever they wised regardless of the effect on the brokerage operations of the corporation.

            V- Pursuant to Real Property §443 a Real Estate Broker or Salesperson must present the potential seller of real property with an agency relationship disclosure statement at the first substantive contact between the licensee and the owner of the property. The statute sets forth the required content of that form. Mr. Hack provided a disclosure form to Mr. Whyte and/or Ms. Ferguson which was missing required information and woefully incomplete. In so doing he, and through him Novelty, violated Real Property Law §443 and demonstrated incompetency, and by allowing that to occur Mr. Mohammed violated his duty to supervise Mr. Hack and thereby demonstrated incompetency and untrustworthiness.

            VI- Mr. Hack falsely represented to Mr. Whyte and Ms. Ferguson that his wife would be purchasing the property. Those false representations were a demonstration of untrustworthiness.

            VII- The charge that Mr. Hack received and retained an unexplained and unearned $1,800.00 should be and is dismissed, as the evidence establishes that the money, which actually amounted to $900.00, was used to pay the attorney who was retained at the insistence of the bank to participate in the negotiations for a short sale.

            VIII- The evidence clearly establishes that the lending bank was led to believe that the property was to be transferred in a short sale that a closing occurred on February 28, 2002 at which the property was sold by Mr. Whyte and Ms. Ellis for $220,000.00 (State’s Ex. 13). It would appear that the bank then reported the partial forgiveness of the mortgage loan to the Internal Revenue Service which proceeded to bill Mr. Whyte for the taxes due on the resulting income. However, the HUD-1 and other documents clearly establish that the property was sold for $300,000.00 less an $18,000.00 sellers’ concession at a closing which took place on January on 31, 2002. The only logical conclusion that can be supported by those facts is that someone, with or without the knowledge of errant bank employees, fabricated documents to support the conclusion that there had been a short sale so as to free up a large sum of money which otherwise would have had to have been paid to the bank. The records further indicate that $59,720.00 of the proceeds of the sale was to be paid to Mr. Whyte and Ms. Ellis but that for some unexplained reason Mr. Whyte was induced to authorize the payment of that money to Shazam Holdings, whose participation in the transaction is unclear and which in turn authorized the payment of the bulk of that money to Mr. Hack in partial settlement of debts owed to him by Novelty and Mr. Mohammed, and that an additional part of that money was paid to Ms. Ferguson for moving expenses.

            The complainant has established that Mr. Hack participated in negotiations with the bank which were intended to effectuate a short sale. It is also evident that at some point in time someone other than Mr. Hack altered the listing agreement for the property to show an asking price of $220,000.00 rather than the $249,000.00 asking price inserted by Mr. Hack. However, what has not been established is that Mr. Hack was aware that by the time of the closing the transaction was no longer a short sale and that the bank was being defrauded. Therefore, the charge that Mr. Hack was a party to defrauding the bank is dismissed.

            However, it is clear from the altered listing agreement that someone at Novelty took steps to assist in misrepresenting the nature of the transaction. Whether that person was Mr. Mohammed may never be known. However the fact that such an alteration occurred is a further demonstration of his failure to properly supervise the operations of Novelty and, therefore, a further demonstration of incompetency and untrustworthiness.

            IX- At the closing Mr. Whyte did not receive copies of any of the documents which he executed. However, as the closing was not conducted by the respondents they cannot be held responsible for that non-delivery.

            X- In spite of the fact that the evidence clearly establishes that Novelty received a $5,000.00 commission for its participation in the sale of the property Mr. Hack told the complainant’s investigator that Novelty did not receive a commission. In spite of the fact that the check, evident from the endorsement on it, was negotiated by Shazam Holdings, the mystery participant in this matter, that check and the closing documents clearly establish that Novelty was paid a commission. By making such a false and misleading statement Mr. Hack failed to cooperate with a lawful investigation by the complainant in violation of Real Property Law §442-e[5] and demonstrated untrustworthiness.

            XI- Pursuant to Real Property Law §441-b[2] it is unlawful for a Real Estate Salesperson to be an officer of a licensed Real Estate Broker corporation in association with which he or she is licensed. Mr. Hack violated that statute and thereby further demonstrated incompetency, and by allowing that violation to occur Mr. Mohammed also further demonstrated incompetency.

            XII- The complaint alleges that Mr. Nwanyanwu failed to cooperate with the complainant’s investigation when he failed to respond to a letter asking him to telephone Investigator Young. However, that letter was sent by regular mail to Mr. Nwanyanwu’s home address, there is no proof that it was ever delivered, and there is no evidence that any attempt was made to contact him at the address at which he was licensed. I find, therefore, that the proof is insufficient to establish that Mr. Nwanyanwu was aware of the attempt to contact him and wilfully failed to cooperate with the investigation.

DETERMINATION

            WHEREFORE, IT IS HEREBY DETERMINED THAT Mohammed A. Hack has violated Real Property Law §§441-b[2], 442-e[5], and 443, and has demonstrated untrustworthiness and incompetency, and accordingly, pursuant to Real Property Law §441-c, his license as a Real Estate Salesperson is deemed revoked effective immediately, and

            IT IS FURTHER DETERMINED THAT Novelty Realty Inc. has violated Real Property Law §443 and has demonstrated incompetency and that Dean Mohammed has demonstrated incompetency and untrustworthiness, and accordingly, pursuant to Real Property Law §441-c, their license as a Real Estate Broker is revoked effective October 1, 2009, and they are directed to send their license certificate and pocket card to Norma Rosario, Department of State, Division of Licensing Services, P.O. Box 22001, Albany, New York 12201-2201, and

            IT IS FURTHER DETERMINED THAT the complaint against Anele Nwanyanwu is dismissed.

                                                                                   Roger Schneier

Administrative Law Judge

Dated: September 17, 2009