Lewis v. Long & Foster Real Estate, Inc.

EDWARD O. WEANT, Jr., Judge, Specially Assigned. Dissatisfied with the turn of events following the purchase of a home, appellants filed suit in the Circuit Court for Howard County against their real estate broker, his employer, and their title company. Appellants’ suit against ⁷⁵⁶ appellees Blaine K. Milner and Long & Foster Real Estate, Inc. (Long & Foster) sounded in negligence, negligent misrepresentation, and breach of contract. 1 Appellants charged appellee. The Columbia Town Center Title Company (Title Company), with breach of contract and negligence.

The circuit court dismissed all counts for failure to state a claim on which relief can be granted. Appellants now present the following issues to this Court: I. Whether a real estate agent representing the buyer owes that buyer a duty of care to investigate restrictions which would affect the buyer’s known intended use of the property being purchased.

II

Whether the title abstractor/settlement agent’s duty to report to the buyer all matters of record affecting the status of title includes restrictions on the use of the property. We shall affirm in part and reverse in part. FACTS In 1986, appellants, Lynne Lewis and James Lewis, lived in a rented home in Howard County. Mrs. Lewis, a licensed family day care provider, operated a day care business in their residence.

In April, 1986, appellants sought assistance from Blaine Milner in locating a residence for sale in the Columbia, Maryland area. Milner is an employee and licensed sales broker of appellee Long & Foster. Appellants informed Milner that Mrs. Lewis wished to continue operating her day care business and that they required a residence suitable for that purpose. 2 Milner showed appellants property in the Merion Station Townhouse complex of Harper’s Choice Village in Columbia. Milner made inquiries concerning the operation of day ⁷⁵⁷ care in the area, and relayed the information he obtained to appellants.

Specifically, Milner told them Mrs. Lewis would need only to obtain a permit from the Harper’s Choice Village for in-house business related activities. Appellants decided to purchase the property. There is no indication in the record or claim by the broker that a contingency clause was placed in the contract. Milner and Long & Foster recommended the appellee Title Company for the examination of the property’s title and other services related to settlement.

Appropriate paperwork was forwarded to the Title Company, and it conducted all services necessary to effect the settlement. Settlement was held at the offices of the Title Company on October 30, 1986. There is some dispute as to who was present at settlement. Appellants refurbished and remodeled their property to accommodate Mrs. Lewis’ day care business.

She obtained approval from the Village Board to operate her business and began caring for children on a daily basis in November, 1986. On March 20, 1987, Mrs. Lewis received a letter from the Merion Station Homeowners’ Association (the Association) informing her that the Association considered the use of the residence for a day care business to be in violation of restrictions in the subdivision. The Restrictions and Declaration of record which affect appellants’ property include, inter alia, a Declaration which states in pertinent part “... No dwelling or any part thereof shall be used for any purpose except as a private dwelling for one family, nor any business of any kind be conducted therein____” It is undisputed that the appellees failed to tell appellants about this restriction at or prior to settlement on their property.

In July, 1987, the Association filed suit in the Circuit Court for Howard County seeking a declaratory judgment confirming that day care activities violated the restrictions and requested reimbursement for the cost of the proceed ⁷⁵⁸ ing. Judge Raymond Kane ruled that the family day care operation violated the “no business” provision of the restrictions and enjoined the continued use of the property for that purpose. Mr. and Mrs. Lewis appealed to this Court. We remanded the case to the circuit court holding that, pursuant to Chapter 491, Acts of 1989, effective July 1, 1989, homeowners’ associations could not prohibit day care services unless at least fifty percent of the association’s members voted to do so. 3 While that case was pending, appellants brought suit against Milner, Long & Foster, and the Title Company.

Following the trial court’s dismissal of that action for failure to state a claim on which relief can be granted, appellants brought this appeal. STANDARD OF REVIEW Under Maryland Rule 2-322 a motion to dismiss for failure to state a claim serves the same function as a demurrer. Sharrow v. State Farm Mutual, 306 Md. 754, 768 , 511 A.2d 492 (1986). Such a motion is appropriate when there is no justiciable controversy.

Broadwater v. State, 303 Md. 461, 467 , 494 A.2d 934 (1985). In considering the legal sufficiency of appellants’ complaint, we must assume the truth of all relevant and material facts that are well pleaded and all inferences which can be reasonably drawn from those pleadings. Any ambiguity or uncertainty in the allegations bearing on whether the complaint states a cause of action must be construed against appellants as the pleader of the complaint. Sharrow, supra, 306 Md. at 768 , 511 A.2d 492 .

DISCUSSION I. Appellants first contend that, a real estate broker owes a duty of care to the buyer whom he or she represents, and ⁷⁵⁹ that, under a broker’s duty, he is required to investigate restrictions on property which would affect a buyer’s known use of that property. Implicit in appellants’ argument is that the trial court erred in its failure to recognize this duty and, consequently, in its dismissal of appellants’ complaint. Specifically, appellants contend that, because they had informed Milner of their desire to operate day care services in their home, Milner and Long & Foster owed them a duty to investigate and report on the restrictions in Harper’s Choice Village which prohibited home businesses. To this end, appellants urge us to create a duty of care in real estate brokers which has been resisted by the Court for many years.

In this instance, we agree that such a duty may exist. Appellants maintain that the Maryland legislature has imposed a tort duty on real estate brokers through statute and regulation. They direct us to the Maryland Business and Professions Annotated Code 4 which lists grounds for, inter alia, the suspension or revocation of a real estate broker’s license. According to Md.Bus.Occ.Code Ann., § 16-322(a)(4) (1989 and 1990 Supp.), a broker’s license may be in jeopardy if the broker intentionally or negligently fails to disclose to any person with whom the applicant or licensee deals a material fact that the licensee knows or should know and that relates to the property with which the licensee or applicant deals.

Section 16-322(a)(33) further states that a broker’s license can be revoked or suspended if a broker violates any regulation adopted under this title or any provision of the code of ethics. Md.Bus.Occ.Code Ann., § 16-322(a)(4) and (33) (1989 and 1990 Supp.). ⁷⁶⁰ The code of ethics for real estate brokers is contained in the Code of Maryland Administrative Regulations, Title 9, Subtitle 11. The regulations advise that a real estate broker “shall protect and promote the interests of the client” endeavoring “always to be informed regarding laws.” COMAR 09.11.02A and B. Brokers are further directed to “make a reasonable effort to ascertain all material facts concerning every property for which he accepts that agency.” COMAR 09.11.01.D. The issue of whether a standard of care is imposed by these statutes or their precursors was raised in Pride Mark Realty, Inc. v. Mullins, 30 Md.App. 497 , 352 A.2d 866 (1976). While the Court was intrigued by the prospect of basing a standard of care on the statutes, the issue was not properly reserved for review and was not addressed.

The Maryland legislature has seen fit to regulate the field of real estate sales through these statutes and regulations. As a regulated profession, much like physicians, attorneys, or certified public accountants, real estate brokers have a responsibility to the public to conduct themselves in a reputable manner. These statutes set minimum guidelines for professional conduct, their purpose being to safeguard the public. Numerous jurisdictions have looked to published ethical standards and licensing requirements to determine a standard of care for real estate brokers.

Johnson v. Geer Real Estate, 239 Kan. 324 , 720 P.2d 660, 665 (1986). (The purpose of a real estate broker’s licensing act is clearly to require high standards of conduct by real estate brokers licensed in the state and to protect members of the public who deal with real estate brokers.) Menzel v. Morse, 362 N.W.2d 465 (Iowa 1985). (Real estate brokers’ code of ethics established an acceptable standard which could be used as a benchmark for measuring the conduct of real estate