Possible Contamination a Material Fact

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Maryland appellate court upholds real estate commission’s sanctions for licensee’s failure to disclose information about possible gas station leak into well water but reverses sanction for failure to disclose existence of HOA when in fact the entity was not an actual HOA.

A married couple (“Buyers”) retained a real estate professional (“Buyer’s Representative”) to help them locate a home. In particular, the Buyers told the Buyer’s Representative that they did not want to live in a homeowner’s association (“HOA”) because they wanted to build a fence on the property for their dogs.

The Buyers became interested in a property listed for sale by a real estate professional (“Licensee”) who lived approximately one mile from the property. Nothing in the property listing indicated that the property was in an HOA nor were any disclosures made about possible contamination of the well. A test of the well prior to closing did not reveal any contamination. The Buyers completed the purchase of the property.

Following their purchase, the Buyers received a notice from a group stating that the Buyers were now part of a neighborhood property association (“Association”) and their property was subject to certain covenants. A few months later, a representative from ExxonMobil came to the property to test the well water for possible contamination arising from a leak (“Leak”). This was the first time that the Buyers had heard of the Association or the Leak.

The Buyers filed a complaint with the state real estate commission (“Commission”) alleging that the Licensee had failed to disclose the existence of the Association and the possible water contamination. To support the allegations, the Buyers submitted a prior listing by the Licensee in the same area where she had identified that property as subject to an HOA. Additionally, the Buyers submitted evidence that the Licensee was part of a class action lawsuit against ExxonMobil for the Leak.

An investigator for the Commission interviewed the Licensee about the allegations. First, the Licensee stated that the covenants on the property had expired in 2005 and the Association was simply a voluntary organization that did not constitute an HOA under the state’s HOA law. She also stated that an assistant had erroneously checked the HOA box in the prior listing. Second, while the Licensee admitted she was aware of possible contamination in the area, she had not joined the class action until two years after the Buyers’ property purchase.

The Commission charged the Licensee with violations of the state’s license law for failing to disclose the existence of the Association and also for failing to disclose the possibility of water contamination. Following an administrative hearing, the Licensee’s attorneys produced a letter from the Association stating that it was not an HOA and was disbanding.

The ALJ found that the Licensee had violated the state’s license law for failing to disclose both the Association and the Leak, and recommended a seven-day suspension and $3,000 fine. The Commission evaluated the evidence and imposed a 14-day suspension and a $4,000 fine. The Licensee sought judicial review of the Commission’s ruling, and the court sent the case back to the Commission to reconsider the evidence that the Association was not an HOA.

The Commission issued a supplemental order that imposed the same sanction on the Licensee. The Licensee again sought judicial review, and the court found that the Commission had failed to consider the facts concerning the HOA as directed on remand and ruled the imposition of the same sanction was arbitrary and capricious. The court vacated the 14-day suspension but left in place the $4,000 fine. The Commission appealed.

The Court of Special Appeals of Maryland affirmed the trial court. A judicial review of an administrative agency’s action is limited to evaluating whether there is substantial evidence to support the agency’s findings and conclusions. The Licensee argued that she had not received due process because the Commission failed to consider her evidence that the Association was not an actual HOA. The court agreed with the Licensee, finding it “illogical and erroneous” to sanction the Licensee for failing to disclose the existence of a non-binding community association with non-existent covenants. The court ruled that the existence of the Association was not a material fact requiring disclosure. Thus, the court upheld the trial court’s reversal of the Commission.

Next, the court examined whether the Licensee had a duty to disclose the ExxonMobil gas leak and possible water contamination. The Licensee argued that she had no independent duty to investigate the possibility of contamination and did not have any actual knowledge of contamination. The Commission had found substantial evidence that the Licensee was aware of the possibility of contamination, as she lived in the area and the Leak was common knowledge to the area residents. The court agreed with the Commission that the failure to disclose the Leak constituted a material omission by the Licensee of a material fact, as the possibility of water contamination could influence a consumer’s decision to purchase a home. Thus, the court upheld the Commission’s sanction of the Licensee for failing to disclose the Leak and the possibility of water contamination.

Maryland Real Estate Comm'n v. Garceau , 172 A.3d 496 (Md. Ct. Spec. App. 2017),