Relating to Real Estate

From Maryland Real Estate Commission v. Garceau, 234 Md. App. 324, 172 A.3d 496 (2017), we learn:

1. If it turns out that a property is not part of a homeowners association, a person cannot be sanctioned for failing to disclose that the property is not part of a homeowners association.  (Who knew?)
2. If a person is sanctioned for two reasons, and one of the reasons disappears, the sanctions should not remain the same.

Georgeanna Garceau was the listing broker for Victor and Eileen Yancone on the sale of their home in Fallston (the “Property”) to Tim Willig and Debra Perseghin (the “Buyers”) in 2009.  In 2010, the Buyers filed a complaint with the Maryland Real Estate Commission (“MREC”) against Ms. Garceau for two reasons.

First, the Buyers said when they were looking to purchase a home that they did not want a property that was subject to a homeowners association.  The Buyers owned dogs and wanted to put a fence around their property.  The Property was subject to a declaration filed in 2006 regarding the Cross County Estates Community Association (“CCECA”), which replaced a declaration that had been executed in 1975 but expired.  The 2006 declaration imposed limitations on the Property, but it did not create a homeowners association; the 2006 declaration called for a voluntary annual payment of $10.00, but it did not impose mandatory payments of assessments.  The Buyers alleged Ms. Garceau did not disclose this information.

Second, the Buyers alleged that Ms. Garceau failed to disclose that the well on the Property may be contaminated from a gasoline leak by ExxonMobil.

An administrative hearing was held on June 3, 2011.  Later that month, the CCECA sent a letter that stated there was no homeowners association governing the Property and that any applicable restrictions on the Property had expired.  The administrative law judge (“ALJ”) refused to consider this information.  The ALJ then issued an opinion that found that Ms. Garceau failed to advise the Buyers that the Property was subject to an HOA or that a declaration applied to the Property.  Also, the ALJ found that Ms. Garceau knew about the gas leak and subsequent litigation, and she should have disclosed that.  The ALJ recommended a seven-day suspension and a fine of $3,000.

The MREC adopted the findings of the ALJ but amended the sanctions by changing the suspension to 14 days and the fine to $4,000.

Ms. Garceau filed a petition for judicial review with the Circuit Court for Harford County.  The circuit court held that the MREC should have considered the new evidence, and it remanded the case to the MREC.  On remand, the MREC imposed the same 14-day suspension and $4,000 fine.

Ms. Garceau then filed a notice of judicial review with the circuit court, which found that the MREC’s imposition of the sanction was arbitrary and capricious because the MREC did not consider the factors for monetary penalties under the applicable statute.  The circuit court ordered that the 14-day suspension be set aside but that the $4,000 fine remain.

Both the MREC and Ms. Garceau appealed to the Court of Special Appeals.  The court held that the MREC failed to provide Ms. Garceau notice of charges and an opportunity to rebut them when the MREC changed its focus from non-disclosure of mandatory HOA assessments and binding restrictions to non-disclosure of a non-binding community association with non-enforceable covenants.  Therefore, according to the Court of Special Appeals, Ms. Garceau was deprived of due process.

The court then found that non-disclosure of the CCECA did not violate provisions of the Business Occupations and Professions Article because this non-disclosure was not material as it did not involve “facts actually existing in the real world.”

The failure to make disclosure of the gasoline leak and the resulting litigation, on the other hand, was a failure to disclose a material fact because disclosure may have swayed the Buyers to not purchase the Property.  Ms. Garceau lived and sold homes in the neighborhood, and she was aware of class action litigation against ExxonMobil.

According to the Court of Special Appeals, the circuit court was correct in characterizing the sanctions imposed by the MREC as “arbitrary or capricious” because the MREC did not modify its sanctions when the case was remanded to it, even in light of the exculpatory evidence about the non-existence of an HOA.  The Court of Special Appeals held that the “MREC cannot sanction Ms. Garceau for failure to disclose the existence of a non-existent homeowners association.”

Therefore, the Court of Special Appeals remanded the case to the circuit court with directions that it send the matter back to the MREC for further consideration.

For questions, please contact Ed Levin (410) 576-1900.