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Maryland Real Estate Commission v. Garceau

Court of Special Appeals of Maryland

September 1, 2017


         Circuit Court for Harford County Case No. 12-C-14-001972

          Woodward, C.J., Leahy, Reed, JJ.


          Leahy, J.

         The issues in the underlying administrative appeal boil down to three. First: can a real estate broker, Georgeanna Garceau (Appellee and Cross-Appellant), be found negligent for failing to disclose the existence of a non-existent homeowners association? We don't think so. Second: can Ms. Garceau be held negligent for failing to disclose potential well-water contamination in the neighborhood? We determine she can. And third: was the sanction imposed by the Maryland Real Estate Commission ("MREC") (Appellant and Cross-Appellee) on Ms. Garceau in this case arbitrary and capricious? Under the circumstances, the answer is yes.


         A. Prologue

         On or about May 17, 2009, Victor and Eileen Yancone (collectively, the "Sellers") entered into a contract of sale for residential property located at 2828 Cross Country Court, Fallston, Maryland (the "Property"), within a subdivision called Cross Country Estates, with Tim Willig and Debra Perseghin (collectively, the "Buyers"). Ms. Garceau served as the listing broker for this transaction.

         The Buyers complained that Ms. Garceau failed to disclose that (1) there was a putative homeowners association ("HOA") operating in the neighborhood and (2) there was potential well-water pollution in the neighborhood relating to an ExxonMobil gas leak. But before we begin the saga of Ms. Garceau's journey to this point, we render a short prologue.

         On August 14, 1975, Leo Umerly executed a "Declaration of Restrictions" (the "1975 Declaration") for plats one through four in Cross Country Estates and recorded this document in the office of the Recorder of Deeds for Harford County, Maryland. This document established certain protective covenants and restrictions for the lots, including the Property. The covenants governed such things as (1) the number of dwellings, (2) the number and type of animals, and (3) the number and size of vehicles allowed on each lot. The 1975 Declaration, signed by Leo Umerly and notarized, did not establish an HOA. Notably, the 1975 Declaration states that "[t]he provisions herein contained shall run with and bind the land hereby conveyed for a period of thirty (30) years[.]" Thus, by its own terms, the 1975 Declaration expired in August 2005.

         On October 16, 2006, after the expiration of the 1975 Declaration, a second "Declaration of Restrictions" (the "2006 Declaration") was filed in the land records of Harford County. This 2006 Declaration stated that "Cross Country Estates Community Association, Inc. controls this declaration of restrictions as defined by the Maryland Homeowners Association Act." The 2006 Declaration purported to govern the same general topics as the 1975 Declaration did. The last page was signed, "Beth F. Scheir, Vice President of CCECA, " but was not notarized. It was revealed during the course of the underlying litigation, that the Cross Country Estates Community Association ("CCECA") is a neighborhood association, not an HOA, and the only declaration of restrictions that governed the neighborhood-the 1975 Declaration-expired in 2005.

         B. The Residential Real Estate Transaction and Complaint

         In early 2009, the Buyers were interested in purchasing a house and hired William Fischbein, of Litehouse Realty, as their agent. They informed him that they were not interested in properties subject to an HOA, in part because they wanted to build a fence for their dogs and had bad experiences in this regard in their prior residence. The Buyers became interested in purchasing the Property, so Mr. Fischbein contacted Ms. Garceau of Garceau Realty, who was the listing agent. Mr. Fischbein maintained, in the subsequent investigation, that the existence of an HOA fee or potential groundwater pollution was not disclosed to him, but that he did not specifically ask Ms. Garceau about an HOA because the existence of an HOA was not on any paperwork.[1] The Metropolitan Regional Information Systems ("MRIS") report did not state that the Property was subject to an HOA or an HOA fee.

         Before closing on the Property, the Buyers had a standard well inspection performed, but that inspection did not test the water for contaminants. On May 17, 2009, the Buyers and the Sellers executed the contract for sale of the Property for a purchase price of $439, 900.00. The sales contract included a Maryland Homeowner's Association disclosure form, which was crossed out with a handwritten "NO HOA." [2]

         On June 29, 2009, the Buyers moved onto the Property, and they began to install ground posts for a fence. Three days later, a representative of the CCECA hand-delivered the Buyers a copy of the 2006 Declaration and a letter stating:

Hello Neighbors,
Welcome to Cross Country Estates! We hope you enjoy the neighborhood.
We assume that the realtors involved or the previous owner made you aware of the neighborhood association covenants, however a copy has been attached for your records. Both the By-Laws and Covenants are filed at the Harford County Courthouse Land Record department and Home Owner Depository. We have a minimal annual association fee of $10. All property owners are bound by the agreements of the homeowners association. As a new property owner of CCE you are eligible to become a voting member of the association upon payment of the $10 fee.

         Several months after the Buyers moved onto the Property, a company engaged by ExxonMobil arrived at the Property to test the water for possible pollution caused by ExxonMobil. The arrival of this inspector was the first time the Buyers became aware of possible well-water contamination at the Property.

         On March 9, 2010, the Buyers filed with MREC a complaint against Ms. Garceau for her conduct in the real estate transaction: namely, for failing to disclose the existence of potential well contamination stemming from the ExxonMobil leak, and for "[n]o disclosure in listing/contract of an HOA[.] We were looking ONLY at homes w/out an HOA." MREC denied the Buyers' guaranty claim, [3] but determined that it would proceed with an administrative claim against Ms. Garceau.

         C. The Investigation

         Ms. Garceau responded to the Buyers in a letter dated March 31, 2010, stating:

The [Buyer]s claimed that no disclosure was made of an HOA. There is a [CACCE]. In our listing agreement the sellers signed off that there was no HOA, there are Declaration of Restrictions. I have attached several recent listings from the community; listings from several brokerages all of which state there is no HOA fee, the only exception being one of my previous listings reflecting the $10 voluntary fee.[4]
On 5/14/09, prior to the contract ratification date of 5/17/09, seller Eileen Yancone responded to several of the [Buyers'] questions. The potential buyers asked, "Are there any restrictions with regard to putting up fences, putting in plantings or gardens, building outbuildings like a garden shed, satellite dishes, etc?" The sellers responded, "Very limited covenants exist in the Cross Country Estates Community Association. These are on file with the county." In addition, we sent the potential buyers the attached Declaration of Restrictions.
The potential buyers also inquired about the well on 5/14. They asked "When was the well last sampled and what were the results?" Eileen Yancone responded "November 5, 2008, results negative." Per seller, there was no water problem at the time of the listing, and the owners did not experience potability problems prior to that. The buyer had the well tested on 5/19/09, all results passed and the buyer by their own admission states there is nothing wrong with the water. The listing broker/agent was not aware of any monitoring of water at 2828 Cross Country Court until this complaint surfaced.
According to the appraisal conducted on 6/10/09, the HOA fee was non applicable. The appraiser also noted that there were "No neighborhood factors that would have a negative impact on marketability." In closing, Garceau Realty did not have any information that was withheld at the time of the listing or contract acceptance.

         (Internal citations omitted).

         Robert J. Oliver, an MREC employee, investigated the Buyers' complaint from June 17 to July 19, 2010. His report states that he interviewed the Buyers and that they told their broker, Mr. Fischbein, that they were interested only in properties not subject to an HOA because they wanted to build a fence for their dogs. The Buyers told Mr. Oliver that they had not seen a series of emails between Ms. Garceau and the Sellers concerning restrictive covenants or potential well-water contamination. Mr. Oliver reported that he showed the Buyers the 1975 Declaration, but that the Buyers did not recall seeing it before. His report notes the Buyers were unaware of any HOA until July 2, 2009, when they received a letter from the CCECA, and that they learned of the potential well contamination when they received the letter from ExxonMobil about testing on October 26, 2009.

         According to his report, Mr. Oliver then interviewed Ms. Garceau. She informed him that she was on vacation for part of the transaction and that her assistants, Jessica Boyle and Julie Bleuel, represented her when she was gone. Ms. Garceau was aware that the Buyers did not want a property covered by an HOA, but "the seller said there was no HOA and wrote 'NO HOA' across the MD Homeowners Act Disclosures to Buyer Document." Ms. Garceau provided Mr. Oliver a copy of the contract checklist with HOA marked "N/A, " and informed him that "she was not aware of the existence of a community association." When Mr. Oliver told Ms. Garceau that another property on the street that she sold in the past indicated that there was an HOA fee of $10, Ms. Garceau explained that "at the time the fee was voluntary and depended on the seller to inform her if they were a member of an association or not" and that "legally there is no HOA covering the property." She added that the appraisal for the Property indicated there was no HOA fee." Ms. Garceau was aware of the 2006 Declaration and said she provided a copy to the Buyers on May 14, 2009, when she answered their questions about other restrictions and well testing.

         Ms. Garceau, who lived within a mile of the Property, also admitted to knowing about possible well contamination in the area, saying "everyone living in the area is aware of the dangers associated with the leak." In her affidavit, however, Ms. Garceau explained that it was not until the Fall of 2011 that she received a letter informing her that she "became" a class member in the class action against Exxon Mobil that resulted from this spill. See Exxon Mobil Corp. v. Ford, 433 Md. 426, 435-37, as supplemented on denial of reconsideration, 433 Md. 493 (2013); Exxon Mobil Corp. v. Albright, 433 Md. 303, 316- 17, on reconsideration in part, 433 Md. 502 (2013).

         Mr. Oliver then interviewed Mr. Fischbein, who told him that (1) the Buyers informed him that they did not want property with an HOA; (2) the existence of an HOA was never disclosed to him or to the Buyers; and (3) "[h]e never asked [Ms. Garceau] specifically about the subject because there ha[d] been no disclosure in the contract or in the MLS documents." Mr. Fischbein stated that he received no documentation of any restrictions on the Property, and the potential water pollution was not disclosed to him. He denied knowledge of any class action lawsuit or any well-water contamination.

         D. The Statement of Charges

         On November 8, 2010, MREC issued a statement of charges (the "Charging Document") against Ms. Garceau. The Charging Document identified Ms. Garceau as the listing broker and seller's agent, alleging that: (1) the Buyers were interested only in properties not subject to an HOA and that Ms. Garceau was aware of that preference; (2) Ms. Garceau "was aware, or should have been aware, that the Cross Country Court property was part of a homeowners, or community, association and that the property was governed by a Declaration of Restrictions"; and (3) Ms. Garceau "did not disclose the existence of the homeowners, or community, association or the Declaration of Restrictions[5] to the buyers or their real estate agent prior to settlement." The Charging Document then stated that the Buyers would not have purchased the Property had they known of the HOA.

         The Charging Document alleged further that the Property "was subject to periodic testing of well water by ExxonMobil for possible contamination" associated with a gasoline leak and related litigation, and that Ms. Garceau lived and provided real estate brokerage services near the Property. Therefore, the Document alleged that Ms. Garceau "knew, or should have known, of the possible contamination and well testing as well as the litigation[, ]" and that Ms. Garceau did not disclose this information. The Buyers would not have purchased the Property, according to the charges, had they known this information.

         Finally, the Charging Document "alleged that [Ms. Garceau's] conduct amounted to bad faith, incompetency, and/or untrustworthiness, as well as improper dealings." For the failure to disclose these two issues, MREC charged Ms. Garceau with violations of Maryland Code (1989, 2010 Repl. Vol.), Business Occupations and Professions Article ("BOP"), § 17-322(b)(4), [6] (25), [7] and (33), [8] as well as violations of Code of Maryland Regulations ("COMAR") and D.[9] The Charging Document informed Ms. Garceau that there would be a hearing on the charges, which could result in a reprimand, suspension or revocation of her license, and/or a penalty of $5, 000.00 for each violation.

         E. The Administrative Hearing

         On June 3, 2011, an administrative law judge ("ALJ") from the Office of Administrative Hearings ("OAH") held a hearing on the charges against Ms. Garceau. The Assistant Attorney General prosecuting the MREC complaint (hereinafter "Presenter")[10]called Mr. Willig as a witness. He testified that Ms. Garceau never disclosed, in her property listing or communications, that there was an HOA;[11] and that he had told Mr. Fischbein of his desire not to purchase a residence subject to an HOA. He also stated that he received a declaration of restrictions purporting to govern the Property-after purchasing the Property-once he started constructing a fence on the Property. He further stated that he and his wife had been paying a $10.00 annual fee, and he stated that, although he had not consulted a lawyer, he believed that he was bound by the declaration of restrictions. He further testified that he and his wife would not have purchased the house, had they known about an HOA "[b]ecause [they] did not want an HOA."

         Mr. Willig then testified that no one advised him before he and his wife purchased the house that there was an ongoing lawsuit relating to gasoline contamination in the neighborhood. He explained that he was informed of the potential problem when a company engaged by ExxonMobil showed up at the Property to test for contamination. Similar to the HOA issue, Mr. Willig testified that he and his wife would not have purchased the Property had they known about the ExxonMobil gas leak and the potential well-water contamination issue and that his wife refused to drink the water from the house.

         After calling Mr. Fischbein, who attested to the same facts he related during the investigation, the Presenter called Andrea Swift, who, as mentioned previously, purchased a house in 2008 on Cross Country Court. She testified that Ms. Garceau was the listing broker for the house she purchased and that the listing contained an HOA fee of $10.00 a month and that Ms. Garceau's office "sent [her] the bylaws." She further testified that there was an active neighborhood association in the Cross Country Estates neighborhood. She also stated that there were trace amounts of the pollutant in the water at her house and that Ms. Garceau never provided information on the potential water pollution.

         Ms. Garceau did not testify in her own defense. In closing, the Presenter argued that Ms. Garceau failed to disclose a material fact to the Buyers by failing to inform them of the HOA, and asserted that "when I use the term 'HOA, ' I am referring to not just a[] homeowners association, but also any type of neighborhood association or declaration of restrictions of covenants." The Presenter argued that there had been no court decision stating that CCECA was not a valid HOA and that CCECA certainly seemed to be an active association that accepts dues and takes votes on issues. As to the well contamination issue, the Presenter argued:

In addition, there was a failure to disclose the issue of the well contamination, the fact of the testing, the fact of the class action litigation. And I would argue that even if Ms. Garceau didn't have specific knowledge of it, she had been the listing agent for many properties in that community and development, and the law does require -- specifically COMAR, which is one of the charges in this case -- that a licensee shall remain informed of matters affecting real estate in the community, the state, and the nation.
If you are selling real estate in a community where a major gas company has caused a leak and that leak is the subject of class action litigation and the whole community, it sounds like, is involved in that litigation, that is something that, as a real estate broker, you have an obligation to know or be informed about. The [Sellers] were part of the class action litigation. . . . She should have known that information. She should have disclosed that information. It simply was not disclosed, and, therefore, there is a violation of Section (B)(4), an intentional or negligent failure to disclose a material fact that relates to the property, and it's to the material facts I've been discussing.

         The Presenter then requested a 14-day suspension and a $4, 000.00 penalty.

         In his closing, counsel for Ms. Garceau argued that there was no enforceable declaration of restrictions and that the Property was not subject to a legal HOA under the Maryland Homeowners Association Act. He argued further that Ms. Garceau had no knowledge of the well contamination issue and that there was no evidence in the record to support her knowing it, and that the Buyers had contractually waived any recourse for water pollution in the sales contract. Ms. Garceau's counsel emphasized that there was no contamination on the Property because every test had negative results.

         In rebuttal, the Presenter argued that contractual arguments were beside the point because MREC's disciplinary power is not coextensive with contractual immunity.

         F. New Evidence

         On June 15, 2011, counsel for Ms. Garceau sent a letter to the four putative officers of the CCECA, stating that it was "[his] legal opinion that there is no valid formal Homeowner's Association regulated by the Maryland Homeowners' Association Act in the Cross Country Estates Development [and that i]t is further [his] legal opinion that there are no restrictive covenants binding upon owners of lots in the Cross Country Estates Subdivision." In his letter, he stated that by acting as an HOA, the CCECA officers may be found liable for negligent misrepresentation and, if they continue to do so, they may be found liable for intentional misrepresentation. He further suggested they retain an attorney to explore whether there is a valid HOA governing the community. He then provided his reasons why there was no HOA, including (1) his investigations on SDAT; (2) the expiration of the 1975 Declaration of Restrictions; and (3) the defective nature of the 2006 Declaration.

         On June 29, 2011, the CCECA officers responded to Ms. Garceau's counsel via letter, acknowledging that CCECA was not a valid HOA within the definition of the Maryland Homeowners Association Act, Maryland Code (1974, 2015 Repl. Vol.), Real Property Article, § 11B-101:

On behalf of the . . . CCECA[], we are writing in response to your letter of June 15, 2011. Your letter raises issues that we were not aware of, so we sought the advice of legal counsel in order to determine our correct and current legal status. Based upon that consultation, and despite our good faith belief to the contrary, it appears that CCECA is a community association and not an official "homeowners" association. In light of that fact, and again, despite our good faith belief to the contrary, it also appears that the covenants and restrictions which were put into effect at the time that our neighborhood was established have expired and there are no current valid or enforceable restrictions in effect beyond those that would be imposed by county regulations.

         (Emphasis added).

         On July 12, 2011, Ms. Garceau's counsel sent the June 15 and 29 letters to the Buyers, copying the MREC Presenter. He stated that this confirmed that there was no HOA and no valid or enforceable restrictions in effect in Cross Country Estates. The letter then demanded that they dismiss the action against Ms. Garceau. Six days later, the Presenter sent the ALJ a letter informing him of the results of Ms. Garceau's counsel's continued research into the matter of whether the Property is subject to an HOA.

         G. The ALJ's Proposed Decision

         On August 30, 2011, the ALJ issued his recommended decision. The ALJ stated that he would consider only the information presented at the hearing and not consider any information submitted post-hearing because neither party requested that the case be reopened for submission of further evidence.

         First, the ALJ found that, in 2009, the Buyers retained Mr. Fischbein as their buyer's agent and communicated to him "that they were specifically looking for property not covered by a homeowner's association [] or a Declaration of Restrictions." He also found that Mr. Fischbein made Ms. Garceau's assistant, Jessica, aware of the Buyers' reticence to purchase a home subject to an HOA; that Mr. Fischbein asked Jessica whether the Property was subject to an HOA; and that both Jessica and the Property's listing indicated that the Property was not subject to an HOA. The opinion further provided that Ms. Garceau did not inform the Buyers that the Property was subject to an HOA or that a declaration of restrictions applied to the Property; and that, if the Buyers had known that the Property was subject to a declaration of restrictions, they would not have purchased the Property because they wanted to build a fence for their dogs on the Property.

         Next, the ALJ found that Ms. Garceau failed to provide the Buyers information concerning litigation against ExxonMobil regarding possible well contamination, and that this information was widely publicized in Fallston, where Ms. Garceau lives. The ALJ also noted that the Sellers were part of a lawsuit against ExxonMobil.

         The ALJ further found that, three days after moving in, the Buyers "received information left at their home regarding a Cross Country Estates HOA, notice of restrictions and a request for $10.00 in annual association dues [and that t]he association also informed the [Buyers] that [they] were required to clear their fence plans with the association, which would then grant them a 'permit' for the fence." As further findings of fact, the ALJ stated the following:

23. There exists a Declaration of Rights document, filed with the Harford County, Maryland Land Records Office on October 16, 2006, which purports to apply protective covenants and restrictions upon properties located within the subdivision of Cross Country Estates in Harford County.
24. The HOA is run by association officers, who charge a $10.00 annual fee as a prerequisite for voting rights in the organization. The association addresses matters such as the . . . well water issue, disputes between neighbors and issues involving restrictions it enforces within the subdivision.
25. The [Buyers] pay the annual HOA fee, retain voting rights in the association and consider themselves subject to the restrictions imposed by the Declaration of Restrictions recorded ...

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