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East Coast Mortgage Group LLC and Christopher M. Bain - Administrative Order
September 23, 2015
This matter initially came before the Superintendent, acting as Hearing Officer, for administrative hearing on Friday, April 17, 2015, on the petition prepared by the staff of the Bureau of Consumer Credit Protection (?the Bureau?).
The Bureau?s case was presented by staff attorney Eric Wright. Respondent Christopher Bain, appeared on behalf of himself personally and in his role as principal of East Coast Mortgage Group, LLC (?East Coast?) without legal counsel, but participated in his own defense through questions to the Bureau?s witnesses, testimony and introduction of documents into evidence.
On May 29, 2015 the Hearing Officer issued a draft Order to the parties, and provided two weeks for the parties to respond to that draft in writing. At some point, Mr. Bain and East Coast retained attorney Scott Lynch. On June 17, staff attorney Eric Wright filed a memorandum with comments on the proposed order; on July 13, respondents? attorney Scott Lynch, having requested and received an extension of the earlier response deadline, likewise filed a memorandum.
The parties gathered on July 23, 2015 to present oral argument on the draft Order?s findings and proposed penalties. Eric Wright spoke for the Bureau staff; attorney Scott Lynch presented arguments for the respondents.
East Coast holds a loan broker license issued by the Bureau, and Mr. Bain is licensed as an individual (mortgage loan originator (?MLO?) associated with East Coast?s loan broker license. For a period of time relevant to this hearing, Mr. Bain was also employed for more than three months as a mortgage loan originator by Envoy Mortgage Limited, a company holding a ?supervised lender? license issued by the Bureau.
The staff of the Bureau alleges that, in several cases in which consumers applied for loans, Mr. Bain did not provide services at the minimum levels required by law.
1. Freeman case. In the Freeman case, a consumer bid on a multi-unit building owned by HUD, apparently after previous owners had been foreclosed upon. The consumer, who intended to reside in one of the units, bid $44,000 on property listed at $40,000, in order to speed up the process of becoming the owner. The bid was based on a letter dated May 16, 2011 in which Mr. Bain wrote a ?To whom it may concern? letter stating that Mr. Freeman had ?made application and has been pre-approved to purchase a home through East Coast ?. This approval is based on information provided by the borrower and submitted to Shore Financial Mortgage.?
HUD accepted Mr. Freeman?s bid on May 26, 2011, with the contractual proviso that the closing must take place within 45 days unless 15-day extensions were granted and/or purchased.
The consumer paid Bain $600 on June 4, 2011, to cover the cost of an appraisal.
The consumer completed a Uniform Application on June 23, 2011, requesting a loan of $76,997 ? an amount intended to cover the sales price as well as between $30,000 and $35,000 in rehabilitation/repair funds. On page 4 of the application, the ?loan origination company? is listed as Envoy Mortgage, Ltd.
An initial appraisal was provided to Mr. Bain on August 2, and a revised appraisal was provided on August 12. The initial HUD 45-day closing deadline since the May 26 bid award would have already expired, if it were not for several extensions granted to Mr. Freeman.
Meanwhile, Mr. Bain realized the consumer would not qualify for the full amount applied for, so he communicated with Mr. Freeman and developed revised figures, showing reduced prices for necessary repairs.
During this time period, Mr. Bain encountered problems as he tried to work at his job at East Coast while simultaneously working for Envoy Mortgage. Envoy?s employment contract prohibited him from maintaining mortgage-related employment independently or with another company. According to the affidavit of Heather Sanchez, Envoy?s Vice President of Compliance, Mr. Bain?s job with Envoy was ?terminated involuntarily? once his outside employment with East Coast was discovered. Envoy was also upset that Mr. Bain had omitted any mention of his work with East Coast from his job application to Envoy.
On September 7, 2011, in an exchange of texts between the consumer and Mr. Bain, the broker acknowledged to the consumer that he had separated from Envoy. His explanation was different from that subsequently provided by Ms. Sanchez. Mr. Bain stated that he had delayed paying Envoy the appraisal fee because he ?didn?t want to turn that money in until we were ready to close ? I felt that if he had something to lose then he might do something to get it closed ? Our relationship with them has ended because they said they could do this loan. And they didn?t.? Mr. Bain professed to now have an alternate funding source, ?but they are looking like 30 to 45 days.? [Exhibit 61]
Mr. Freeman requested reimbursement of the $600 appraisal fee he was charged in June, as well as the $225 extension fee he had been assessed that was not forgiven by HUD, because he realized it was too late to complete the purchase and start the rehab process before winter.
Therefore, the consumer lost the benefit of the deal; the building went unrepaired; and HUD presumably was required to start the sales process over again with another purchaser. HUD returned the consumer?s $500 deposit and forgave three extension payments, but assessed one payment of $225 which has not been refunded. Testimony was unclear as to whether or not Mr. Bain refunded the $600 appraisal fee.
2. Roy case. In this case, the consumer held a VA loan that she wished to refinance, either to reduce payments or to shorten the term. Mr. Bain had her apply for a HUD/FHA loan, rather than for a VA loan. The bureau staff and the consumer have asked the hearing officer to find fault with Mr. Bain based on the failure to apply first for the VA loan.
A primary difference between more conventional HUD/FHA loans and VA loans is that VA refinance loans do not require appraisals. Here, an appraisal was ordered as part of the initial HUD/FHA loan, but the value set by that appraisal did not support the loan amount applied for. When that loan did not go through, Mr. Bain and the consumer applied for a VA loan, which did go through.
Comparing the two loans, some differences emerge. While the interest rates were identical and while Mr. Bain?s compensation would have been largely unchanged from one type to the other, the consumer paid nearly $2,000 more in origination fees for the VA loan than she would have if the HUD/FHA loan had gone through. In addition, the consumer would have received $2,500 more in a ?credit? had the HUD/FHA loan gone through, than she received from the VA loan.
The record does not support a clear finding that Mr. Bain erred badly when he first explored the HUD/FHA loan before applying for the VA loan. He had the consumer apply for the least expensive loan [even with the added appraisal fee]; the appraisal did not support that loan; so they went to the VA loan. The Hearing Officer cannot find that Mr. Bain benefited from the process, and therefore makes no finding of violations of law with respect to this aspect of the case. While one might argue that Mr. Bain should have known, through his experience and expertise, that the consumer?s home would not appraise high enough to support the HUD/FHA loan, evidence to support such a claim is not found in the record and therefore cannot form the basis for a finding.
However, even in such a case in which Mr. Bain ultimately may have done nothing wrong in trying for one loan before steering the consumer to the VA loan, the record reflects that misrepresentations are part of his modus operandi: in trying to get an appraisal completed, he told the appraisal company that the appraiser ?has cost my customer $800 because we had to extend the rate lock . . . .? However, in an e-mail to his own client the next day, he admitted, ?Just to clarify ? this delay is not costing you more money. I just put that there to create some urgency to get them moving.? [Bureau Exhibit 31] Mr. Bain misrepresented facts in order to try to get results, then shared the news with the consumer, which could easily have the effect of communicating to the consumer this is the way mortgages are obtained in Maine.
3. Reynolds case. Of the three cases that make up this disciplinary proceeding, the Reynolds case affected the most people and to the greatest degree.
Both Mr. Reynolds and Mrs. Reynolds had bankruptcies in their recent past. In addition, Mr. Reynolds had a mortgage on which he had defaulted. He included the mortgage in his bankruptcy, meaning his personal liability for the debt was discharged. However, he remained on the title.
The Reynoldses wanted a house built for them. After the couple was turned down by a conventional mortgage company, they went to Mr. Bain. Mr. Bain quickly pre-approved them for a loan in the amount of $265,000. The pre-approval letter from Mr. Bain to the consumers was used to convince a construction company to build the home. The couple spent some of their own funds, nearly $10,000, to decorate their home or to purchase appliances and fixtures for the house. They put a $5,000 deposit down, and paid utility companies to hook up services to the structure.
In the middle of the process, the holder of the prior mortgage on the home still in Mr. Reynolds? name initiated a foreclosure action, and the foreclosure appeared on Mr. Reynold?s credit report.
Mr. Reynolds testified that he told Mr. Bain of the unresolved property ownership. However, he admitted that he thought it was a non-issue because of the bankruptcy discharge. The prior obligation was listed on Mr. Reynold?s credit report, viewed by Mr. Bain, with the designation ?BK OF AMER? (for Bank of America), ?MTG? for mortgage, with a date of last reporting as April of 2012.
At some point, when news of the foreclosure first surfaced, Mr. Bain and an intermediate broker or lender discussed whether the new loan could proceed. They jointly decided to proceed, since the civil action had not yet appeared on the consumer?s credit report.
However, once the foreclosure did appear on the consumer?s report, the deal was called off, and the builders did not get paid. The builders ended up owning the property themselves. Mr. and Mrs. Reynolds lost the $10,482.19 they had invested in the new home.
4. Findings.
In the Freeman case, Mr. Bain knew that his client was under severe time constraints. His client had bid more than the asking price in order to expedite acceptance of the offer, which was received before the end of May. HUD?s acceptance was based on deadlines, and costly extensions. Through the summer, in part because of the deteriorating relationship with Envoy, the loan was not approved. In September it was denied outright. Mr. Bain offered to look for another lender, but admitted such a process would take another month or six weeks.
Although I make no finding of law violation in the Roy case, I note that Mr. Bain and East Coast made misrepresentations of fact in communications with other service providers. Such mistruths, when discovered, cause great harm and lack of trust among real estate professionals, affecting not only current clients but also any clients in the future. Simply put, a mortgage loan originator whose word cannot be trusted by his own clients or by other real estate professionals lowers the standards for the industry.
In the Freeman case and the Reynolds case, I find that East Coast Mortgage Group, through Mr. Bain, failed to use reasonable skill and diligence as required by 9-A MRS ?10-303-A(1)(D).
I find that in his role as a mortgage loan originator, Mr. Bain individually violated his obligation to exercise good faith and fair dealings, as required by 9-A MRS ?13-116(15) by virtue of his failure to use reasonable skill and diligence.
In the Reynolds case, I find that responsibility for the error is divided between the parties. Mr. Reynolds believed he had no obligation for a mortgage he had listed in his bankruptcy petition. However, Mr. Bain did not inquire about that obligation when he reviewed the consumer?s credit report and noticed, or should have noticed, a mortgage that did not include a reference to a discharge or transfer of the property. I find that Mr. Bain is 50% responsible for that failure to recognize the potential foreclosure, while the consumers are 50% responsible.
5. Penalty. In establishing penalties appropriate to Mr. Bain and East Coast, this Hearing Officer notes this is not the first time Mr. Bain and East Coast have been the subjects of administrative hearings and penalties.
1) In 2010, a contested hearing was necessary to require that Mr. Bain and East Coast pay an appraiser for work ordered and completed. The resulting Order required Mr. Bain to pay 6 outstanding invoices, as well as $600 for the cost of the hearing.
2) In 2011, after a hearing on a complex real estate deal that seemingly overwhelmed Mr. Bain and East Coast, this Hearing Officer ordered a return of all funds paid by the consumer in that case, a $300 civil penalty, $300 in costs, and submission of a supervisory plan under which Mr. Bain worked with a ?sponsor? who would monitor and review his work.
However, this Hearing Officer is also mindful of the impact of a license revocation or suspension on a mortgage lender or mortgage loan originator. Because of the nature of the relatively-new National Mortgage Licensing System, or NMLS, license suspensions or revocations in one state may result in revocations in some or all other states.
Based on the foregoing, I enter the following Order:
1) Mr. Bain?s mortgage loan originator license is placed on probation for a minimum 12-month period, beginning on the expiration of the appeal period of this Order and terminating on the latter of 12 months or when paragraphs 3, 4, 5 and 6, below, have been satisfied.
2) East Coast?s loan broker license is placed on probation for a minimum 12-month period beginning on the expiration of the appeal period and terminating on the latter date of 12 months or when paragraphs 3, 4, 5, 6 and 7, below, have been satisfied.
3) Mr. Bain and East Coast shall reimburse the Reynoldses any one-half of all unreimbursed costs incurred for fixtures, appliances and other costs listed among the exhibits to the hearing. These costs comprise a total of $10,482.19, consisting of $5,000 down payment; $575 appraisal fee; $3,205.24 fixtures, fan, appliances and miscellaneous; $1,182.98 for oil; and $518.97 for electricity. One-half of that amount equals $5,241.10, which must be paid in quarterly amounts of $1,500, $1,500, $1,500 and a final payment of $741.10, with the first payment due no later than 60 days of the date of this Order.
4) Mr. Bain and East Coast shall reimburse Mr. Freeman for any uncompensated expenses incurred because of the delay and eventual abandonment of his renovation project, totaling $825, and consisting of $600 for an appraisal ? if that has not already been refunded ? and $225 for the un-reimbursed extension fee. The restitution must be paid in full no later than 60 days of the date of this Order.
5) Mr. Bain and East Coast shall pay the costs of this hearing, in the amount of $1,000, and a civil penalty in the amount of $1,000. These amounts must be paid before the probationary period ends.
6) The terms of probation require that Mr. Bain a) make all consumer restitution payments, and b) provide the Bureau with a monthly spreadsheet containing the name and address of each existing (with an application pending) and each new customer of East Coast or of Mr. Bain, together with the following information: date of first payment of any kind (including for 3rd party fees); date of application; and a narrative status or end result of each application.
7) At the end of the probationary period, Mr. Bain or his attorney must request the status be terminated, setting forth the details of compliance with this Order. The status will not terminate until the Hearing Officer reviews the information and finds compliance with the above terms and conditions.
| Date: September 23, 2015 | /s/William N. Lund |
| William N. Lund | |
| Hearing Officer | |
| 35 state House Station | |
| Augusta, ME 04333-0035 |
NOTICE OF APPEAL RIGHTS
Any party aggrieved by this Order may appeal to the Superior Court pursuant to 5 M.R.S. ?? 11001et seq. within 30 days of receipt of this Order. Any other person aggrieved shall have 40 days from the date the Order was rendered to petition for review.
| Date: September 23, 2015 | /s/William N. Lund |
| William N. Lund, Hearing Officer |