By Alvin C. Monshower, Jr., Esq.
Under the Maryland Real Estate Brokers Act (“the Act”), a real estate licensee has a duty to ascertain and disclose material facts to all parties.
Specifically, Section 17-322(b)(4) of the Act provides as grounds for revocation or suspension of license or the imposition of a civil penalty not to exceed $5,000 if a licensee “… intentionally or negligently fails to disclose to any person with whom the licensee deals a material fact that the licensee knows or should have known and that relates to the property with which the licensee deals.”
Furthermore, Section 09.11.02.01(D) of the Code of Ethics as adopted and enforced by the Maryland Real Estate Commission provides “… The licensee shall make a reasonable effort to ascertain all material facts concerning every property for which the licensee accepts the agency, in order to fulfill the obligation to avoid error, exaggeration, misrepresentation, or concealment of material facts.”
Thus, the two above-described provisions of the Act and the Code of Ethics stand for the clear proposition that a licensee has an affirmative duty to ascertain and disclose all material facts which relate to the property and of which a licensee knows or should have known.
While perhaps over-simplified, with respect to a buyer, a material fact would be any fact which, if timely known by the buyer, might be reasonably expected to directly affect the decision of the buyer to purchase the property or the terms and conditions of any such offer to purchase the property.
Thus, the question is simple: would the fact that a suicide, homicide, accidental death, natural death or felony occurred on the property constitute a fact which might affect the decision of the buyer to purchase the property?
Certainly, the answer to the above question is subjective. To some individuals, such fact would not affect their decision to buy whatsoever. To others, however, such fact may well result in their decision not to make an offer on the property. To others, whether their decision is affected by such death or felony would depend upon the exact circumstances by which the death or felony occurred. For example, a natural death probably is not nearly as impacting upon a buyer’s decision as would a homicide or even a suicide upon the property. Again, in the minds of many potential buyers, it depends upon the exact circumstances and details of the death as it occurred at the property. In some cultures, if a death occurred on the premises, then there is a religious or quasi-religious ritual which would need to be performed in order to pacify the property or exorcise the property before it could be occupied.
On October 1, 1991, exactly 20 years ago, the Maryland Legislature enacted two laws which address this issue. Given the fact that it has been 20 years since these laws took effect, and given the fact that we now have a new generation of licensees, there has been a recent spike in inquiries from licensees as to whether a licensee has an obligation to disclose deaths or felonies of which they have knowledge and which occurred on the property.
Section 17-322.1 of the Act provides that a homicide, suicide, accidental death, natural death or felony which occurs on a property is not a material fact for properties offered sale or for lease. This Section further provides that it should not be grounds for disciplinary action before the Maryland Real Estate Commission against a licensee based upon a claim that the licensee did not disclose to a prospective buyer or tenant the fact that a homicide, suicide, accidental death, natural death or felony occurred on the property and, further, that a licensee may not be held personally liable for failure to disclose such fact to a potential buyer. Note that this Section applies to all licensees, whether representing the seller or the buyer.
Section 2-120 of the Real Property Article, Annotated Code of Maryland, provides that the fact that a homicide, suicide, accidental death, natural death or felony occurred on the property is not a material fact or a latent defect relating to the property offered for sale or for lease. This same Section provides that an owner or seller of real property or the owner’s or seller’s agent shall be immune from civil liability or criminal penalty for failure to disclose such facts to a prospective buyer. Note that this Section only applies to licensees representing a seller or owner.
In other words, although the occurrence of a death or felony upon the property may well affect a buyer’s decision whether to buy or lease the property, the two provisions quoted above provide that a death or felony occurring on the property is not a material fact and a licensee has no duty to disclose such fact to a prospective buyer – even if asked directly by the buyer or buyer’s agent.
Having outlined the law, what are the practical considerations for a licensee to follow in a transaction where a death or felony has occurred and the licensee has knowledge of such fact?
First, if the licensee has no knowledge of such death or felony, then the licensee would not have any liability for a failure to disclose such fact to a potential buyer.
However, in many instances, the licensee, especially the listing agent, will have direct knowledge of a death or felony which may have occurred upon the property. In many instances, a death on a property will result in a sale of the property by the survivor owner of the property. For example, in some cases, the surviving spouse or parents or children of the deceased may find it unbearable to continue to reside upon the property because of the vivid memories of the events surrounding such homicide, suicide, accidental, natural death or felony. Additionally, if the deceased was an owner of the property and did not have mortgage insurance, then many times the surviving spouse is forced to sell the property because the loss of income from the deceased spouse or co-owner has made it impossible to make the mortgage payments. At the time of listing, such facts may well be disclosed to the listing agent or a licensee may have general knowledge due to media coverage and notoriety.
Can a seller voluntarily consent to the disclosure of a death or felony? Absolutely. Why, you may ask, would a seller do so? The answer is the practicality of a traditional real estate transaction. Given the numerous contingencies in a contract of sale, there is a distinct possibility that a buyer may learn of the death or felony after the contract of sale is signed and then use certain contract contingencies in order to terminate the contract. For example, at the time of a home inspection, the buyer may learn from neighbors or other sources of the circumstances regarding a death, especially a homicide or suicide. In these instances, the seller may be willing for the death or felony to be disclosed to a buyer, up front, before accepting any offer in order to eliminate any potential decision by a buyer to cancel the contract under the guise of a contingency in the contract of sale. If the seller authorizes the licensee to disclose such fact to a buyer, those instructions should be in writing in order to protect the licensee.
If the licensee is aware of the death or felony and the seller is not willing to consent to its disclosure on a voluntary basis, then the licensee may not disclose such fact to a buyer or buyer’s agent, even when asked. However, that does not mean the licensee is entitled to lie about the situation. For example, if you were asked by a buyer or buyer’s agent if this property is where a certain death occurred, then you may not respond “No,” if, in fact, you are aware of such death or felony on the property – nor could you say “I don’t know” when, in fact, you do know of such death or felony because the seller told you or because of your general knowledge of the notoriety of the crime which occurred on the property. If you have knowledge of such death or felony, answers such as “no” or “I don’t know” would be a lie. The quoted statutes do not authorize you to lie but merely state there is no duty to disclose such fact to a buyer and that you are immune from civil prosecution, criminal prosecution, and any violation of the Maryland Real Estate Brokers Act.
So what do you say? The best response, as informally advised by the Maryland Real Estate Commission after the new law took effect would be to simply say “… If you have any questions regarding death or criminal activity occurring on the property, you should contact the local police department regarding such information.”
While Section 17-322.1 of the Act provides for the global proposition that the Maryland Real Estate Commission may take no action against a licensee who fails to disclose a death or felony on the property, Section 2-120 of the Real Property Act only grants immunity to the owner or seller of the real property or the owner’s or seller’s agent. Notice that Section 2-120 does not grant immunity to a buyer’s agent for a failure to disclose such fact, assuming they have knowledge of a death or felony upon the premises, to their buyer client.
Accordingly, if you are a buyer’s agent and you are aware of a death or felony upon the property, while you may be immune from action by the Maryland Real Estate Commission, you will be subject to potential civil or criminal liability for your failure to disclose these facts to your buyer client. Accordingly, when you have such actual knowledge of death or felony, you should disclose such fact to your buyer client and should do so in writing to confirm your verbal disclosure to the buyer client.
In conclusion, although the fact that a homicide, suicide, accidental death, natural death or felony may have occurred on the property, a real estate licensee who represents the seller has no duty to disclose such fact to a prospective buyer, even if such fact would have had a direct impact on the decision of the buyer to purchase the property. Buyer agents are only partially protected by the law and, therefore, should disclose such fact to their buyer client, assuming the buyer agent has knowledge of such death or felony. Either way, under the Act, licensees are not subject to disciplinary action by the Maryland Real Estate Commission for a failure to disclose such facts.
The issue of death or felonies is one instance where the Maryland law as cited in this article protects a licensee and the owner or seller of such property and specifically provides that such death or felony is not a material fact and need not be disclosed by the licensee or the owner or seller – with the exception of a buyer agent – even though such fact, if known by a buyer, may well have had a direct impact upon whether a buyer decides to purchase the property or not or the terms of such offer.
(This article is intended to be a general discussion of the topic. As with all legal matters, the reader should consult with competent legal counsel regarding any actual situations or questions.)
©2011 – Alvin C. Monshower, Jr., P.A.
All rights reserved. This article may not be duplicated, copied or distributed without the express written consent of Alvin C. Monshower, Jr., Esq., nor may it be used in connection with any educational program without such prior consent.