Injustice at Virginia SCC

COMMONWEALTH OF VIRGINIA, ex rel . vs.
SECURITY TRUST MORTGAGE, LLC

Proceedings on 09/11/2013
Page I
1
COMMONWEALTH OF VIRGINIA
STATE CORPORATION COMMISSION
3
4
COMMONWEALTH OF VIRGINIA, ex rel .
cl rr
-0
ORIGINAL
6
7
C-)
A
=
C)
V.
8
9
10
SECURITY TRUST MORTGAGE, L .L .C .,

Defendant
11
12
APPLICATION OF DANIEL MCDONALD
13
For a Mortgage Loan Originator License
BFI-2012-00067
14
15
PROCEEDINGS BEFORE
16
THE HONORABLE DEBORAH V . ELLENBERG,
17
CHIEF HEARING EXAMINER
18
10 :15 a .m . to 4 :39 p .m .
19
September 11, 2013
20
Richmond, Virginia
21
22
23
24
25
Reported by :
Renee A . McDermed, RPR
Huseby, Inc .
4860 Cox Road, Suite 200, Glen Allen, VA 23060
www .huseby .com

(804) 7554200
:r
i
w
I-A
COMMONWEALTH OF VIRGINIA, ex rel. vs. SECURITY TRUST MORTGAGE, LLC

Page 2
Proceedings before the Honorable DEBORAH V .
ELLENBERG, Chief Hearing Examiner, Virginia State
Corporation Commission, reported by and before Renee A .
McDermed, Registered Professional Reporter and Notary
Public in and for the Commonwealt h of Virginia at
large, commencing at 10 :15 a .m ., September 11,
the State Corporation Commission for the State of
Virginia, Richmond, Virginia .
2013, at
9
10
APPEARANCES OF COUNSEL :
1 11
12
13
OFFICE OF GENERAL COUNSEL
14
P .O . Box 1197
15
Richmond, VA
16
(804)
17
demarion .johnston@scc .virginia .gov
18
19
I-%
W
BY :
23218
371-9004
DEMARION P . JOHNSTON, ESQUIRE

Counsel for the Bureau of Financial Institutions
20
21
22
23
24
25
Huseby, Inc .
4860 Cox Road, Suite 200, Glen AHen, VA 23060
wwiv.huseby .com
(804) 755-4200
W
I-&

Page 3
1
APPEARANCES OF COUNSEL CONTINUED :
MARCHANT, THORSEN,
On the Avenues
5600 Grove Avenue
Richmond, VA
(804)
HONEY,
BALDWIN & MEYER,
LLP
23226
285-3888
billbaldwin@mthblaw .com
8
9
BY :
WILLIAM R . BALDWIN,
III,
ESQUIRE
10
Counsel for Security Trust Mortgage, LLC,
11
and Daniel McDonald
12
13
14
15
16
17
18
19
20
1 21
22
23
24
25
10
Huseby, Inc.
vnvw.huseby.com
(804) 755-4200
~A
COMMONWEALTH OF VIRGINIA, ex rel . vs. SECURITY TRUST MORTGAGE, LLC

Page 4
1 N D E X
1
2
3
WITNESS :
SUSAN HANCOCK
Direct Examination by Ms . Johnston . . . . . . . . . . . . . . . . . . . 58
Cross-Examination by Mr . Baldwin . . . . . . . . . . . . . . . . . . . . . 70
Redirect Examination by Ms . Johnston . . . . . . . . . . . . . . . . . 75
DUSTIN PHYSIOC
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
PAGE
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 .
4860 Cox Road, Suite 200, Glen Aflen, VA 23060
www .huseby .com

(804) 755-4200

Page 5
E X H I B I T S
(Continued)
Exhibit 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Exhibit 11 and 11C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Exhibit 12 and 12C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Exhibit 13 and 13C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Exhibit 14 and 14C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Exhibit 15 and 15C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Exhibit 16 and 16C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
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
Huseby, Inc.
www .huseby .com

(804) 755-4200
w
#-A

Page 6
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
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Huseby, Inc.
www.huseby.com
(804) 755-4200

Page 7
(10 :15 a .m ., September 11,
2013)
~'A
P R 0 C E E D I N G S
THE BAILIFF :
All rise .
oh, yea,
oh, yea,
oh yea .
State Corporation Commission is in session .
save the Commonwealth and this honorable commission .
Please be seated .
10
0-A
W
Silence is commanded while this honorable

God
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 .
17
counsel for Daniel McDonald and Security Trust
18
Mortgage ; DeMarion P . Johnston, counsel for the
19
Staff Commission .
20
Ellenberg, Chief Hearing Examiner, presiding .
W .R . Baldwin, III,
The honorable Deborah V .
21
HEARING EXAMINER :
22
MR . BALDWIN :
Good morning .
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,

Huseby, Inc.
www.huseby.com
(804) 755-4200

Page 8
Daniel McDonald .
HEARING EXAMINER :
MS . JOHNSTON :
Thank you .
Good morning,
Your Honor .
I'm DeMarion Johnston,
here in the office of general counsel at the
Commission .
Institutions this morning .
associate general counsel
And I represent the Bureau of Financial
HEARING EXAMINER :
Thank you for entering
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 .
13
us with a brief recess while I go find out if he
14
went to the wrong place in the building .
I wonder if the Court might indulge
15
HEARING EXAMINER :
He knows where to come .
16
He's been in these courtrooms before,
17
already indulged you 15 minutes in case you had
18
trouble parking since you have never appeared here
19
before .
20
promptly on time as scheduled .
and I have
Typically, Commission hearings start
21
MR . BALDWIN :
I understand,
22
HEARING EXAMINER :
Your Honor .
I will go through a few
23
opening remarks .
And at some point,
you may need to
24
consult with your client .
25
then I will entertain a brief recess at that point ;
And if that is the case,
Huseby, Inc.
www.huseby .com
(804) 755-4200

Page 9
but I would like to go ahead and get started .
MR . BALDWIN :
HEARING EXAMINER :
Very good, Your Honor .

On April 9th, 2013, the
State Corporation Commission issued a ruling to show
cause in which the Bureau of Financial Institutions
was seeking an order from the Commission revoking
the license of Security Trust Mortgage,
broker licensed under Chapter 16 of Title 6 .2 of the
code of Virginia .
10
Daniel McDonald,
a mortgage
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,
13
The Bureau filed a motion for default judgment on
14
May 24th contending, among other things,
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 .
19
will address it as a preliminary matter shortly .
that the
That motion is pending,
and we
Also pending are two other motions .
20
2013,
2013 .
on
the Bureau served on Security Trust
21
May 15th,
22
and filed with the Commission requests for
23
admissions .
24
Bureau advised that the Commission's rules of
25
practice and procedure deem requested admissions
In the requests for admissions,
Ruseby, Inc.
the
www.huseby.com
(804) 755-4200
H
W

Page 10
admitted unless they are answered or objected to in
writing within 21 days of service or such other
period as the Commission may designate .
response was offered on behalf of Security Trust
within 21 days or as of this date .
No written
On August 21st, the Bureau filed a motion
to admit requests for admission, which is also
pending .
notice of appearance on Monday, he also filed a
When counsel for Security Trust filed his
10
motion for relief from potentially deemed
11
admissions .
12
addressed as preliminary matters .
13
Those two related motions will also be
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
25
1 would note, however, that although the

evidence most certainly overlaps, the burden of
Huseby, Inc .
www .huseby .com

(804) 755-4200

Page I I
proof may be very different in the two cases, which
1 expect counsel will address during the course of
this hearing .
Also,
the failure of Security Trust to
properly file a response to the rule may affect the
ability of counsel for Security Trust to object to
the admissibility of Bureau evidence, which we will
also address with regard to the motion for default
judgment .
10
11
Mr . Baldwin,
I believe that this may be
your first appearance before the Commission .
12
MR . BALDWIN :
That is correct, Your Honor .
13
HEARING EXAMINER :
14
we will proceed today .
15
MR . BALDWIN :
16
HEARING EXAMINER :
So,
let me explain how
Very good .
After we address any
17
preliminary matters,
18
and any that you,
19
you will have an opportunity to make opening
20
statements, the Bureau first and then you, Mr .
21
Baldwin .
22
the two that I have identified
either of the two of you may have,
The Bureau will then present their case .
23
And, Mr . Baldwin, you will have a chance to
24
cross-examine the witnesses .
25
same opportunity to present evidence subject to the
You will then have the
Huseby, Inc .
%vN"v .huseby.com
(804) 755-4200
I-A
W
W
I-A

Page 12
cross-examination of Bureau counsel .
will have an opportunity at the conclusion of that
evidence to present any rebuttal that they may have .
The Bureau
At the end of the hearing, we may also
entertain closing statements .
procedural questions, Mr . Baldwin, before we start?

I do not, Your Honor .
MR . BALDWIN :
HEARING EXAMINER :
9
10
Do you have any
All right .
The first
preliminary matter that I have on my agenda is the

motion for default judgment .
11
MS . JOHNSTON :
Ms . Johnston .
Yes, Your Honor .
We're
Since Your Honor gave a timeline
12
ready to proceed .
13
of the proceedings to date, for the motion, I'm just
14
going to start with the argument .

And, Your Honor, that is McDonald is not a
15
16
licensed attorney .
17
a legal entity in and of itself separate from Daniel
18
McDonald .
19
procedure are clear, that McDonald cannot represent
20
Security Trust before the Commission .
21
Security Trust Mortgage, LLC,
is
The Commission's rules of practice and
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 .

Huseby, Inc.
www.huseby.com
(804) 755-4200

Page 13
Your Honor, the Bureau is asking that
1
2
Security Trust and McDonald be held to the
Commission's rules .
he could not represent his company, Security Trust,
when he filed his response in May, he certainly was
on notice on May 24th that he may not be permitted
to do so when the Bureau filed its motion for
default ; and that was three-and-a-half months ago .
If McDonald was not aware that
McDonald has had plenty of time to obtain
9
10
an attorney to represent Security Trust,
but he's
11
chosen not to do so .
12
Friday before the hearing to retain counsel .
13
Security Trust is a licensee who needs to follow the
14
rules of the Commission .
He chose to wait until the
And also as part of this proceeding, Mr .
15
16
McDonald is requesting a license from the
17
Commission .
18
of the Commission in order to get that license .
19
response filed by McDonald for Security Trust is
20
improper, and it's defective .
21
pursuant to Commission Rule 5VAC5-20-90,
22
moves that Security Trust be found in default .
23
Thank you .
24
25
And he also needs to follow the rules
HEARING EXAMINER :
The
And accordingly,
Thank you .
the Bureau
Mr .
Baldwin .
Huseby, Inc .
www.huseby .com
(804) 755-4200
I-A
W
P-A
C3
W
H
COMMONWEALTH OF VIRGINIA, ex rel. vs . SECURITY TRUST MORTGAGE, LLC

Page 14
MR . BALDWIN :
May it please the Court, the
rules of the Commission are plain on this point,
even if they -- and they're not any different than
the rules that apply in the -- all of the courts of
record of the Commonwealth of Virginia and the
courts not of record and the General District Court,
with one exception for small claims and with regard
to minor matters that would relate to getting a
default judgment .
10
But as far as this matter,
and
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 .
14
retained and that I have done the best I can to get
15
up to speed on this in the interim .
I only know that -- I only know when I was
16
But I would ask that as a general
17
proposition that a matter be decided on the merits
18
rather than on procedure,
19
pattern throughout Virginia .
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,
24
matter of the discretion for the Hearing Examiner,
25
the Judge,
I think is a traditional
And although there
it still is,
the judicial officer,
I think,
to determine .
Huseby, Inc.
And
www.huseby.com
(804) 755-4200

Page 15
at this particular point,
counsel .
Security is represented by
Now, with respect to the -- the Court will
note although I filed a motion for relief with
respect to the request for admissions,
do -- I did not adopt the answer .
that was that in the time frame that I have -- it
was been given to me .
have not able to reach the closure that an attorney
I did not
The reason for
By timing of my retainer,
10
is -- needs to reach with regard to an answer
11
because if I were to adopt that,
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 .
15
been the time for me to be able to do that .
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-h
W
then I would be
And there just simply has not

And
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 .
24
discretion .
25
have the complete power and discretion to ignore
I think that is within the Court's

When you hear all the evidence, you
Huseby, Inc.
www.huseby.com
(804) 755-4200
W
H

Page 16
evidence that you deem to be prejudicial to the BFI
because they haven't been given in a timely notice
because there was no counsel .
discretion to consider the evidence as it comes
before Your Honor .
You also have the
And all I can say is that since it is
I would ask that
within Your Honor's discretion,
Your Honor exercise discretion and not to deem the
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
13
HEARING EXAMINER :
Thank you .
Ms .
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 .

But all due process requires is that a
19
20
state must afford all individuals a meaningful
21
opportunity to be heard .
22
required .
23
opportunity .
24
due notice or the unjustifiable violation of some
25
procedural rule affecting the orderly process and
And that's all that is
And Security Trust received that

It says the failure to appear after
Huseby, Inc.
www.huseby.com
(804) 755-4200

Page 17
adjudication of cases may result in a waiver of the
hearing of required due process and an entry of
judgment by default .
We have an unjustifiable violation of the rules .
Thank you, Your Honor .
And that's what we have here .
HEARING EXAMINER :
All right .
Thank you .
1 do agree that Mr . McDonald was not qualified to
file pleadings on behalf of Security Trust .
hence,
And
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

Security Trust is in default of
13
to Security Trust .
14
the Commission's order and directive to file a
15
responsive pleading .
16
Security Trust is found in default,
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
The rule states that if

quote,
it
Security Trust is deemed to have waived
22
all objections to the admissibility of evidence that
23
the Bureau may offer today,
24
witnesses and offer evidence of its own .
25
The rule, however,
but can cross-examine
does not mandate that a
Huseby, Inc .
w-*"v.huseby.com
(804) 7554200
I-A
W
W
1A

Page 18
default judgment automatically follows default for
failure to properly file a responsive pleading, nor
does the failure to properly file a response through
an attorney unfairly prejudice the Bureau .
Bureau should be well aware of the position of
Security Trust in this matter .
The
Security Trust is properly represented
today and should be prepared to offer a defense
against the allegations in the rule .
So, despite
10
the failure to properly file through an attorney
11
appropriate pleadings in this case,
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 .
15
motion is denied .
16
As a side note,
I will not grant
That
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 .

Huseby, Inc.
www.huseby.com
(804) 755-4200

Page 19
Baldwin's motion for relief from potentially deemed
admission .
MR . BALDWIN :
May it please the Court,
this is a similar argument and similar issue in
nature to that which the Court has already disposed
of .
Matters requested to be admitted were
7
8
properly served .
They were not responded to .
were not responded to even by an unauthorized
They
10
signatory .
11
filed,
12
prudence in my own practice,
13
point to respond within 21 days for patently obvious
14
reasons .
15
Unlike at least the answer that was
there was no response whatsoever .
Certainly
I always make it a
And the absence of any response at all
16
ever has significance, which is what led me to file
17
the motion .
18
the motion were not well founded .
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 .
22
Mr . McDonald to address the debt issues .
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
I cannot say that all of the matters in

But I can say
And we would -- by
Huseby, Inc .
And we're
wvnv.huseby.com
(804) 755-4200
1-6
W

Page 20
been removed, that all of the judgments against him

2
have either been satisfied or compromised in
accordance with the payment plan, that he's current
with his house mortgage, and so that all of the
litany of issues that have arisen with regard to
this application by Mr . McDonald and the prior one
in 2012,
and absolutely,
materially better .
10
those matters are in hand,
if not utterly
certainly substantially and
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 .
16
Bureau of Financial Institutions in this matter that
17
if Mr . McDonald does not have his house in order,
18
then by definition,
19
financial house in order .
20
So -- and it's been expressly stated by
Security cannot have its
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

Huseby, Inc .
www.huseby.com
(804) 755-4200

Page 21
in a normal way .
that shows that a lot of progress has been made .
But there is a lot in the record
We plan to present this in a more orderly
fashion today .
So, with respect to that, on the
merits,
would be a good faith basis for denying that one .
And, aga in, because of the timing issues, which are
not the fault of BFI, that's quite clear,
been abl e to attend to the other matters .
I can represent to the Court that there
10
any event,
11
discretion of the judicial officer,
12
issue of a default judgment .
But in
a discovery matter always lies within the
13
And therefore,
14
reference the argument just made .
15
I have not
just as does the
I would incorporate by
HEARING EXAMINER :
All right .
16
client, of course,
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
just arrived .
Your
I would like to
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 .
24
file that either of you want to present you will
25
present today, we will mark it as an exhibit,
Any information that is in that
Huseby, Inc .
it
www .huseby .com

(804) 755-4200
W
H

Page 22
will be sponsored by a witness and admitted into the
record at that point .

So, you're right, I have seen a lot of
3
4
paper .
But at this point, there is nothing yet in
the record of these cases .
All right .
MR . BALDWIN :
Very well, Your Honor .
HEARING EXAMINER :
Ms . Johnston .
MS . JOHNSTON :
Yes .
Thank you .
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 .
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
McDonald did file a document that
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
Huseby, Inc .
www .huseby .com

(804) 755-4200

Page23
of deposition to McDonald and Security Trust via
certified mail .
subpoena for deposition on July 30th commanding
McDonald to appear on August 15th in order to be
deposed to clarify some of the issues that would be
addressed at trial today .
And the Commission issued a
Despite the notice of a Commission-issued
subpoena, McDonald failed to appear for the
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 .
19
request for admission in whole be admitted .
20
you .
21
22
23
24
25
Accordingly,
the Bureau moves that the

Thank
Thank you .
HEARING EXAMINER :
Mr . Baldwin,
anything
in response?
MR . BALDWIN :
Your Honor,
only the fact
that there -- there will be evidence that all the

Huseby, Inc.
www .huseby .com

(804) 755-4200
0-h
W
~A
W
1`4

Page 24
matters requested to be admitted are not, in fact,
true .
is to remove from the adjudicatory process those
matters which are not genuinely at issue .
is a genuine issue which we are prepared to present
through the testimony of Mr . McDonald that his
financial circumstances have materially improved
and, therefore, that his application for a mortgage
loan originator's license, in fact, is in good
And the purpose of a request for admissions

And there
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 .
24
remains that there is much genuine dispute about the
25
matters in controversy .
But nevertheless,
it
And the requests for

0
Huseby, Inc.
www.huseby.com
(804) 755-4200

Page25
0
admissions are not intended to be a way to remove
genuine issues from the purview of the finding
authority .
HEARING EXAMINER :
the Commission rules of practice and procedure
explicitly provide that, quote,
emphasize -- shall be deemed admitted unless the
party on whom requests for admission are served
within 21 days of the service of the request or some
a matter -- I
10
other period as the Commission may designate,
11
inquote,
12
0
As Ms . Johnston noted,
responds .
Neither Security Trust nor Mr . McDonald
13
responded within 21 days or even appeared at a
14
scheduled deposition to respond despite ample notice
15
and being subpoenaed to be there .
16
to the Bureau's requests for admission by operation
17
of the Commission's rules,
18
admitted .
19
Without responses
they must be deemed
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
0
Huseby, Inc.
wim.huseby.corn
(804) 755-4200

Page26
time .
Are you prepared?
2
3
MR .
BALDWIN :
Will Your Honor grant me
five minutes to do -- so I can -HEARING EXAMINER :
Yes .
This is a point
in time that I thought you might need an
opportunity .
MR .
BALDWIN :
In fact, more than five .
will be as diligent as I possibly can,
take upwards of ten minutes .
10
HEARING EXAMINER :
but it might
I will grant you ten
We'll take a brief recess and reconvene in
11
minutes .
12
ten minutes .
13
14
(Recess,
10 :39 a .m . to 10 :47 a .m .)
15
THE BAILIFF :
16
17
resumes this session .
All rise .
Please be seated .
HEARING EXAMINER :
~11,9,
The Commission
All right .
Mr .
Baldwin .
Yes,
20
MR . BALDWIN :
21
HEARING EXAMINER :
22
MR . BALDWIN :
Your Honor .
Are you prepared?
We'll go forward at this
I make reference to the requests
23
time, Your Honor .
24
for admissions which are included as an exhibit to
25
the BFI's motion to admit requests for admission,

0
Huseby, Inc.
www.huseby.com
(804) 755-4200

Page 27
0
and that motion,
I think,
HEARING EXAMINER :
MR . BALDWIN :
I do have it .
August 21st, excuse me .
So,
I'm going to get Exhibit AA to that motion to admit
and in response to Your Honor,
forward .
HEARING EXAMINER :
I will now go
Before you begin,
just
as a reminder,
address or object to any of the specific requests,
10
to the extent you are not able to
they will be deemed admitted .
11
MR . BALDWIN :
I understand, Your Honor .
12
also intend to proceed as
13
the procedure is precisely analogous to that in a
14
circuit court,
15
portion is correct,
16
remainder .
which is, under the rules,

you admit the portion,
HEARING EXAMINER :
18
MR . BALDWIN :
when a
deny the
Yes .
I wish to place that before
Your Honor right now .
20
HEARING EXAMINER :
21
MR . BALDWIN :
22
I would because I believe
17
19
requested :
No .
1,
Yes,
please do .
Starting with the matters
admitted .
23
No . 2,
admitted .
24
No . 3,
admitted .
25
No . 4,
admitted .
was kugust 26th .
F-A
Huseby, Inc .
www .huseby.com
(804) 755-4200
IN&

Page28
No .
5,
denied as phrased and qualified as
With respect to the first deed of trust,
follows :
he is current and has been current on that for some
time .
charges are a part of a modification and are not
believed to be new late charges .
January of 2013 in arrears by 90 days .
that was as a requirement of the modification
process .
There maybe late charges, but the late

He was in or about
However,
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,
14
Honor knows my personal opinion on that point .
15
if a bank says I'm 90 days behind and I agree I'm
16
60,
17
No payments are accepted unless you pay everything
18
that they claim is due .
19
So,
and I guess Your

But
1 can't cure the 90 while it's in modification .
therefore,
I have to qualify that to
20
say to the extent there were any unpaid late
21
charges,
22
a payment during the time that you are requesting a
23
modification,
24
ultimately denied .
25
denied at that time, Mr . McDonald paid all of the
they were unpaid because they won't accept
that the modification then pending was

When that modification was
0
Huseby, Inc.
www.huseby .com
(804) 755-4200

Page 29
0
arrearages and brought the loan current, which is
its current status .
full and fair response to that particular matter .
1 admit that Mr . McDonald is in default of
the secondary deed of trust .
his best knowledge and to the knowledge of a credit
report, which I had him pull yesterday to make sure
that it was current which we intend to introduce
into evidence, no money is shown as due and owing on
10
11
And that, I believe, is the
That is denied .
To
that second mortgage .

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
0
Huseby, Inc.
-,""v.huseby.com
(804) 755-4200
~6A

Pagc30
widely accepted definition of liabilities .
With respect to 12, that is admitted with
the exception of 121, Carrington Mortgage, that is
denied for the reasons previously stated .
With respect to 13, that is admitted
within the time frame that we have .
I would ask the
Court for leave if, on presentation of evidence,
meaning the most current credit report, that the
Court consider taking more recent information, as
10
that would be presumably more probative than the
11
matters requested to be admitted .
12
admitted that liabilities were owed with the
13
exception of Carrington Mortgage .
14
caveat 13 by saying 131 is denied for the reasons
15
previously stated as to Carrington Mortgage .
16
We already have
And, so, I should
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 .
22
date of your response to these requests for
23
admission .
24
date we are answering, therefore, as of today and
25
therefore deny it because that is not the status of
It's as of the
Your Honor has indicated today is the
Huseby, Inc .
4860 Cox Road, Suite 200, Glen Al-len, VA 23060
www .huseby .com

(804) 755-4200

Page 31
today, with one -- with one exception, and the one
exception is Mary Washington, which has a judgment
for about $17,000, but where there is a payment plan
in effect of paying $100 a month and tha t that is
the current status of the payment plan .
monies are still owed .
judgment has been satisfied, but he is paying that
debt as it has been restructured by agreement of the
parties .
I do not believe the
With regard to 17,
10
So, the
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 .
14
that point because it's quite clear from the 2012
15
proceedings,
16
notice,
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 .
I spent some time with Mr . McDonald on
of which this Court can take judicial
that that was an issue in those proceedings .
21
The papers as filed do not show any
22
reference to Equity Source Home Loans .
Mr . McDonald
23
tells me,
24
believes he showed that on his filing form .
25
therefore, we have a conundrum, which is that one
and I believe he will testify, that he
Huseby, Inc .
And
www .huseby .com

(804) 755-4200
I~A
4Z
W
0-b

Page 32
normally doesn't impugn public records, and a filed
application is a public record .
he doesn't understand why he wouldn't have disclosed
that .
November of 2012 at the time of the filing, when the
matter had been litigated within the same year and
was a matter known to all is one of those things
that you just can't really explain .
By the same token,
And to think that it wasn't disclosed in
So, therefore, I have to say that under
9
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 .
13
thinks he disclosed it, but there isn't anything
14
shown on the record to that .
15
can do with regard to 17 .
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 .

HEARING EXAMINER :
21
He
And that is the best I
And I understand Your
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
0
Huseby, Inc .
www .huseby.com
(804) 755-4200

Page33
0
1
2
With regard to 18, admitted .
19,
admitted .
20,
admitted .
If I could have one moment,
you .
I overlooked
going over one point with Mr . McDonald .
21 and 22 are admitted .
23 is admitted .
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 .
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 .
25
So,
The actual record filed with the
This is addressed to as of 2-8-13 .
it's denied for those reasons .

Huseby, Inc.
www .huseby.com
(804) 755-4200

Page 34
34 is admitted .
35 is admitted .
Excuse me .
second 35 is denied .
spoke to, Your Honor .
10
That was the one I previously
to respond .
8
9
The
And I thank the Court for the opportunity
6
7
35, one is admitted .
HEARING EXAMINER :
Ms . Johnston,
does Mr .
Baldwin's responses to the requests for admission

affect your ability to go forward today?
MS . JOHNSTON :
11
No, Your Honor ; and many of
12
the matters that are denied will be cleared up today
13
after testimony .
Thank you .
HEARING EXAMINER :
14
All right .
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 .
21
corresponds to .
22
1 is admitted, we'll know what that
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

is
Huseby, Inc .
www .huseby .com

(804) 755-4200

Page 35
0
it's the full paper .
picture in the proceedings .
HEARING EXAMINER :
It might present a better

W
I-&
I will decline to do
that because the motion is actually a legal
pleading .
the file and was served on Mr . McDonald much earlier
in the proceedings .
document that is just entitled "Requests for
Admission ."
10
The request for admission was -- is in
So, there is a separate
And I will mark and admit that as
Exhibit 1 .
11
MR . BALDWIN :
12
HEARING EXAMINER :
Very well, Your Honor .

All right .
Are there
13
any other preliminary matters, Ms . Johnston,
14
you would like to raise before we begin to receive
15
evidence?
16
I~A
W
MS . JOHNSTON :
that
Well, yes, Your Honor .
In
17
the response of the Bureau of Financial Institutions
18
to Mr . McDonald's application,
19
arguments,
20
collateral estoppel .
21
proceed on the res judicata argument, but would
22
proceed on the collateral estoppel .
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 .
legal arguments,
the Bureau made two
one for res judicata and
The Bureau is not going to
The Bureau is
Huseby, Inc .
www.huseby .com
(804) 755-4200

Page 36
HEARING EXAMINER :
MR . BALDWIN :
All right .
Your Honor,
I can speak to
that .
The status of the doctrine -- of estoppel
doctrine as an administrative law in Virginia is
still slightly unsettled, but I don't think we need
to address the extent to which those doctrines are
co-terminus with the decisions in the circuit courts
or the general district courts .
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 .
14
yes,
is
final decision with respect to his prior
16
application, but this is a new application and a new
17
time in question .
18
identical set of issues -- the issues ultimately are
19
the same,
20
licensure .
They are close in time .
And,
it is absolutely true that there has been a
that is,
And therefore, we don't have an
do you meet the requirements for
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 .
25
same set of facts .
And,
so, we don't have the

0
Huseby, Inc .
www .huseby .com

(804) 755-4200

Page 37
1 think counsel is perhaps looking to a
doctrine which I did not spend the time to see if
the -- if the Corporation Commission had adopted it,
but it would be easily understood .
the courts retain and certainly under the common law
of the SCC in its adjudicatory capacity, would have
the right to issue injunctive or other appropriate
relief from persons who abuse,
courts will enjoin people who bring repeatedly
The courts --
just as the circuit
frivolous litigation from doing so without some kind
11
of prior standard to assure that the courts are not
12
clogged by frivolous litigation .

1 think it clear that the SCC would have a
14
similar power upon a proper factual record .
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 .
18
therefore,
19
continue to get better, then tomorrow might be a
20
better day to do it than today .
21
And
And
if you wait a little bit longer and they
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 .
25
therefore, with deference to counsel,

Huseby, Inc.
4860 Cox Road, Suite 200, Glen Atlen, VA 23060
OA
10
13
I-A
W
And
collateral
www .huseby .com
(804) 755-4200
#-A

Page 38
estoppel can apply because the facts are, by
definition, in this instance, not the same .
HEARING EXAMINER :
Ms . Johnston .
MS . JOHNSTON :
Thank you .
Your Honor, the Bureau
would reply that they are the same .
McDonald was
just here last year litigating a different MOL
application, which was denied by the Commissioner .
A formal hearing was held on the matter, and the
10
Commission affirmed the Commissioner's decision on
11
July the 6th of 2012 .

Four short months later, McDonald applied
12
13
for an MLO application .
Again,
it involves the same
14
parties as McDonald 1, the BFI 2012-0003, McDonald
15
and the Bureau .
16
different proceeding, both applications for MLO
17
licenses .
It's a subsequent proceeding and a
McDonald is attempting to relitigate the
18
19
same factual and legal questions that were at issue,
20
specifically financial responsibility,
21
and general fitness for licensure as an MLO .
22
not proven any facts or provided any facts that
23
would show that these are different arguably for
24
financial responsibility .
25
test,
character,
He has
But it's a three-part
and you have to meet all three for licensure .

is
Huseby, Inc .
www .huseby .com

(804) 755-4200

Page39
0
So, even if, which the Bureau is not
conceding that he meets the financial responsibility
qualification,
meets the character and general fitness .
therefore, collateral estoppel or issue preclusion
does apply .
HEARING EXAMINER :
he has given nothing to show that he

And
I will take your motion
and argument under advisement .
There have been
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 .
13
further of a preliminary matter?
14
MS . JOHNSTON :
All right?
Anything
Just one more thing,
Your
15
Honor .
16
going to move into evidence contain personal
17
confidential information about Mr . McDonald .
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
22
A lot of the exhibits that the Bureau is
HEARING EXAMINER :
through the exhibits,
As we go
just remind me if it's not --
23
MS . JOHNSTON :
24
HEARING EXAMINER :
25
Very good .
So,
Yes,
Your Honor .
All right .
Thank you .
Preliminary matters have been -- have concluded .
0
Huseby, Inc .
www.huseby .com
(804) 755-4200
0-4
IW
10A
43
0
W
4-k

Page 40
So, I would like to entertain opening statements .
probably have a good, after all those preliminary
matters, I have a good understanding of, you know,
what your positions are ; but let's proceed with
opening statements .
Ms . Johnston .
MS . JOHNSTON :
Yes .
As you're aware,
Your
Honor,
we are here today in regard to two cases .
The first is the State Corporation Commission versus
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,
15
application for a mortgage loan originator license .
16
2012,
Both cases relate back to a proceeding
17
from last year that involved McDonald that I have
18
previously mentioned,
19
going to refer to as McDonald 1 for convenience .
20
the BFI 2012-0003,
which I'm
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 .
24
by the Commissioner in 2011 via his delegated
25
authority from the Commission .
That application was denied
And McDonald
0
Huseby, Inc.
www .huseby.com
(804) 755-4200

Page 41
requested a formal appeal of that denial before the
Commission .
Now,
in order to obtain an MLO license,
applicants must meet certain requirements that are
found in Virginia law .
obtain an MLO license is required by the code of
Virginia to possess certain qualifications .
An applicant who wants to
The qualifications that an applicant must

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 .
19
the Commissioner, again, who acts through delegated
20
authority cannot make these findings,
21
shall not issue a license to that applicant .
22
Now,
If
the Commission
turning back to the prior case in
23
McDonald 1,
24
March 22,
a full hearing was held on this case
25
Thomas, Hearing Examiner presiding .
2012,
here at the Commission with Michael

Mr . McDonald
0
Huseby, Inc .
4860 Cox Road, Suite 200, Glen AIlen, VA 23060
4M
W
H
I"
W
H
www .huseby .com

(804) 7554200

Page 42
appeared and fully litigated the issues of his
financial responsibility,
fitness for licensure as an MLO .
Examiner issued his report on April 27th,
character,
and general
The Hearing
2012 .
The Bureau will show that in his report,
5
6
he made specific findings of fact in regard to
McDonald's financial responsibility,
general fitness .
found that McDonald failed to provide disclosures
Specifically,
character, and
the Hearing Examiner
10
required by Virginia and Federal law and all loans
11
brokered by Security Trust .
12
McDonald and his mortgage company,
13
Security trust,
14
mortgage pre-approval letter in 2010 that was a
15
complete fabrication,
16
application,
17
disclose two outstanding judgments in a Federal tax
18
lien,
19
employment history for the previous ten years, that
20
he was evasive or misleading in responses to the
21
Bureau's inquiries,
22
taken no affirmative steps to satisfy his numerous
23
outstanding debts .
24
25
issued a false and misleading
is
that McDonald lied on his MLO
that McDonald willfully failed to
that he willfully failed to disclose his
and with one exception,
he had
And the Hearing Examiner recommended that

the Commission affirm the commissioner's denial .
0
Huseby, Inc.
www .huseby.com
(804) 755-4200

Proceedings on 09111/2013
Page 43
0
The Commission entered a final order in McDonald 1
on July 6th,
finding of fact and recommendations and affirming
the Commissioner's denial of McDonald's MLO
application .
order .
McDonald never appealed the final
Even though McDonald sought an MLO
license, which is an individual license, Daniel
McDonald is the sole owner and officer of Security
10
Trust,
which is a mortgage broker licensee with the
11
Commission .
12
0
2012, adopting the Hearing Examiner's
Now, MLOs take applications for or offer
13
to negotiate the terms of residential mortgage loans
14
on behalf of mortgage companies,
15
brokers .
16
certain qualifications in order to be licensed and
17
in order to maintain their license in Virginia .
18
including mortgage
Like MLOs, mortgage brokers have to meet
Mortgage brokers and their members,
senior
19
officers, directors, and principals must possess the
20
21
experience,
22
belief that the business will be operated
23
efficiently and fairly in the public interest and in
24
accordance with law .
25
character,
reputation,
and general fitness such as to warrant
Thus,
a mortgage broker and its members,
0
Huseby, Inc.
mm.huseby.com
(804) 755-4200
0
M

Page 44
senior officers,
the very same qualifications as those for licensure
as an MLO,
general fitness, plus the two additional
qualifications of reputation and experience .
directors, and principals must meet
Accordingly,
character,
and
after the Commission's final
order in McDonald 1, the Bureau was on notice that
Security Trust no longer met the requirements for
licensure as a mortgage broker given Daniel
10
11
McDonald's position as its senior officer and owner .

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,
is
applied for an MLO license .
16
2012, McDonald again
The Bureau will show that it made a
17
thorough and fair review of McDonald's MLO
18
application .
19
not meet any of the qualifications for licensure as
20
an MLO, but especially the qualifications of
21
character and general fitness .
22
It will also show that McDonald does
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
0
Huseby, Inc .
www.huseby .com
(804) 755-4200

Page 45
0
correspondence with the Bureau, and in other filings
with the Bureau .

It will show that McDonald was evasive and
3
4
misleading to the Bureau when questioned about
omissions and inaccuracies in the application and
other filings .
McDonald has failed to identify facts or
circumstances that have changed since the
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
0
And the Bureau will show that
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 .
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
Your Honor, the Bureau requests that the
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
0
Huseby, Inc .
www .huseby .com

(804) 755-4200
)-A
W

Page 46
identify facts or circumstances that have changed
since last year's order that would warrant his
receipt of a license at this time .
Additionally, Mr . McDonald filed another
MLO application June 3rd of this year,
Bureau has not acted on and has been treating as
part of this current procedure .
McDonald has shown he is going to repetitively file
application after application,
which the
Your Honor,
since
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 .
HEARING EXAMINER :
15
16
All right .
Thank you,
Ms . Johnston .
17
Mr . Baldwin, before you begin your opening
18
statement, Mr . McDonald,
19
about speaking while the court is in -- you have an
20
attorney .
I would like to caution you
He will speak on your behalf .
21
MR . BALDWIN :
22
MR . McDONALD :
23
HEARING EXAMINER :
24
MR . BALDWIN :
2S
Just say yes .

Yes .
Mr . Baldwin .
Your Honor, part of the
problem was that Mr . McDonald took issue with the

0
Huseby, Inc.
www.huseby.com
(804) 755-4200

Page 47
0
reference to him by his last name rather than by
using mister,
male who is above age 18 .

HEARING EXAMINER :
MR . BALDWIN :
W
I~A
All right .
If I may have one moment,
need to ask my client one question .
aware that there had been -- I was not aware that
there had been another filing .
don't believe there's any prohibition .
We were not
I would ask -- I
We would ask
10
that that application be withdrawn without prejudice
11
at this time .
12
before the Commission at the same time on related
13
matters .
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 .
19
particular time .
20
21
There should not be two matters
They should be decided as individual
I just -- but I would note that at this
HEARING EXAMINER :
Any objection,
Ms .
Johnston?
22
MS . JOHNSTON :
No objection,
23
HEARING EXAMINER :
Your Honor .
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
0
Huseby, Inc .
W
OA
0
the traditional term of addressing a
I-A
www.huseby .com
(804) 755-4200

Page48
anything initially .
MR . BALDWIN :
It's my desire to make sure
the electronic records are completed, but I'm
certainly pleased to follow Your Honor's guidance on
the point .
MS . JOHNSTON :
Your Honor,
the system,
System and Registry .
to withdraw that application himself .
10
it's the Nationwide Mortgage Licensing

Mr . McDonald is going to have
The Bureau
doesn't have the power to kick it out .
11
12
I believe that
HEARING EXAMINER :
that clarification .
13
All right .
Thanks for
I withdraw my guidance .
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,
17
because you're the one who files it .
18
national application process .
you will need to make a record filing

It's a
Are we understood?
19
MR . McDONALD :
Understood .
20
MR . BALDWIN :
21
HEARING EXAMINER :
Thank you .
22
MR . BALDWIN :
by way of an opening
Thank you,
Now,
sir .
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

0
Huseby, Inc .
www .huseby .com

(804) 755-4200

Page 49
0
license of Security Trust,
application for licensure as a mortgage loan
originator by Mr . McDonald .
first because the central reason,
from the papers that I have read and from counsel's
opening statement,
much Security as a sep arate legal entity, but rather
by application of the fact addressed earlier by me
that when you have -- that the actions of a
I'll address Security

as is apparent
is that this isn't addressed so
10
principal of a company are attributed to the company
11
for purposes of licensure .

And certainly in this instance, where we
12
0
and we have the
13
have one owner and one operating member and one
14
officer,
15
some other instance might create shades of gray,
16
we're not in that situation here .
the rule makes sense, even if it perhaps in
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 .
21
some of the points I made in prior argument, but by
22
way of opening statement,
23
in November are not the same as the facts as
24
determined last year .
25
At the risk of perhaps restating
the facts now,
the facts
They are -- we are in a different
0
Huseby, Inc .
vA"Y.huseby .com
(804) 755-4200
W
FJ

Page 50
And since we're in a different
situation .
situation,
of the attribution to it by the actions of its
principal, be measured by the way things are now,
you will,
it is appropriate for Security, because
if
rather than the way things were .

And if that isn't the appropriate
6
7
standard,
then the moment any member or senior
enough to cause attribution to the entity does
something wrong,
then the entity is done for without
10
chance for any actions .
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 .
16
circumstances together that come into play .
17
obviously,
18
And I do not believe that's
It's the facts and
if the strike is bad enough, well, yes .

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 .
0
Huseby, Inc.
www .huseby.com
(804) 755-4200

Page 51
And as you will look at it today and as we
will see when we go through the credit report,
will proffer we will seek to introduce into evidence
a September 10th credit report,
go down the list and show the status of each of
those particular items .
~-A
W
and we're going to
Virtually all of them have been resolved .
The ones that haven't been resolved -- and as I
indicated in the response to the request for
10
admission, there is a judgment in favor of -- is it
11
Mary Washington Hospital?
12
But that is on a payment plan .
13
Mary Washington Hospital .
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,
19
going on now and by -- and what is going on now are
20
good things .
Security Trust to be measured by what's
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 .
24
adjudicated .
25
adjudicated,
That's been finally
And when a matter has been finally

the ability to change that is obviously
0
Huseby, Inc .
www .huseby .com

(804) 755-4200
C3
W
O-A

Page52
limited .
But the decision is being made today not
based on the situation in the summer of 2012 when
the prior decision on Mr . McDonald's prior
application became final and therefore what is going
on today is what is the point that should be
pertinent to Your Honor's decision on whether the
license should be revoked .
Now, on the -- with regard to the
application for mortgage loan origination,
the
10
timing is what the timing is .
11
that there is a continuing process whereby the
12
situation is getting better .
13
gets well enough is a matter for the fact finder
14
because there aren't fixed guidelines .
15
The facts will show
Now,
at what point it
is
We deal with aspirational goals such as
16
character,
17
And these don't allow themselves to be zeroed and
18
ones in a spreadsheet sort of fashion .
19
facts and all circumstances, as is common with most
20
judicial determinations .
21
such as good faith efforts to pay debts .
It's all
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

0
Huseby, Inc .
www .huseby .com

(804) 755-4200

Page53
0
that things are getting better will be, we think,
respectfully overwhelming .
3
4
lien is not reflected in the SCC's records, which
typically records individual tax liens with respect
to individuals .
There is -- it goes right from McDermott to
McDonald,
on the Commission's records .
10
There is no McDonald, Daniel .
Leonard ; but there is no McDonald, Daniel
tax lien is gone .
11
The IRS
The IRS lien is off the records .
And that's because the
It's been taken care of .
With respect to the various judgments and
12
the like,
13
With respect to the -- each of the items mentioned
14
are reflected on yesterday's credit report .
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 .
18
appropriate to bring into evidence a June credit
19
report if that looked good,
20
a turn for the worse because it would be,
21
misrepresentation by omission .
22
they're gone .
They've been taken care of .
And I
It would not be
if one in September was

in effect,
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 .
25
this is a compendium of the three principle credit
And
0
Huseby, Inc .
www.huseby .com
(804) 755-4200
I~A
W
4:3
W
~A

Page 54
reports,
shows all of them .
history of issues, but it also shows in many
instances -- virtually all instances that the matter
has been resolved .
Equifax,
Experian,
and TransUnion .
So,
There are a number of ones that are

charged off and then payment made .
that a lender charged an account off is an
accounting function, not a legal function .
So,
the fact
And if a
10
debt has been paid after it was charged off,
11
doesn't stop the charge-off, but it does mean the
12
debt isn't there anymore .
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 .
it
And I would respectfully

0
And with respect to one point, we will
18
just go through each of these and show what the
19
current status is .
20
backup documents for those,
21
the one exception has to do with the status of the
22
second mortgage .
23
And it shows a significant
17
it
And then we will provide the

with one exception .
And
And I address that in the context of the

But Your Honor will see
24
request for admissions .
25
when we present this evidence that Carrington

Huseby, Inc.
www.huseby.com
(804) 755-4200
49
COMMONWEALTH OF VILRGINIA, ex rel . vs. SECURITY TRUST MORTGACE, LLC

Page 55
0
Mortgage is shown as a second mortgagee .
it says account transferred or sold, paid
collection .
Balance zero .
understanding that he has resolved that issue and
based upon the credit report, we think that the
matter has been resolved .
And then
W
~A
And then it says past due zero .

So, based upon Mr . McDonald's
And certainly given the turmoil that we've
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 .
12
clients and other days,
13
living, but I've written a number of certified
14
letters to the credit reporting people identifying
15
issues .
16
I know I,
for other
I've -- I haven't made a
But there doesn't appear to be an issue

When you look at
17
with regard to the status of that .
18
the full picture,
19
respect to a good faith effort to settle his debts .
20
The other points,
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
25
So,
he has met the standard with
I would
it should be either at the time of the
application or at the time of adjudication .
And
0
Huseby, Inc .
)-h
W
www .huseby .com

(804) 755-4200

Page 56
it's not clear to me from the rules how you draw the
distinction because if you have an application
that's good and things get bad, one would expect
that the Hearing Officer would have the discretion
to say I'm sorry, you might have been Bill Gates in
November of 2012 ; but no disrespect,
September lith, you're Bill Baldwin .
know,
on
And sorry, you
Bill Baldwin isn't Bill Gates .

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 .
21
able to show that we've met that .
22
And we respectfully submit we'll be
Reputation,
I didn't see any issues with
23
respect to reputation in the 2012 or the 2013 .
24
far as I know, there aren't really reputation
25
witnesses .
As
0
Huseby, Inc .
www .huseby .com

(804) 755-4200

Page57
0
With respect to experience,
certainly
there's more experience now than there used to be .
So,
plus .
to the extent that's changed,
Character, well,
it should be a
if you're making a good
faith effort to pay your debts, that would seem to
indicate good character ; but that's a purely
evidentiary prospect .
General fitness of the applicant and its

there really isn't any showing that we are
10
members,
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 .
14
has been operated .
It doesn't say
The focus of the Commonwealth of Virginia
15
16
is what is going to happen in the future .
17
happened in the past is a legitimate measure,
18
course, because we look to what has happened in the
19
past as a measure of the future .
20
looks especially bright,
21
appropriate for the Hearing Examiner to look at the
22
matters in the future .
23
at the close of proceedings for an appropriate
24
ruling .
25
What has
of
But if the future
I would submit that it is
And therefore, we will ask
HEARING EXAMINER :
Thank you, Mr . Baldwin .
0
Huseby, Inc .
wivw.huseby .com
(804) 755-4200

Page 58
Ms . Johnston .
MS . JOHNSTON :
Yes,
Your Honor .
So,
I'm
ready to proceed on the SCC versus Security Trust
matter ;
first witness .
and I'm going to call Susan Hancock as my
6
7
SUSAN HANCOCK,
called as a witness by and on behalf of the

Bureau,
after having been duly sworn,
10
examined and testified as follows :
11
DIRECT EXAMINATION
was
12
13
BY MS . JOHNSTON :
Miss Hancock .
14
Good morning,
15
Good morning .
16
Could you please introduce yourself?
17
I'm Susan Hancock,
deputy Commissioner
18
with the State Corporation Commission's Bureau of
19
Financial Institutions .
20
And where are you employed?
21
With the State Corporation Commission .
22
And how long have you been employed with
23
the Bureau?
24
Just over 26 years .
25
And what
is your position?
9
Huseby, Inc .
www .huseby .com

(804) 755-4200

Injustice at Virginia SCC

Uploaded by

Copyright:

Available Formats

You might also like

Injustice at Virginia SCC

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Injustice at Virginia SCC

Uploaded by

Copyright:

Available Formats

COMMONWEALTH OF VIRGINIA, ex rel . vs.

SECURITY TRUST MORTGAGE, LLC

STATE CORPORATION COMMISSION

COMMONWEALTH OF VIRGINIA, ex rel .

STATE CORPORATION COMMISSION

SECURITY TRUST MORTGAGE, L .L .C .,

APPLICATION OF DANIEL MCDONALD

For a Mortgage Loan Originator License

THE HONORABLE DEBORAH V . ELLENBERG,

CHIEF HEARING EXAMINER

September 11, 2013

Renee A . McDermed, RPR

www .huseby .com

COMMONWEALTH OF VIRGINIA, ex rel. vs. SECURITY TRUST MORTGAGE, LLC

Proceedings before the Honorable DEBORAH V .

ELLENBERG, Chief Hearing Examiner, Virginia State

Corporation Commission, reported by and before Renee A .

McDermed, Registered Professional Reporter and Notary

Public in and for the Commonwealt h of Virginia at

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

the State Corporation Commission for the State of

Virginia, Richmond, Virginia .

STATE CORPORATION COMMISSION

OFFICE OF GENERAL COUNSEL

demarion .johnston@scc .virginia .gov

DEMARION P . JOHNSTON, ESQUIRE

COMMONWEALTH OF VIRGINIA, ex rel. vs. SECURITY TRUST MORTGAGE, LLC

APPEARANCES OF COUNSEL CONTINUED :

5600 Grove Avenue

BALDWIN & MEYER,

Counsel for Security Trust Mortgage, LLC,

and Daniel McDonald

COMMONWEALTH OF VIRGINIA, ex rel . vs. SECURITY TRUST MORTGAGE, LLC

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

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

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

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

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

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

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

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

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

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

www .huseby .com

COMMONWEALTH OF VIRGINIA, ex rel . vs. SECURITY TRUST MORTGAGE, LLC

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

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

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

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

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

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

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

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

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

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

www .huseby .com

COMMONWEALTH OF VIRGINIA, ex rel. vs. SECURITY TRUST MORTGAGE, LLC