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THE STATE OF REAL ESTATE

For almost a year, Jerry Holt has worked in bureaucratic limbo as Governor Fife Symington's commissioner of the Arizona Department of Real Estate, running the agency and awaiting word on whether the state Senate will confirm his appointment.

Now, with a hearing on his confirmation likely next week in the Democrat-controlled Senate, Holt, who ran the Republican governor's election campaign in Mohave County, appears bound for choppy political waters.

State Senator Manuel Pena Jr., chairman of the Commerce and Labor Committee that will pass judgment on the confirmation, says Holt will have to explain some of his actions since his appointment.

In response to complaints, the committee is searching department documents to determine whether Holt has been soft on regulation, says Pena, a Democrat from Phoenix. In addition, two sources familiar with the department's inner workings say that the 54-year-old former Mohave County supervisor and real estate appraiser has proven overly kind to the industry he is charged with regulating.

Specifically, Peøn¤a said committee researchers are wondering:
|Why UDC Homes, the Valley's second-largest homebuilder, has been able to avoid paying thousands of dollars in filing fees for paperwork on many of its subdivision projects.

Why three land investors and a broker from Lake Havasu City, Holt's hometown, were barely disciplined for marketing almost 200 properties between 1985 and 1990 without filing any of the legally mandated reports or paperwork with the department.

Why, under Holt's leadership, the department has more highly paid administrators and fewer field investigators than it did when he took over.

Holt defends the department's performance, and says all of the questioned actions were not only legally justified but in the public's best interest.

I think we're giving better service than at any time in the past," Holt says.
Given Arizona's notoriety for land scams-earned mostly in the 1960s and 1970s when worthless desert plots without water, roads or other basic services were being peddled wholesale to unwitting out-of-state buyersÏthe small real estate department Holt heads bears substantial responsibility for protecting consumers.

It oversees licensing of the state's roughly 45,000 real estate brokers and salespeople, administering exams, screening out questionable applicants and making sure those who are licensed stay abreast of developments in real estate law.

Equally important, the department is supposed to keep tabs on developers and land subdividers, making sure they live up to their obligations and promises. The department had its troubles before Holt's arrival. A state auditor general's performance audit, conducted before Holt's appointment and released last September after he took over, blasted the agency.

The audit concluded that the department was not adequately following up on consumer complaints, was meekly enforcing subdivision laws and was guilty of favoritism for granting real estate licenses to departing employees and agency friends who did not meet the minimum legal requirements.

Fresh on the job, Holt promised to fix things. But the two sources, who asked not to be named for fear of professional backlash, say that the fee arrangement with UDC Homes and disciplinary decisions in the Lake Havasu case demonstrate that cozy relations with the industry have gotten worse under Holt.

At issue in the UDC Homes case are the legally mandated public reports" that constitute the backbone of subdivision regulation. They are detailed disclosures of a developer's financial health and intentions. They list all of the services-water, electricity, telephones and so on-that will be available to a buyer and promise that there will be roads, fire hydrants and other necessities.

The reports must be on file with the department, and copies must be given to buyers so they'll know exactly what they're getting into.

Ordinarily, developers must pay either $500 or $250 to file a public report, and an additional $250 fee to amend the report when important changes must be made.

Since last October, a review of department files shows, UDC Homes has been amending dozens of its public reports without paying the usual $250 fee for each one. Instead, one $250 fee was charged to cover amendments that otherwise would have totaled at least $6,000 and possibly more than $13,000.

Were the waived fees a favor to an influential developer? Holt says no. Although the waiver was unusual, Holt says it was granted as part of an agreement to convince UDC to update its reports on multiple subdivisions.

A UDC homebuyer had complained that the company was not fully disclosing the charges for telephone service, Holt says, and the department agreed that the public reports should be amended to reflect the higher fees.

UDC did not feel the higher telephone charges constituted a material change" (the threshold requiring that a report be amended), says Mark Upton, senior vice president of UDC and head of its Arizona operations. Upton says UDC didn't think it should have to go through the expense and time-consuming process of amending 50 or so reports.

Finally, last October, the department agreed to waive the fees if UDC would update its reports. The decision was made for the sake of expediency, Holt says, and actually helped consumers because the updating of the reports was not delayed by months of legal wrangling over the question.

Department files show that while it was updating the telephone-cost information, UDC also made other changes in the reports-such as revising information on water and sewage disposal, electricity and other servicesÏthat might have, in themselves, required amendments. Both Holt and Upton said they were not aware any other changes had been made during the updates.

A check of files from other developers showed that they were routinely charged a $250 amending fee for making the same kinds of changes that UDC ultimately made to many of its reports.

One source familiar with the department says that although fees are sometimes waived to allow for minor corrections, the waiver granted to UDC was, at the very least, unusual.

But Holt says UDC actually did the department a favor by agreeing to update the reports, and Upton says there was no favoritism involved.

I don't think it has anything to do with being a big builder or a small builder," Upton says. I think there's a gray zone and somebody has to make a call, and that's the commissioner."

Public reports, or the lack thereof, are also at issue in the case of Lake Havasu broker Robert R. Roberts. According to department records, Roberts, as vice president and broker for American Dream Homes, marketed almost 200 properties for the company.

In no cases were the required public reports filed or provided to buyers until the department, under a previous commissioner, suspended sales by the company in 1990.

Roberts could have faced fines or suspension of his license. Instead, the department under Holt finally disciplined Roberts last July, entering into a consent agreement with Roberts that called for minimal sanctions.

The company agreed to stop selling property until it complied with public-report laws, and Roberts agreed to take 12 hours of continuing education.

One observer familiar with the department's regulatory history says that such a light sanction for so many violations should have been unthinkable, even in the lax regulatory days criticized by the auditor general.

But Holt says there was no need for harsher action. Although Roberts is from his hometown, Holt says he does not know him and has never done business with him. If there had been a conflict of interest, Holt says, he would have withdrawn from considering the case as he has in two other cases where conflicts arose.

Although American Dream Homes did engage in repeated violations of the subdivision laws, Holt says, he believes it was done out of innocent ignorance, and there was no harm done.

The violation, in my opinion, is a technicality," Holt says. The consent agreement was negotiated by the department's staff, he says, and he agreed with it. ÔIn this case, you have someone who should know better, and didn't. He simply didn't know. I believe that."

Not one of the homebuyers has complained about American Dream Homes, he says, nor did any of them accept an offer from the company to buy back their homes after the violations were discovered. Roberts was out of town and could not be reached for comment.

One of the things you consider is was there harm here? Who was hurt?" Holt says. In this case, the answer was apparently nobody."

Beyond the regulatory issues, the department faces criticism for adding to the top of its payroll while shrinking at the bottom.

Under Holt, the department has added new positions of assistant commissioner and executive staff assistant, and raised salaries for other top positions. At the same time, the number of investigators in the Phoenix headquarters has dropped from seven to four.

Holt says the new administrative positions were needed to clear up a backlog of hearings and pending cases that he inherited, and to strengthen the department's educational efforts.

While there are fewer investigators, he says, there is also less to investigate, since the number of licensed brokers has dropped along with the real estate market, from a high of 75,000 several years ago to fewer than 50,000 currently.

Fees from brokers and developers pay the department's way, Holt notes. Doesn't it make sense that if fewer people are paying the bill, maybe the department has less to do?" he asks.

On balance, Holt says, he expects to underspend the department's $2.8 million budget by $160,000 this year.

ON THE ENEMIES LIST... v5-06-92


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