Relating to Real Estate

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Passive Trustee Does Not Have Liability for Lead Paint Poisoning

In Hector v. Bank of New York Mellon, 244 Md. App. 322 (2020), cert. granted, 468 Md. 544 (2020), a bank that was appointed trustee of a securitization trust that owned a Baltimore City house acquired through foreclosure was sued in its individual capacity by the former occupants of the house for negligence as a result of lead paint poisoning. Under the terms of the trust, the trustee was given only passive duties, such as distributing cash to certificate holders and relaying information from the loan servicer. This compares with managerial duties, which were the responsibility of the loan servicer. The Circuit Court for Baltimore City granted the bank’s motion for summary judgment on the basis that if the bank was to be sued, it should have been sued in its capacity as trustee, not in its individual capacity. On appeal, the Court of Special Appeals (CSA) affirmed the circuit court’s decision.

In order to reach its decision, the CSA was required to consider whether the trustee’s status as an “owner” under the Baltimore City Code imposed personal liability on it. An “owner” of a Baltimore City property is responsible for compliance with all provisions of the Code, including lead paint abatement. The definition of “owner” is broad and includes anyone in control of the record owner of the property.

In ruling that the trustee did not have personal liability, the CSA distinguished a 2010 decision of the Court of Appeals, Allen v. Dackman, 413 Md. 132 (2010), in which the Court of Appeals imposed personal liability on an individual member of a limited liability company that owned property for negligence arising from lead paint poisoning because he controlled the limited liability company and no one else was responsible for managing the limited liability company or its property. Although the CSA recognized that a trustee of a trust could have personal liability in an appropriate case under trust law and the Baltimore City Code for committing a tort, the trustee in this case did not have personal liability because the evidence showed the trustee’s involvement with the property was only a passive one.

PRACTICE POINTER

Lenders that acquire property in Baltimore City must be careful so as not to incur liability for negligence arising from the presence of lead paint in the property. While the CSA’s decision in Hector should provide some comfort to a trustee of a trust that merely owns the property, a trustee actively managing the property is not immune from personal liability. A state court receiver that manages a lead paint property in Baltimore City should have the same concern about personal liability although the new Maryland Commercial Receivership Act provides some relief. Under Section 24-702 of the Act, a receiver may not be sued in its personal capacity unless the suit is first approved by the receivership court.

Lawrence Coppel wrote this summary. Larry is former Senior Counsel at Gordon Feinblatt and is now at lawrencecoppel@gmail.com.

For questions, contact Edward J. Levin and Caroline E. Sweet.

Ed Levin
410-576-1900 • elevin@gfrlaw.com

Caroline Sweet
410-576-4275 • csweet@gfrlaw.com