Injustice At Virginia SCC

COMMONWEALTH OF VIRGINIA, ex rel . vs . SECURITY TRUST MORTGAGE, LLC Proceedings on 09/11/2013 Page I

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COMMONWEALTH OF VIRGINIA

STATE CORPORATION COMMISSION C-)

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COMMONWEALTH OF VIRGINIA, ex rel . A STATE CORPORATION COMMISSION ORIGINAL :r

V .

SECURITY TRUST MORTGAGE, L.L .C .,

Defendant

= i C)

APPLICATION OF DANIEL MCDONALD BFI-2012-00067

For a Mortgage Loan Originator License

PROCEEDINGS BEFORE

THE HONORABLE DEBORAH V . ELLENBERG,

CHIEF HEARING EXAMINER

10 :15 a .m . to 4 :39 p .m .

September 11, 2013

Richmond, Virginia

Reported by : Renee A . McDermed, RPR

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Huseby, Inc . www.huseby.com 4860 Cox Road, Suite 200, Glen Allen, VA 23060 (804) 7554200

COMMONWEALTH OF VIRGINIA, ex rel . vs . SECURITY TRUST MORTGAGE, LLC Proceedings on 09/11/2013

1 Proceedings before the Honorable DEBORAH V .

2 ELLENBERG, Chief Hearing Examiner, Virginia State

3 Corporation Commission, reported by and before Renee A .

4 McDermed, Registered Professional Reporter and Notary

5 Public in and for the Commonwealt h of Virginia at

6 large, commencing at 10 :15 a .m ., September 11, 2013, at

7 the State Corporation Commission for the State of

8 Virginia, Richmond, Virginia .

9

10 APPEARANCES OF COUNSEL :

1 11

12 STATE CORPORATION COMMISSION

13 OFFICE OF GENERAL COUNSEL

14 P .O . Box 1197

15 Richmond, VA 23218

16 (804) 371-9004

17 demarion .johnston@scc .virginia .gov

18 BY : DEMARION P . JOHNSTON, ESQUIRE

19 Counsel for the Bureau of Financial Institutions

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APPEARANCES OF COUNSEL CONTINUED :

MARCHANT, THORSEN, HONEY, BALDWIN & MEYER, LLP

On the Avenues

5600 Grove Avenue

Richmond, VA 23226

(804) 285-3888

billbaldwin@mthblaw .com

BY : WILLIAM R . BALDWIN, III, ESQUIRE

Counsel for Security Trust Mortgage, LLC,

and Daniel McDonald

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1 1 N D E X

2

3 WITNESS :

4 SUSAN HANCOCK PAGE

5 Direct Examination by Ms . Johnston . . . . . . . . . . . . . . . . . . . 58

6 Cross-Examination by Mr . Baldwin . . . . . . . . . . . . . . . . . . . . . 70

7 Redirect Examination by Ms . Johnston . . . . . . . . . . . . . . . . . 75

8 DUSTIN PHYSIOC

9 Direct Examination by Ms . Johnston . . . . . . . . . . . . . . . . . . . 77

10 Cross-examination by Mr . Baldwin . . . . . . . . . . . . . . . . . . . . 163

11 Redirect Examination by Ms . Johnston . . . . . . . . . . . . . . . . 186

12 Recross-examination by Mr . Baldwin . . . . . . . . . . . . . . . . . . 189

13 DANIEL McDONALD

14 Direct Examination by Mr . Baldwin . . . . . . . . . . . . . . . . . . . 193

15 Cross-examination by Ms . Johnston . . . . . . . . . . . . . . . . . . . 235

16

17 E X H I B I T S

18 Exhibit 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

19 Exhibit 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

20 Exhibit 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

21 Exhibit 5 and 5C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

22 Exhibit 6 and 6C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

23 Exhibit 7 and 7C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

24 Exhibit 8 and 8C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

25 Exhibit 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

Huseby, Inc . www.huseby.com 4860 Cox Road, Suite 200, Glen Aflen, VA 23060 (804) 755-4200

COMMONWEALTH OF VIRGINIA, ex rel . vs. SECURITY TRUST MORTGAGE, LLC Proceedings on 09/11/2013

1 E X H I B I T S (Continued)

2 Exhibit 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

3 Exhibit 11 and 11C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

4 Exhibit 12 and 12C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

5 Exhibit 13 and 13C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

6 Exhibit 14 and 14C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

7 Exhibit 15 and 15C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

8 Exhibit 16 and 16C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

9 Exhibit 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

10 Exhibit 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

11 Exhibit 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

12 Exhibit 20 and 20C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

13 Exhibit 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132

14 Exhibit 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

15 Exhibit 23 and 23C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

16 Exhibit 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

17 Exhibit 25 and 25C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137

18 Exhibit 26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138

19 Exhibit 27 and 27C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

20 Exhibit 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

21 Exhibit 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

22 Exhibit 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

23 Exhibit 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

24 Exhibit 32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

25 Exhibit 33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

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E X H I B I T S (Continued)

Exhibit 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

Exhibit 35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

Exhibit 36 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

Exhibit 37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Exhibit 38 and 38C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215

Exhibit 39 and 39C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218

Huseby, Inc. www.huseby.com 4860 Cox Road, Suite 200, Glen Allen, VA 23060 (804) 755-4200


1 (10 :15 a .m ., September 11, 2013)

2

3 P R 0 C E E D I N G S

4

5 THE BAILIFF : All rise . oh, yea, oh, yea,

6 oh yea . Silence is commanded while this honorable

7 State Corporation Commission is in session . God

8 save the Commonwealth and this honorable commission .

9 Please be seated .

10 Today's docket consists of BFI 2012-00067,

11 Security Trust Mortgage, LLC, for a rule to show

12 cause and BF12013-00069, Daniel McDonald, request

13 for formal hearing to review mortgage loan

14 originator application denial by Commissioner Face

15 pursuant to 5VAC5-20 80 A of the Commission's rules

16 of practices and procedures . W .R . Baldwin, III,

17 counsel for Daniel McDonald and Security Trust

18 Mortgage ; DeMarion P . Johnston, counsel for the

19 Staff Commission . The honorable Deborah V .

20 Ellenberg, Chief Hearing Examiner, presiding .

21 HEARING EXAMINER : Good morning .

22 MR . BALDWIN : Your Honor, if I may,

23 William Ray Baldwin, III, Bill Baldwin, Marchant,

24 Thorsen, Honey, Baldwin & Meyer, LLP, for the

25 respondent, Security Trust, and the applicant,

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1 Daniel McDonald .

2 HEARING EXAMINER : Thank you .

3 MS . JOHNSTON : Good morning, Your Honor .

4 I'm DeMarion Johnston, associate general counsel

5 here in the office of general counsel at the

6 Commission . And I represent the Bureau of Financial

7 Institutions this morning .

8 HEARING EXAMINER : Thank you for entering

9 your appearances .

10 MR . BALDWIN : Your Honor, if I may, I'm

11 not sure where my client is . We left my office at

12 the same time . I wonder if the Court might indulge

13 us with a brief recess while I go find out if he

14 went to the wrong place in the building .

15 HEARING EXAMINER : He knows where to come .

16 He's been in these courtrooms before, and I have

17 already indulged you 15 minutes in case you had

18 trouble parking since you have never appeared here

19 before . Typically, Commission hearings start

20 promptly on time as scheduled .

21 MR . BALDWIN : I understand, Your Honor .

22 HEARING EXAMINER : I will go through a few

23 opening remarks . And at some point, you may need to

24 consult with your client . And if that is the case,

25 then I will entertain a brief recess at that point ;



1 but I would like to go ahead and get started .

2 MR . BALDWIN : Very good, Your Honor .

3 HEARING EXAMINER : On April 9th, 2013, the

4 State Corporation Commission issued a ruling to show

5 cause in which the Bureau of Financial Institutions

6 was seeking an order from the Commission revoking

7 the license of Security Trust Mortgage, a mortgage

8 broker licensed under Chapter 16 of Title 6 .2 of the

9 code of Virginia .

10 Daniel McDonald, sole owner and officer of

11 Security Trust, filed a response to the rule to show

12 cause on behalf of Security Trust on May 9th, 2013 .

13 The Bureau filed a motion for default judgment on

14 May 24th contending, among other things, that the

15 response was defective, as Mr . McDonald cannot

16 represent Security Trust because he is not a

17 licensed attorney and entry of a default judgment

18 was appropriate . That motion is pending, and we

19 will address it as a preliminary matter shortly .

20 Also pending are two other motions . on

21 May 15th, 2013, the Bureau served on Security Trust

22 and filed with the Commission requests for

23 admissions . In the requests for admissions, the

24 Bureau advised that the Commission's rules of

25 practice and procedure deem requested admissions

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Ruseby, Inc. www.huseby.com 4860 Cox Road, Suite 200, Glen Allen, VA 23060 (804) 755-4200


1 admitted unless they are answered or objected to in

2 writing within 21 days of service or such other

3 period as the Commission may designate . No written

4 response was offered on behalf of Security Trust

5 within 21 days or as of this date .

6 On August 21st, the Bureau filed a motion

7 to admit requests for admission, which is also

8 pending . When counsel for Security Trust filed his

9 notice of appearance on Monday, he also filed a

10 motion for relief from potentially deemed

11 admissions . Those two related motions will also be

12 addressed as preliminary matters .

13 In a second, but related matter, on

14 June 6th, 2013, the Commission issued a scheduling

15 order on the application of Daniel McDonald

16 contesting the denial of his application for a

17 mortgage loan originator license .

18 In that order, the Commission determined

19 that there was such significant overlap between the

20 issues involved in these two proceedings and in the

21 interest of judicial economy that the two cases

22 should be combined and were combined to receive

23 evidence at this hearing .

24 1 would note, however, that although the

25 evidence most certainly overlaps, the burden of


COMMONWEALTH OF VIRGINIA, ex rel . vs . SECURITY TRUST MORTGAGE, LLC Proceedings on 09/11/2013 Page I I

1 proof may be very different in the two cases, which

2 1 expect counsel will address during the course of

3 this hearing .

4 Also, the failure of Security Trust to

5 properly file a response to the rule may affect the

6 ability of counsel for Security Trust to object to

7 the admissibility of Bureau evidence, which we will

8 also address with regard to the motion for default

9 judgment .

10 Mr . Baldwin, I believe that this may be

11 your first appearance before the Commission .

12 MR . BALDWIN : That is correct, Your Honor .

13 HEARING EXAMINER : So, let me explain how

14 we will proceed today .

15 MR . BALDWIN : Very good .

16 HEARING EXAMINER : After we address any

17 preliminary matters, the two that I have identified

18 and any that you, either of the two of you may have,

19 you will have an opportunity to make opening

20 statements, the Bureau first and then you, Mr .

21 Baldwin .

22 The Bureau will then present their case .

23 And, Mr . Baldwin, you will have a chance to

24 cross-examine the witnesses . You will then have the

25 same opportunity to present evidence subject to the

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1 cross-examination of Bureau counsel . The Bureau

2 will have an opportunity at the conclusion of that

3 evidence to present any rebuttal that they may have .

4 At the end of the hearing, we may also

5 entertain closing statements . Do you have any

6 procedural questions, Mr . Baldwin, before we start?

7 MR . BALDWIN : I do not, Your Honor .

8 HEARING EXAMINER : All right . The first

9 preliminary matter that I have on my agenda is the

10 motion for default judgment . Ms . Johnston .

11 MS . JOHNSTON : Yes, Your Honor . We're

12 ready to proceed . Since Your Honor gave a timeline

13 of the proceedings to date, for the motion, I'm just

14 going to start with the argument .

15 And, Your Honor, that is McDonald is not a

16 licensed attorney . Security Trust Mortgage, LLC, is

17 a legal entity in and of itself separate from Daniel

18 McDonald . The Commission's rules of practice and

19 procedure are clear, that McDonald cannot represent

20 Security Trust before the Commission .

21 Commission Rule 5VAC5-20-30 states that

22 only a properly licensed attorney at law is

23 permitted to file pleadings or papers or appear at a

24 hearing to represent the interests of another person

25 or entity before the Commission .



1 Your Honor, the Bureau is asking that

2 Security Trust and McDonald be held to the

3 Commission's rules . If McDonald was not aware that

4 he could not represent his company, Security Trust,

5 when he filed his response in May, he certainly was

6 on notice on May 24th that he may not be permitted

7 to do so when the Bureau filed its motion for

8 default ; and that was three-and-a-half months ago .

9 McDonald has had plenty of time to obtain

10 an attorney to represent Security Trust, but he's

11 chosen not to do so . He chose to wait until the

12 Friday before the hearing to retain counsel .

13 Security Trust is a licensee who needs to follow the

14 rules of the Commission .

15 And also as part of this proceeding, Mr .

16 McDonald is requesting a license from the

17 Commission . And he also needs to follow the rules

18 of the Commission in order to get that license . The

19 response filed by McDonald for Security Trust is

20 improper, and it's defective . And accordingly,

21 pursuant to Commission Rule 5VAC5-20-90, the Bureau

22 moves that Security Trust be found in default .

23 Thank you .

24 HEARING EXAMINER : Thank you . Mr .

25 Baldwin .

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COMMONWEALTH OF VIRGINIA, ex rel. vs . SECURITY TRUST MORTGAGE, LLC Proceedings on 09/11/2013

1 MR . BALDWIN : May it please the Court, the

2 rules of the Commission are plain on this point, and

3 even if they -- and they're not any different than

4 the rules that apply in the -- all of the courts of

5 record of the Commonwealth of Virginia and the

6 courts not of record and the General District Court,

7 with one exception for small claims and with regard

8 to minor matters that would relate to getting a

9 default judgment .

10 But as far as this matter, the rules are

11 very plain . I can't speak to why Mr . McDaniel -- or

12 excuse me, Mr . McDonald did not previously retain

13 counsel . I only know that -- I only know when I was

14 retained and that I have done the best I can to get

15 up to speed on this in the interim .

16 But I would ask that as a general

17 proposition that a matter be decided on the merits

18 rather than on procedure, I think is a traditional

19 pattern throughout Virginia . And although there

20 certainly is cause, given the nature of the rules

21 and the well-established procedures of all of the

22 forums, both judicial and administrative of the

23 Commonwealth of Virginia, it still is, I think, a

24 matter of the discretion for the Hearing Examiner,

25 the Judge, the judicial officer, to determine . And



1 at this particular point, Security is represented by

2 counsel .

3 Now, with respect to the -- the Court will

4 note although I filed a motion for relief with

5 respect to the request for admissions, I did not

6 do -- I did not adopt the answer . The reason for

7 that was that in the time frame that I have -- it

8 was been given to me . By timing of my retainer, I

9 have not able to reach the closure that an attorney

10 is -- needs to reach with regard to an answer

11 because if I were to adopt that, then I would be

12 saying to the examiner that under the equivalence of

13 8 .01-271 .1 that I believe those pleadings were well

14 grounded in fact . And there just simply has not

15 been the time for me to be able to do that . And

16 there hasn't been the time for me to prepare my own

17 pleading, which I could have asked the examiner to

18 allow late filing .

19 1 simply would ask that the Court decide

20 that it's appropriate to let Security present its

21 case and that Your Honor withhold the decision on

22 the deemed matter until such time as the evidence is

23 closed . I think that is within the Court's

24 discretion . When you hear all the evidence, you

25 have the complete power and discretion to ignore

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1 evidence that you deem to be prejudicial to the BFI

2 because they haven't been given in a timely notice

3 because there was no counsel . You also have the

4 discretion to consider the evidence as it comes

5 before Your Honor .

6 And all I can say is that since it is

7 within Your Honor's discretion, I would ask that

8 Your Honor exercise discretion and not to deem the

9 matter defaulted at this point, but rather to defer

10 any final ruling until the Court has heard the full

11 body of evidence .

12 HEARING EXAMINER : Thank you . Ms .

13 Johnston, anything?

14 MS . JOHNSTON : Yes, Your Honor . Mr .

15 Baldwin is correct that Rule 90 5-20-90 of the

16 Commission's rules does say that failure to file a

17 timely answer responsive pleading may result in the

18 entry of judgment, your Honor .

19 But all due process requires is that a

20 state must afford all individuals a meaningful

21 opportunity to be heard . And that's all that is

22 required . And Security Trust received that

23 opportunity . It says the failure to appear after

24 due notice or the unjustifiable violation of some

25 procedural rule affecting the orderly process and



1 adjudication of cases may result in a waiver of the

2 hearing of required due process and an entry of

3 judgment by default . And that's what we have here .

4 We have an unjustifiable violation of the rules .

5 Thank you, Your Honor .

6 HEARING EXAMINER : All right . Thank you .

7 1 do agree that Mr . McDonald was not qualified to

8 file pleadings on behalf of Security Trust . And

9 hence, I must conclude that the response to the rule

10 that was filed is defective and was not properly

11 filed .

12 1 also agree that due notice was provided

13 to Security Trust . Security Trust is in default of

14 the Commission's order and directive to file a

15 responsive pleading . The rule states that if

16 Security Trust is found in default, quote, it

17 shall -- and I emphasize shall -- be deemed to have

18 waived all objections to the admissibility of

19 evidence and may -- and I emphasize may -- have

20 entered against it a judgment by default .

21 Security Trust is deemed to have waived

22 all objections to the admissibility of evidence that

23 the Bureau may offer today, but can cross-examine

24 witnesses and offer evidence of its own .

25 The rule, however, does not mandate that a

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1 default judgment automatically follows default for

2 failure to properly file a responsive pleading, nor

3 does the failure to properly file a response through

4 an attorney unfairly prejudice the Bureau . The

5 Bureau should be well aware of the position of

6 Security Trust in this matter .

7 Security Trust is properly represented

8 today and should be prepared to offer a defense

9 against the allegations in the rule . So, despite

10 the failure to properly file through an attorney

11 appropriate pleadings in this case, I will not grant

12 the Bureau's request to enter judgment by default on

13 the allegations in the rule and revoke Security

14 Trust's mortgage broker license at this time . That

15 motion is denied .

16 As a side note, I must be clear since we

17 have a consolidated record here that the default

18 finding only relates to Security Trust in the rule

19 case and does not affect the second case, which

20 involves Mr . McDonald's appeal of the Bureau's

21 appeal of his denial of his license application .

22 MR . BALDWIN : Thank you, Your Honor .

23 HEARING EXAMINER : Okay . The next item or

24 items on my preliminary agenda is the Bureau's

25 motion to admit requests for admissions and Mr .



1 Baldwin's motion for relief from potentially deemed

2 admission .

3 MR . BALDWIN : May it please the Court,

4 this is a similar argument and similar issue in

5 nature to that which the Court has already disposed

6 of .

7 Matters requested to be admitted were

8 properly served . They were not responded to . They

9 were not responded to even by an unauthorized

10 signatory . Unlike at least the answer that was

11 filed, there was no response whatsoever . Certainly

12 prudence in my own practice, I always make it a

13 point to respond within 21 days for patently obvious

14 reasons .

15 And the absence of any response at all

16 ever has significance, which is what led me to file

17 the motion . I cannot say that all of the matters in

18 the motion were not well founded . But I can say

19 with respect to the very last one, which we

20 highlighted, that I know for a fact that there have

21 been good faith efforts made . And we would -- by

22 Mr . McDonald to address the debt issues . And we're

23 prepared to present that today and by way of

24 illustration and not limitation and not -- we're

25 prepared to put on evidence that the tax lien has

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been removed, that all of the judgments against him

2 have either been satisfied or compromised in

3 accordance with the payment plan, that he's current

4 with his house mortgage, and so that all of the

5 litany of issues that have arisen with regard to

6 this application by Mr . McDonald and the prior one

7 in 2012, those matters are in hand, if not utterly

8 and absolutely, certainly substantially and

9 materially better .

10 And that is pertinent to the hearing of

11 Security because as counsel for BFI properly points

12 out, under the rules of -- excuse me, under the

13 Title 6 .2 of the code of Virginia, the actions of a

14 principal of a licensee are imputed of course to the

15 licensee . So -- and it's been expressly stated by

16 Bureau of Financial Institutions in this matter that

17 if Mr . McDonald does not have his house in order,

18 then by definition, Security cannot have its

19 financial house in order .

20 And there have been substantial and

21 material improvements which we're prepared to place

22 upon the record and which sort of are on the record .

23 We don't have a set of filings that I am confident

24 the Hearing Examiner is more used to seeing in the

25 nature of court pleadings, orderly and presented and



1 in a normal way . But there is a lot in the record

2 that shows that a lot of progress has been made .

3 We plan to present this in a more orderly

4 fashion today . So, with respect to that, on the

5 merits, I can represent to the Court that there

6 would be a good faith basis for denying that one .

7 And, aga in, because of the timing issues, which are

8 not the fault of BFI, that's quite clear, I have not

9 been abl e to attend to the other matters . But in

10 any event, a discovery matter always lies within the

11 discretion of the judicial officer, just as does the

12 issue of a default judgment .

13 And therefore, I would incorporate by

14 reference the argument just made .

15 HEARING EXAMINER : All right . Your

16 client, of course, just arrived . I would like to

17 clarify something that I probably should have

18 clarified early whether when I went through how we

19 were going to proceed today .

20 While there has been a lot of paper filed

21 in the case file in the document control center of

22 the clerk's office, at this point, there is nothing

23 on the record yet . Any information that is in that

24 file that either of you want to present you will

25 present today, we will mark it as an exhibit, it

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1 will be sponsored by a witness and admitted into the

2 record at that point .

3 So, you're right, I have seen a lot of

4 paper . But at this point, there is nothing yet in

5 the record of these cases . All right .

6 MR . BALDWIN : Very well, Your Honor .


8 Ms . Johnston .

9 MS . JOHNSTON : Yes . Mr . Baldwin's

10 correct, and I appreciate him being forthcoming that

11 Mr . McDonald did not respond to the Bureau's request

12 for discovery . McDonald did file a document that

13 was labeled "Response to Interrogatories and

14 Requests For Production of Documents," but that

is document was actually not responsive to the Bureau's

16 discovery request .

17 In an effort to prepare for this hearing,

18 the Bureau gave Security Trust and McDonald another

19 bite at the apple and sent a letter on July 23,

20 2013, again requesting responses to the Bureau's

21 discovery .

22 And in the letter, the Bureau informed

23 McDonald that it would depose him on August 15th if

24 he and Security Trust failed to provide responses to

25 the discovery . July 9th, the Bureau sent a notice


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COMMONWEALTH OF VIRGINIA, ex rel . vs . SECURITY TRUST MORTGAGE, LLC Proceedings on 09/11/2013 Page23

1 of deposition to McDonald and Security Trust via

2 certified mail . And the Commission issued a

3 subpoena for deposition on July 30th commanding

4 McDonald to appear on August 15th in order to be

5 deposed to clarify some of the issues that would be

6 addressed at trial today .

7 Despite the notice of a Commission-issued

8 subpoena, McDonald failed to appear for the

9 deposition . McDonald and Security Trust have had

10 multiple chances and nearly four months to respond

11 to the discovery and to answer the questions raised

12 in the discovery and have rejected every opportunity

13 and ignored a Commission subpoena in the process .

14 Rule 5VAC5-20-283 of the Commission's

15 rules require responses to the Bureau's request for

16 admission within 21 days of the receipt of the

17 request, or else such request shall be deemed

18 admitted . Accordingly, the Bureau moves that the

19 request for admission in whole be admitted . Thank

20 you .

21 A Thank you .

22 HEARING EXAMINER : Mr . Baldwin, anything

23 in response?

24 MR . BALDWIN : Your Honor, only the fact

25 that there -- there will be evidence that all the

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1 matters requested to be admitted are not, in fact,

2 true . And the purpose of a request for admissions

3 is to remove from the adjudicatory process those

4 matters which are not genuinely at issue . And there

5 is a genuine issue which we are prepared to present

6 through the testimony of Mr . McDonald that his

7 financial circumstances have materially improved

8 and, therefore, that his application for a mortgage

9 loan originator's license, in fact, is in good

10 faith, which is a matter which it would be deemed

11 admitted if we're not allowed to present the

12 evidence .

13 And, so, given the purpose of request for

14 admissions, which is not to create a default

15 situation, but rather to remove from the

16 adjudicatory process those matters which are not

17 genuinely in dispute -- that's the purpose of it --

18 there is a genuine dispute about much of what is

19 before Your Honor .

20 And, again, I must acknowledge for the

21 record it is not -- it is not due to the lack of

22 action by the Bureau of Financial Institutions that

23 we are in this situation . But nevertheless, it

24 remains that there is much genuine dispute about the

25 matters in controversy . And the requests for

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1 admissions are not intended to be a way to remove

2 genuine issues from the purview of the finding

3 authority .

4 HEARING EXAMINER : As Ms . Johnston noted,

5 the Commission rules of practice and procedure

6 explicitly provide that, quote, a matter -- I

7 emphasize -- shall be deemed admitted unless the

8 party on whom requests for admission are served

9 within 21 days of the service of the request or some

10 other period as the Commission may designate,

11 inquote, responds .

12 Neither Security Trust nor Mr . McDonald

14 scheduled deposition to respond despite ample notice

15 and being subpoenaed to be there . Without responses

16 to the Bureau's requests for admission by operation

17 of the Commission's rules, they must be deemed

13 responded within 21 days or even appeared at a

18 admitted .

19 The only flexibility that I have is the

20 option of designating, quote, some other period,

21 inquote, by which to respond . I am prepared to

22 exercise that discretion to designate another period

23 by which those admissions -- those requests for

24 admission may be responded to if you, Mr . Baldwin,

25 are prepared to respond to them item-by-item at this

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1 time . Are you prepared?

2 MR . BALDWIN : Will Your Honor grant me

3 five minutes to do -- so I can --

4 HEARING EXAMINER : Yes . This is a point

5 in time that I thought you might need an

6 opportunity .

7 MR . BALDWIN : In fact, more than five . I

8 will be as diligent as I possibly can, but it might

9 take upwards of ten minutes .

10 HEARING EXAMINER : I will grant you ten

11 minutes . We'll take a brief recess and reconvene in

12 ten minutes .

13

14 (Recess, 10 :39 a .m . to 10 :47 a .m .)

15

16 THE BAILIFF : All rise . The Commission

17 resumes this session . Please be seated .

~11,9, Baldwin .

HEARING EXAMINER : All right . Mr .

20 MR . BALDWIN : Yes, Your Honor .

21 HEARING EXAMINER : Are you prepared?

22 MR . BALDWIN : We'll go forward at this

23 time, Your Honor . I make reference to the requests

24 for admissions which are included as an exhibit to

25 the BFI's motion to admit requests for admission,

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1 and that motion, I think, was

2 HEARING EXAMINER : I

3 MR . BALDWIN : August

4 I'm going to get Exhibit AA to

5 and in response to Your Honor,

6 forward .

kugust 26th .

do have it .

21st, excuse me . So,

that motion to admit

I will now go

7 HEARING EXAMINER : Before you begin, just

8 as a reminder, to the extent you are not able to

9 address or object to any of the specific requests,

10 they will be deemed admitted .

11 MR . BALDWIN : I understand, Your Honor . I

12 also intend to proceed as I would because I believe

13 the procedure is precisely analogous to that in a

14 circuit court, which is, under the rules, when a

15 portion is correct, you admit the portion, deny the

16 remainder .

17 HEARING EXAMINER : Yes .

18 MR . BALDWIN : I wish to place that before

19 Your Honor right now .

20 HEARING EXAMINER : Yes, please do .

21 MR . BALDWIN : Starting with the matters

22 requested : No . 1, admitted .

23 No . 2, admitted .



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1 No . 5, denied as phrased and qualified as

2 follows : With respect to the first deed of trust,

3 he is current and has been current on that for some

4 time . There maybe late charges, but the late

5 charges are a part of a modification and are not

6 believed to be new late charges . He was in or about

7 January of 2013 in arrears by 90 days . However,

8 that was as a requirement of the modification

9 process . Under the modification process, as

10 practiced by virtually all financial institutions --

11 and I won't pretend to say whether this is a result

12 of somewhat idiotic behavior of banks or some

13 idiotic behavior of regulators, and I guess Your

14 Honor knows my personal opinion on that point . But

15 if a bank says I'm 90 days behind and I agree I'm

16 60, 1 can't cure the 90 while it's in modification .

17 No payments are accepted unless you pay everything

18 that they claim is due .

19 So, therefore, I have to qualify that to

20 say to the extent there were any unpaid late

21 charges, they were unpaid because they won't accept

22 a payment during the time that you are requesting a

23 modification, that the modification then pending was

24 ultimately denied . When that modification was

25 denied at that time, Mr . McDonald paid all of the

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1 arrearages and brought the loan current, which is

2 its current status . And that, I believe, is the

3 full and fair response to that particular matter .

4 1 admit that Mr . McDonald is in default of

5 the secondary deed of trust . That is denied . To

6 his best knowledge and to the knowledge of a credit

7 report, which I had him pull yesterday to make sure

8 that it was current which we intend to introduce

9 into evidence, no money is shown as due and owing on

10 that second mortgage .

11 With respect to the statement of his net

12 worth on the personal financial statement being

13 higher than his net worth, admitted and qualified .

14 And the qualification is that Mr . McDonald believed

15 that the liabilities shown did not relate to the

16 total amount owed, but rather to a monthly payment

17 and whether or not he was performing properly on

18 those liabilities .

19 With respect to eight, that is admitted .

20 With respect to nine, that is admitted .

21 With respect to ten, admitted .

22 Eleven is admitted, but qualified based on

23 what Mr . McDonald's understanding was as to the

24 nature of liability shown on a balance sheet as

25 opposed to that which I have advised him is the more

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COMMONWEALTH OF VIRGINIA, ex rel . vs . SECURITY TRUST MORTGAGE, LLC Proceedings on 09/11/2013 Pagc30

1 widely accepted definition of liabilities .

2 With respect to 12, that is admitted with

3 the exception of 121, Carrington Mortgage, that is

4 denied for the reasons previously stated .

5 With respect to 13, that is admitted

6 within the time frame that we have . I would ask the

7 Court for leave if, on presentation of evidence,

8 meaning the most current credit report, that the

9 Court consider taking more recent information, as

10 that would be presumably more probative than the

11 matters requested to be admitted . We already have

12 admitted that liabilities were owed with the

13 exception of Carrington Mortgage . And, so, I should

14 caveat 13 by saying 131 is denied for the reasons

15 previously stated as to Carrington Mortgage .

16 14 is admitted, but with respect -- with

17 the caveat that as to Carrington Mortgage, it is

18 denied that there is any debt .

19 15 is admitted .

20 16, well, the date is -- 16 is denied

21 because it's the way it's phrased . It's as of the

22 date of your response to these requests for

23 admission . Your Honor has indicated today is the

24 date we are answering, therefore, as of today and

25 therefore deny it because that is not the status of

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1 today, with one -- with one exception, and the one

2 exception is Mary Washington, which has a judgment

3 for about $17,000, but where there is a payment plan

4 in effect of paying $100 a month and tha t that is

5 the current status of the payment plan . So, the

6 monies are still owed . I do not believe the

7 judgment has been satisfied, but he is paying that

8 debt as it has been restructured by agreement of the

9 parties .

10 With regard to 17, the document -- I have

11 to respond as follows : The document attached does

12 not show Equity Source Home Loans as a previous

13 employer . I spent some time with Mr . McDonald on

14 that point because it's quite clear from the 2012

15 proceedings, of which this Court can take judicial

16 notice, that that was an issue in those proceedings .

17 And it seems clear that Mr . McDonald acknowledged in

18 those proceedings that he was an employee, although

19 there apparently was a dispute as to the period of

20 time in which he was an employee .

21 The papers as filed do not show any

22 reference to Equity Source Home Loans . Mr . McDonald

23 tells me, and I believe he will testify, that he

24 believes he showed that on his filing form . And

25 therefore, we have a conundrum, which is that one

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1 normally doesn't impugn public records, and a filed

2 application is a public record . By the same token,

3 he doesn't understand why he wouldn't have disclosed

4 that . And to think that it wasn't disclosed in

5 November of 2012 at the time of the filing, when the

6 matter had been litigated within the same year and

7 was a matter known to all is one of those things

8 that you just can't really explain .

9 So, therefore, I have to say that under

10 Rule 4 :11 applicable in this proceeding, we are

11 unable to admit it or deny on the basis of

12 information that is presently known to us . He

13 thinks he disclosed it, but there isn't anything

14 shown on the record to that . And that is the best I

15 can do with regard to 17 . And I understand Your

16 Honor's ruling that that therefore might be deemed

17 to be admitted, but I will ask that Your Honor look

18 at that admission as perhaps a little less

19 persuasive than maybe some of the other ones because

20 there are just some inexplicable things about that .

21 HEARING EXAMINER : It will be deemed

22 admitted, but you'll have an opportunity to offer

23 evidence to further explain it when we reach that

24 point .

25 MR . BALDWIN : Very well, Your Honor, thank

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1 you .

2 With regard to 18, admitted .

3 19, admitted .

4 20, admitted .

5 If I could have one moment, I overlooked

6 going over one point with Mr . McDonald .

7 21 and 22 are admitted .

8 23 is admitted .

9 24 is admitted .

10 25 is admitted .

11 26 is admitted .

12 27 is admitted .

13 28 is admitted .

14 29 is admitted .

15 30 is admitted .

16 31 is admitted .

17 32 is admitted .

18 Well, with regard to No . 33, it,s denied .

19 He believes he had submitted a check at that time to

20 make the payment . The actual record filed with the

21 Fredericksburg General District Court shows

22 satisfied 2-22-13 but that's a judicial record and

23 he believes that the check had already cleared

24 before 2-22-13 . This is addressed to as of 2-8-13 .

25 So, it's denied for those reasons .



1 34 is admitted .

2 35 is admitted .

3 Excuse me . 35, one is admitted . The

4 second 35 is denied . That was the one I previously

5 spoke to, Your Honor .

6 And I thank the Court for the opportunity

7 to respond .

8 HEARING EXAMINER : Ms . Johnston, does Mr .

9 Baldwin's responses to the requests for admission

10 affect your ability to go forward today?

11 MS . JOHNSTON : No, Your Honor ; and many of

12 the matters that are denied will be cleared up today

13 after testimony . Thank you .


is The responses to the requests for admission are part

16 of the record in that the court reporter has

17 captured them, but I am going to mark as an exhibit

18 the requests for admission and put that in the

19 record so that those two can match up so when you

20 say No . 1 is admitted, we'll know what that

21 corresponds to .

22 MR . BALDWIN : Perhaps Your Honor would

23 like to put in the full motion to admit in the

24 record because that's the pleading of the BFI and

25 that includes the actual requests for admissions and

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1 it's the full paper . It might present a better

2 picture in the proceedings .

3 HEARING EXAMINER : I will decline to do

4 that because the motion is actually a legal

5 pleading . The request for admission was -- is in

6 the file and was served on Mr . McDonald much earlier

7 in the proceedings . So, there is a separate

8 document that is just entitled "Requests for

9 Admission ." And I will mark and admit that as

10 Exhibit 1 .

11 MR . BALDWIN : Very well, Your Honor .

12 HEARING EXAMINER : All right . Are there

13 any other preliminary matters, Ms . Johnston, that

14 you would like to raise before we begin to receive

15 evidence?

16 MS . JOHNSTON : Well, yes, Your Honor . In

17 the response of the Bureau of Financial Institutions

18 to Mr . McDonald's application, the Bureau made two

19 arguments, legal arguments, one for res judicata and

20 collateral estoppel . The Bureau is not going to

21 proceed on the res judicata argument, but would

22 proceed on the collateral estoppel . The Bureau is

23 prepared to orally argue that today ; or Your Honor

24 may rely on what's represented in the response,

25 whatever you prefer, ma'am .

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1 HEARING EXAMINER : All right .

2 MR . BALDWIN : Your Honor, I can speak to

3 that . The status of the doctrine -- of estoppel

4 doctrine as an administrative law in Virginia is

5 still slightly unsettled, but I don't think we need

6 to address the extent to which those doctrines are

7 co-terminus with the decisions in the circuit courts

8 or the general district courts .

9 For there to be collateral estoppel, there

10 has to be the same factual issue in play . And the

11 circumstances of Mr . McDonald as affects this

12 application are not the same as those as affected

13 his last application . They are close in time . And,

14 yes, it is absolutely true that there has been a

is final decision with respect to his prior

16 application, but this is a new application and a new

17 time in question . And therefore, we don't have an

18 identical set of issues -- the issues ultimately are

19 the same, that is, do you meet the requirements for

20 licensure .

21 But the facts are not the same because the

22 circumstances in November of 2012 and thereafter are

23 not the same as the circumstances that appertain to

24 his 2011 application . And, so, we don't have the

25 same set of facts .




1 1 think counsel is perhaps looking to a

2 doctrine which I did not spend the time to see if

3 the -- if the Corporation Commission had adopted it,

4 but it would be easily understood . The courts --

5 the courts retain and certainly under the common law

6 of the SCC in its adjudicatory capacity, would have

7 the right to issue injunctive or other appropriate

8 relief from persons who abuse, just as the circuit

9 courts will enjoin people who bring repeatedly

10 frivolous litigation from doing so without some kind

11 of prior standard to assure that the courts are not

12 clogged by frivolous litigation .

13 1 think it clear that the SCC would have a

14 similar power upon a proper factual record . And

15 whereas the timing of this licensure application

16 were it to me could have been a little bit better

17 because things are getting better every day . And

18 therefore, if you wait a little bit longer and they

19 continue to get better, then tomorrow might be a

20 better day to do it than today .

21 Nevertheless, what we have is one that is

22 filed as of November ; and the circumstances in

23 November were definitely not the same as those that

24 were before the Commission at the last hearing . And

25 therefore, with deference to counsel, collateral

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1 estoppel can apply because the facts are, by

2 definition, in this instance, not the same .


4 Ms . Johnston .

5 MS . JOHNSTON : Your Honor, the Bureau

6 would reply that they are the same . McDonald was

7 just here last year litigating a different MOL

8 application, which was denied by the Commissioner .

9 A formal hearing was held on the matter, and the

10 Commission affirmed the Commissioner's decision on

11 July the 6th of 2012 .

12 Four short months later, McDonald applied

13 for an MLO application . Again, it involves the same

14 parties as McDonald 1, the BFI 2012-0003, McDonald

15 and the Bureau . It's a subsequent proceeding and a

16 different proceeding, both applications for MLO

17 licenses .

18 McDonald is attempting to relitigate the

19 same factual and legal questions that were at issue,

20 specifically financial responsibility, character,

21 and general fitness for licensure as an MLO . He has

22 not proven any facts or provided any facts that

23 would show that these are different arguably for

24 financial responsibility . But it's a three-part

25 test, and you have to meet all three for licensure .

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1 So, even if, which the Bureau is not

2 conceding that he meets the financial responsibility

3 qualification, he has given nothing to show that he

4 meets the character and general fitness . And

5 therefore, collateral estoppel or issue preclusion

6 does apply .

7 HEARING EXAMINER : I will take your motion

8 and argument under advisement . There have been

9 allegations that circumstances have changed enough

10 to warrant a different outcome in this proceeding,

11 and I am going to receive evidence to determine if

12 that is the case or not . All right? Anything

13 further of a preliminary matter?

14 MS . JOHNSTON : Just one more thing, Your

15 Honor . A lot of the exhibits that the Bureau is

16 going to move into evidence contain personal

17 confidential information about Mr . McDonald . So, I

18 move they be entered under seal, and the Bureau has

19 provided the bailiff with a redacted copy for the

20 public record .

21 HEARING EXAMINER : Very good . As we go

22 through the exhibits, just remind me if it's not --

23 MS . JOHNSTON : Yes, Your Honor .


25 Preliminary matters have been -- have concluded .

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1 So, I would like to entertain opening statements . I

2 probably have a good, after all those preliminary

3 matters, I have a good understanding of, you know,

4 what your positions are ; but let's proceed with

5 opening statements . Ms . Johnston .

6 MS . JOHNSTON : Yes . As you're aware, Your

7 Honor, we are here today in regard to two cases .

8 The first is the State Corporation Commission versus

9 Security Trust Mortgage, LLC, in which the Bureau of

10 Financial Institutions is seeking a revocation of

11 Security Trust's mortgage broker license .

12 The second case is Daniel McDonald's

13 appeal of the Commissioner of Financial

14 Institution's denial of his November 23rd, 2012,

15 application for a mortgage loan originator license .

16 Both cases relate back to a proceeding

17 from last year that involved McDonald that I have

18 previously mentioned, the BFI 2012-0003, which I'm

19 going to refer to as McDonald 1 for convenience .

20 That action arose because Mr . McDonald had

21 applied for an MLO license in 2011, which is when,

22 about the time that MLOs were first required to be

23 licensed in Virginia . That application was denied

24 by the Commissioner in 2011 via his delegated

25 authority from the Commission . And McDonald

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1 requested a formal appeal of that denial before the

2 Commission .

3 Now, in order to obtain an MLO license,

4 applicants must meet certain requirements that are

5 found in Virginia law . An applicant who wants to

6 obtain an MLO license is required by the code of

7 Virginia to possess certain qualifications .

8 The qualifications that an applicant must

9 possess are financial responsibility, character, and

10 general fitness such as to warrant belief that the

11 licensee will act as a mortgage loan originator

12 efficiently and fairly in the public interest and in

13 accordance with law .

14 The Bureau has promulgated regulations

15 that specifically identify the criteria that the

16 Bureau looks at when determining whether an

17 applicant possesses the required financial

18 responsibility, character, and general fitness . If

19 the Commissioner, again, who acts through delegated

20 authority cannot make these findings, the Commission

21 shall not issue a license to that applicant .

22 Now, turning back to the prior case in

23 McDonald 1, a full hearing was held on this case

24 March 22, 2012, here at the Commission with Michael

25 Thomas, Hearing Examiner presiding . Mr . McDonald

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1 appeared and fully litigated the issues of his

2 financial responsibility, character, and general

3 fitness for licensure as an MLO . The Hearing

4 Examiner issued his report on April 27th, 2012 .

5 The Bureau will show that in his report,

6 he made specific findings of fact in regard to

7 McDonald's financial responsibility, character, and

8 general fitness . Specifically, the Hearing Examiner

9 found that McDonald failed to provide disclosures

10 required by Virginia and Federal law and all loans

11 brokered by Security Trust .

12 McDonald and his mortgage company,

13 Security trust, issued a false and misleading

14 mortgage pre-approval letter in 2010 that was a

15 complete fabrication, that McDonald lied on his MLO

16 application, that McDonald willfully failed to

17 disclose two outstanding judgments in a Federal tax

18 lien, that he willfully failed to disclose his

19 employment history for the previous ten years, that

20 he was evasive or misleading in responses to the

21 Bureau's inquiries, and with one exception, he had

22 taken no affirmative steps to satisfy his numerous

23 outstanding debts .

24 And the Hearing Examiner recommended that

25 the Commission affirm the commissioner's denial .

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COMMONWEALTH OF VIRGINIA, ex rel . vs . SECURITY TRUST MORTGAGE, LLC Proceedings on 09111/2013

1 The Commission entered a final order in McDonald 1

2 on July 6th, 2012, adopting the Hearing Examiner's

3 finding of fact and recommendations and affirming

4 the Commissioner's denial of McDonald's MLO

5 application . McDonald never appealed the final

6 order .

7 Even though McDonald sought an MLO

8 license, which is an individual license, Daniel

9 McDonald is the sole owner and officer of Security

10 Trust, which is a mortgage broker licensee with the

11 Commission .

12 Now, MLOs take applications for or offer

13 to negotiate the terms of residential mortgage loans

14 on behalf of mortgage companies, including mortgage

15 brokers . Like MLOs, mortgage brokers have to meet

16 certain qualifications in order to be licensed and

17 in order to maintain their license in Virginia .

18 Mortgage brokers and their members, senior

19 officers, directors, and principals must possess the

20 financial responsibility, character, reputation,

21 experience, and general fitness such as to warrant

22 belief that the business will be operated

23 efficiently and fairly in the public interest and in

24 accordance with law .

25 Thus, a mortgage broker and its members,

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1 senior officers, directors, and principals must meet

2 the very same qualifications as those for licensure

3 as an MLO, financial responsibility, character, and

4 general fitness, plus the two additional

5 qualifications of reputation and experience .

6 Accordingly, after the Commission's final

7 order in McDonald 1, the Bureau was on notice that

8 Security Trust no longer met the requirements for

9 licensure as a mortgage broker given Daniel

10 McDonald's position as its senior officer and owner .

11 Additionally, four short months after the

12 Commission's July 6th order in McDonald 1 and before

13 addressing any of the reasons cited for the previous

14 denial on November 23rd, 2012, McDonald again

is applied for an MLO license .

16 The Bureau will show that it made a

17 thorough and fair review of McDonald's MLO

18 application . It will also show that McDonald does

19 not meet any of the qualifications for licensure as

20 an MLO, but especially the qualifications of

21 character and general fitness .

22 The Bureau will show that just as in

23 McDonald 1, McDonald made multiple material

24 misrepresentations to the Bureau on his application,

25 in his MLO personal financial report, in

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1 correspondence with the Bureau, and in other filings

2 with the Bureau .

3 It will show that McDonald was evasive and

4 misleading to the Bureau when questioned about

5 omissions and inaccuracies in the application and

6 other filings . And the Bureau will show that

7 McDonald has failed to identify facts or

8 circumstances that have changed since the

9 Commission's finding last year that he lacked the

10 qualifications for licensure that would warrant his

11 receipt of an MLO license at this time .

12 Finally, the Bureau will show by clear and

13 convincing evidence that Security Trust does not

14 meet the qualifications for licensure as a mortgage

15 broker . Your Honor, the Bureau requests that the

16 Commission revoke Security Trust's mortgage broker

17 license because it does not meet the qualifications

18 for licensure as a mortgage broker .

19 The Bureau states that the Commissioner

20 did not abuse his discretion when he denied

21 McDonald's November 23rd, 2012, application for an

22 MLO license and requests that the Commission affirm

23 the Commissioner's denial based on the fact that

24 McDonald does not meet the qualifications for

25 licensure as an MLO and he also has failed to

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1 identify facts or circumstances that have changed

2 since last year's order that would warrant his

3 receipt of a license at this time .

4 Additionally, Mr . McDonald filed another

5 MLO application June 3rd of this year, which the

6 Bureau has not acted on and has been treating as

7 part of this current procedure . Your Honor, since

8 McDonald has shown he is going to repetitively file

9 application after application, the Bureau requests

10 that the Commission impose some reasonable period of

11 time during which McDonald is prohibited from

12 applying for an MLO license and that that

13 prohibition address this June 3rd, 2013,

14 application . That's all . Thank you .

15 HEARING EXAMINER : All right . Thank you,

16 Ms . Johnston .

17 Mr . Baldwin, before you begin your opening

18 statement, Mr . McDonald, I would like to caution you

19 about speaking while the court is in -- you have an

20 attorney . He will speak on your behalf .

21 MR . BALDWIN : Just say yes .

22 MR . McDONALD : Yes .

23 HEARING EXAMINER : Mr . Baldwin .

24 MR . BALDWIN : Your Honor, part of the

2S problem was that Mr . McDonald took issue with the

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1 reference to him by his last name rather than by

2 using mister, the traditional term of addressing a

3 male who is above age 18 .

4 HEARING EXAMINER : All right .

5 MR . BALDWIN : If I may have one moment, I

6 need to ask my client one question . We were not

7 aware that there had been -- I was not aware that

8 there had been another filing . I would ask -- I

9 don't believe there's any prohibition . We would ask

10 that that application be withdrawn without prejudice

11 at this time . There should not be two matters

12 before the Commission at the same time on related

13 matters . They should be decided as individual

14 items, and Mr . McDonald has given me permission on

15 the record to withdraw the June 3rd application .

16 And I will file papers indicating that they have

17 been withdrawn so that the electronic record will be

18 complete . I just -- but I would note that at this

19 particular time .

20 HEARING EXAMINER : Any objection, Ms .

21 Johnston?

22 MS . JOHNSTON : No objection, Your Honor .

23 HEARING EXAMINER : And I believe, again,

24 you have stated that on the record in this case, and

25 1 don't believe that it's necessary for you to file

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COMMONWEALTH OF VIRGINIA, ex rel . vs. SECURITY TRUST MORTGAGE, LLC Proceedings on 09/11/2013 Page48

1 anything initially .

2 MR . BALDWIN : It's my desire to make sure

3 the electronic records are completed, but I'm

4 certainly pleased to follow Your Honor's guidance on

5 the point .

6 MS . JOHNSTON : Your Honor, I believe that

7 the system, it's the Nationwide Mortgage Licensing

8 System and Registry . Mr . McDonald is going to have

9 to withdraw that application himself . The Bureau

10 doesn't have the power to kick it out .

11 HEARING EXAMINER : All right . Thanks for

12 that clarification . I withdraw my guidance .

13 MR . BALDWIN : I understand . Well, I want

14 to just -- so it will be on the record, Mr .

15 McDonald, what they're saying is to withdraw that

16 application, you will need to make a record filing

17 because you're the one who files it . It's a

18 national application process . Are we understood?

19 MR . McDONALD : Understood .

20 MR . BALDWIN : Thank you, sir .


22 MR . BALDWIN : Now, by way of an opening

23 statement, we have two different issues . We have

24 obviously the licensure issue of Security Trust

25 and -- excuse me, the application to revoke the

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1 license of Security Trust, and we have the

2 application for licensure as a mortgage loan

3 originator by Mr . McDonald . I'll address Security

4 first because the central reason, as is apparent

5 from the papers that I have read and from counsel's

6 opening statement, is that this isn't addressed so

7 much Security as a sep arate legal entity, but rather

8 by application of the fact addressed earlier by me

9 that when you have -- that the actions of a

10 principal of a company are attributed to the company

11 for purposes of licensure .

12 And certainly in this instance, where we

13 have one owner and one operating member and one

14 officer, the rule makes sense, even if it perhaps in

15 some other instance might create shades of gray,

16 we're not in that situation here .

17 But what this is is just another way of

18 saying that Mr . McDonald is a bad person, doesn't

19 meet the requirements, and therefore, the company

20 should be revoked . At the risk of perhaps restating

21 some of the points I made in prior argument, but by

22 way of opening statement, the facts now, the facts

23 in November are not the same as the facts as

24 determined last year .

25 They are -- we are in a different

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Huseby, Inc . vA"Y.huseby.com 4860 Cox Road, Suite 200, Glen Aflen, VA 23060 (804) 755-4200


1 situation . And since we're in a different

2 situation, it is appropriate for Security, because

3 of the attribution to it by the actions of its

4 principal, be measured by the way things are now, if

5 you will, rather than the way things were .

6 And if that isn't the appropriate

7 standard, then the moment any member or senior

8 enough to cause attribution to the entity does

9 something wrong, then the entity is done for without

10 chance for any actions . And I do not believe that's

11 consistent with either normal judicial procedure or

12 the procedures of the State Corporation Commission .

13 We don't have a one strike and you're out

14 rule with regard to the licensure process or regard

15 to the revocation process . It's the facts and

16 circumstances together that come into play .

17 obviously, if the strike is bad enough, well, yes .

18 On the other hand, if the strike isn't bad

19 enough, then the answer would be no . And therefore,

20 1 think it is appropriate that the -- since the

21 decision is being made today with respect to the

22 revocation of the license of Security that the

23 situation as it is today be viewed by the fact

24 finder as the mechanism for making that

25 determination .

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1 And as you will look at it today and as we

2 will see when we go through the credit report, I

3 will proffer we will seek to introduce into evidence

4 a September 10th credit report, and we're going to

5 go down the list and show the status of each of

6 those particular items .

7 Virtually all of them have been resolved .

8 The ones that haven't been resolved -- and as I

9 indicated in the response to the request for

10 admission, there is a judgment in favor of -- is it

11 Mary Washington Hospital? Mary Washington Hospital .

12 But that is on a payment plan .

13 And, so, he's either -- he's basically

14 paying as agreed with respect to all of his debts at

15 this particular point in time, and therefore, unless

16 there is a rule that says one strike and you're out,

17 it's appropriate for Security -- for Security to be

18 measured, Security Trust to be measured by what's

19 going on now and by -- and what is going on now are

20 good things .

21 And therefore, we would respectfully state

22 that our issue with the factual issue is not so much

23 what was the case in 2012 . That's been finally

24 adjudicated . And when a matter has been finally

25 adjudicated, the ability to change that is obviously

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1 limited . But the decision is being made today not

2 based on the situation in the summer of 2012 when

3 the prior decision on Mr . McDonald's prior

4 application became final and therefore what is going

5 on today is what is the point that should be

6 pertinent to Your Honor's decision on whether the

7 license should be revoked .

8 Now, on the -- with regard to the

9 application for mortgage loan origination, the

10 timing is what the timing is . The facts will show

11 that there is a continuing process whereby the

12 situation is getting better . Now, at what point it

13 gets well enough is a matter for the fact finder

14 because there aren't fixed guidelines .

15 We deal with aspirational goals such as

16 character, such as good faith efforts to pay debts .

17 And these don't allow themselves to be zeroed and

18 ones in a spreadsheet sort of fashion . It's all

19 facts and all circumstances, as is common with most

20 judicial determinations .

21 But when you see a situation where things

22 were bad -- and there's no question that they were

23 bad, but they have gotten one heck of a lot better,

24 then I respectfully submit that where how things are

25 getting better is the proper test . And the evidence

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1 that things are getting better will be, we think,

2 respectfully overwhelming .

3 The IRS lien is off the records . The IRS

4 lien is not reflected in the SCC's records, which

5 typically records individual tax liens with respect

6 to individuals . There is no McDonald, Daniel .

7 There is -- it goes right from McDermott to

8 McDonald, Leonard ; but there is no McDonald, Daniel

9 on the Commission's records . And that's because the

10 tax lien is gone . It's been taken care of .

11 With respect to the various judgments and

12 the like, they're gone . They've been taken care of .

13 With respect to the -- each of the items mentioned

14 are reflected on yesterday's credit report . And I

15 asked Mr . McDonald to pull or -- to pull a credit

16 report from yesterday because by definition, that's

17 the most current information . It would not be

18 appropriate to bring into evidence a June credit

19 report if that looked good, if one in September was

20 a turn for the worse because it would be, in effect,

21 misrepresentation by omission .

22 It might have been true in June, but Your

23 Honor is making the adjudication today . And

24 therefore, what is there today is important . And

25 this is a compendium of the three principle credit

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1 reports, Equifax, Experian, and TransUnion . So, it

2 shows all of them . And it shows a significant

3 history of issues, but it also shows in many

4 instances -- virtually all instances that the matter

5 has been resolved .

6 There are a number of ones that are

7 charged off and then payment made . So, the fact

8 that a lender charged an account off is an

9 accounting function, not a legal function . And if a

10 debt has been paid after it was charged off, it

11 doesn't stop the charge-off, but it does mean the

12 debt isn't there anymore . And I would respectfully

13 request that the focus factually should be on the

14 way things are, not on whatever a creditor did at

15 some point based upon accounting rules and

16 regulations .

17 And with respect to one point, we will

18 just go through each of these and show what the

19 current status is . And then we will provide the

20 backup documents for those, with one exception . And

21 the one exception has to do with the status of the

22 second mortgage .

23 And I address that in the context of the

24 request for admissions . But Your Honor will see

25 when we present this evidence that Carrington

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COMMONWEALTH OF VILRGINIA, ex rel . vs. SECURITY TRUST MORTGACE, LLC Proceedings on 09/11/2013

1 Mortgage is shown as a second mortgagee . And then

2 it says account transferred or sold, paid

3 collection . And then it says past due zero .

4 Balance zero . So, based upon Mr . McDonald's

5 understanding that he has resolved that issue and

6 based upon the credit report, we think that the

7 matter has been resolved .

8 And certainly given the turmoil that we've

9 seen in the financial markets in the last few years,

10 it might not be unusual to find things that are

11 inconsistent in credit reports . I know I, for other

12 clients and other days, I've -- I haven't made a

13 living, but I've written a number of certified

14 letters to the credit reporting people identifying

15 issues .

16 But there doesn't appear to be an issue

17 with regard to the status of that . When you look at

18 the full picture, he has met the standard with

19 respect to a good faith effort to settle his debts .

20 The other points, financial responsibility, I would

21 respectfully submit that's not over the entire

22 history because anybody who ever went bankrupt could

23 not per force ever be deemed to be qualified .

24 So, it should be either at the time of the

25 application or at the time of adjudication . And

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1 it's not clear to me from the rules how you draw the

2 distinction because if you have an application

3 that's good and things get bad, one would expect

4 that the Hearing Officer would have the discretion

5 to say I'm sorry, you might have been Bill Gates in

6 November of 2012 ; but no disrespect, on

7 September lith, you're Bill Baldwin . And sorry, you

8 know, Bill Baldwin isn't Bill Gates .

9 On the other hand, if somebody went

10 bankrupt just before they filed and the reason they

11 went bankrupt was because they had a number of

12 guarantee agreements for a real estate development

13 that failed and then they were back in business with

14 a good paying job and were paying their debts as

15 they came due in the ordinary course of business at

16 that time, that would present the obverse situation .

17 So, I think it is fair to say where it

18 talks about financial responsibility, the measure of

19 the time of the adjudication would be the more

20 important one . And we respectfully submit we'll be

21 able to show that we've met that .

22 Reputation, I didn't see any issues with

23 respect to reputation in the 2012 or the 2013 . As

24 far as I know, there aren't really reputation

25 witnesses .

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4860 Cox Road, Suite 200, Glen Aflen, VA 23060 (804) 755-4200

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1 With respect to experience, certainly

2 there's more experience now than there used to be .

3 So, to the extent that's changed, it should be a

4 plus .

5 Character, well, if you're making a good

6 faith effort to pay your debts, that would seem to

7 indicate good character ; but that's a purely

8 evidentiary prospect .

9 General fitness of the applicant and its

10 members, there really isn't any showing that we are

11 aware of at this time to say that Security will

12 not -- that the business -- I note that the law,

13 6 .2-1606 that says will be operated . It doesn't say

14 has been operated .

15 The focus of the Commonwealth of Virginia

16 is what is going to happen in the future . What has

17 happened in the past is a legitimate measure, of

18 course, because we look to what has happened in the

19 past as a measure of the future . But if the future

20 looks especially bright, I would submit that it is

21 appropriate for the Hearing Examiner to look at the

22 matters in the future . And therefore, we will ask

23 at the close of proceedings for an appropriate

24 ruling .

25 HEARING EXAMINER : Thank you, Mr . Baldwin .

Huseby, Inc . wivw.huseby.com 4860 Cox Road, Suite 200, Glen Allen, VA 23060 (804) 755-4200


1 Ms . Johnston .

2 MS . JOHNSTON : Yes, Your Honor . So, I'm

3 ready to proceed on the SCC versus Security Trust

4 matter ; and I'm going to call Susan Hancock as my

5 first witness .

6

7 SUSAN HANCOCK,

8 called as a witness by and on behalf of the

9 Bureau, after having been duly sworn, was

10 examined and testified as follows :

11 DIRECT EXAMINATION

12

13 BY MS . JOHNSTON :

14 Q Good morning, Miss Hancock .

15 A Good morning .

16 Q Could you please introduce yourself?

17 A I'm Susan Hancock, deputy Commissioner

18 with the State Corporation Commission's Bureau of

19 Financial Institutions .

20 Q And where are you employed?

21 A With the State Corporation Commission .

22 Q And how long have you been employed with

23 the Bureau?

24 A Just over 26 years .

25 Q And what is your position?

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Injustice At Virginia SCC

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