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New Court of Appeals Decision Holds That a False and Misleading Resale Disclosure Certificate Violates the Consumer Protection Protection Act — Yours Truly Quoted By The Court

In its recent decsion in MRA Property Management, Inc., et al. v. Armstrong, No. 93, Sept. Term 2007, filed on October 25, 2011, a majority of the Maryland Court of Appeals held that the Maryland Consumer Protection Act applies to purchases of condominium units with respect to the information required to be provided by a council of unit owners in the resale certificate.  The Court ruled that, where a council of unit owners and its property management company violate the resale certificate disclosure obligations imposed by Md. Real. Prop. Code Ann. Sec. 11-135, “they engage in unfair and deceptive trade practices ‘in the sale of consumer realty.'”  Such a violation occurs where the resale certificate states that there are no known violations of the building code if there is information establishing knowledge of building defects. The Court specifically held that such a violation of the Consumer Protection Act can occur even though the defendants were not parties to the sale of the unit, were not “merchants,” and where there had been no code violation citations issued by the county.

In this case, 23 purchasers of units at Tomes Landing Condominium in Cecil County sued the Condominium Council and the management company for alleged misleading resale certificates.  The certificates stated that there were no know violations of the building or health codes.  The subject units were purchased between January 5, 2000 and October 8, 2004.  In December 2004, the owners were notified of a special assessment to fund a $3,921,838 repair project to correct building defects.  An August 1999 Replacement Reserve Study that identified problems with the condominium’s retaining walls had not been disclosed to the owners prior to the purchase of their units.  The suit included a claim that this failure to disclose constituted an unfair and deceptive trade practice under the Consumer Protection Act.  The trial court found that the resale certificate information, as a matter of law, had a tendency to mislead consumers in violation of the Act, and entered summary judgment in favor of the purchasers.  Rather than proceed to trial on the issue of damages, the parties stipulated to a total of $1 million in damages, and the condominium and managing agent took an appeal.

The Court of Appeals granted certiorari before the Court of  Special Appeals ruled, and held that, while the entry of summary judgment was improper, the unit owners had produced sufficient evidence that, if accepted by the trier of fact, “was sufficient to establish that [the council and management] had utterly failed to comply with the disclosure obligation imposed upon them by Section 11-135(a)(4)(x).”  The failure to meet that disclosure obligation tends to deceive the purchaser, and amounts to an unfair and deceptive trade practice under the Consumer Protection Act.

In reaching is decision on the application of the Consumer Protection Act, the Court cited and quoted from a publication of mine, Raymond Daniel Burke, Kathleen M. Elmore and Cynthia Hitt Kent, Developing and Managing Condominium and Homeowners’ Associations, National Business Institute (2007), in which I wrote:  “Md. Com. Law Code Ann. Sec. 13-408(a) establishes a private cause of action for damages sustained as a result of an act prohibited by the Consumer Protection Act.  The Act is specifically applicable to ‘consumer realty,’ and, accordingly, representations made in connection with the sale of real property may constitute unfair and deceptive trade practices where they are misleading.”