District Court Finds Broker May Be Liable for Non-Disclosure of Environmental Issues

In September 5, 2008, plaintiff Dona May Willoughby purchased a single-family home from defendants Paul Northam and Lynn Immell. The sellers took title to the home after their mother died and had rented the home from 2003-2008. The broker, Deborah Hileman, was the first cousin of the sellers.

When the home was rented, the tenants complained to Hileman about elevated levels of nitrates in the drinking water as well as water intrusion and mold in the basement. In 2007, the Worcester County Department of Environmental Programs (WCDEP) subsequently advised Hileman that a treatment system on the kitchen faucet should address the issue but that but that "the well owner must notify any future owner or tenant that the water is considered potable only through the treatment system”.

In response to a nuisance complaint with the Worcester County Department of Development Review and Permitting (WCDDRP), an inspector visited the home. The WCDDRP then sent a letter to Northam, Immell and Hileman identifying  four defects with the Property (1) high level of nitrates in the water, (2) peeling lead paint, (3) black mold growth around the windows and on the wall, and (4) asbestos siding and insulation. Since the home was now vacant, the letter required the defects to be corrected before renting the home.  

When the property was listed for sale, Hileman prepared a disclosure statement on behalf of the sellers as required by Maryland law. The disclosure statement did not mention asbestos, mold, or potability issues as to the Property. Hileman later testified that the information was not disclosed because she viewed that information as "unreliable".

After the closing, plaintiff Willougby rented the home to the plaintiff Lawleys- her daughter and son-in-law.  The Lawleys subsequently vacated the premises because of mold and associated health issues. According to the complaint, when the Lawleys vacated the home, there was six to seven feet of water in the basement.

The plaintiffs filed a lawsuit against the sellers and Hileman alleging, inter alia,  negligence, fraud, negligent misrepresentation, rescission, and unjust enrichment. Hileman filed a motion for summary judgment solely for the claims asserted by the Lawleys. On the negligence and fraud claims, Hileman argued that it owed no duty to the Lawleys because they were not parties to the contract. However, the court found that the state Business Occupations and Professions Article ("Bus. Occ. & Prof.") and the Code of Maryland Administrative Regulations  created a duty on licensed real estate brokers had a duty to protect the public against fraud, misrepresentation, or unethical practices in the real estate field.

As a result, the court ruled that Hileman owed a duty to disclose to the Lawleys material defects of which they had actual knowledge, even though the Lawleys were not the actual purchasers. Moreover, the court noted that Ms. Hileman interacted solely with the Lawleys, knew that the Lawleys were the ones who intended to occupy the premises and that the Lawleys had been given power of attorney to execute the sale documents. Accordingly, the court denied Hileman’s motion for summary judgment. Lawley v Northam, 2011 U.S. Dist. LEXIS 37690 (D.Md. 5/9/11).