Lead paint can be dangerous…to real estate investors

A recent case from Maryland’s highest court shows that even people who deal with real estate simply as investors can be held liable for lead paint problems. The case involved a Maryland company that bought tax liens. The company’s business model was to buy liens, foreclose on delinquent properties, then sell them “as is” at a profit. The company was organized as a limited liability company, or LLC.

In one case, the LLC foreclosed on a home in Baltimore. Sometime after the foreclosure it became aware that the former owner had rented the house to a family. The LLC demanded that the family leave, but the family members refused. So the LLC took the family to court and won its eviction case. The family then turned around and sued the manager of the LLC personally, claiming that the children in the house had developed lead poisoning.

Under a Baltimore city law, a lead poisoning claim can be brought against anyone who “owns, holds, or controls” the title to a home.

The Maryland high court determined that the manager “controlled” the title to the home, and therefore could be sued … even though he never set foot on the property, didn’t know the family was there when it was foreclosed upon, and went to court to try to remove the family once he found out. In addition, the manager could be personally liable as someone who “controlled” the title, even though the property was owned by the LLC, not by the manager personally.

This is an unusual case, and the law varies across the country. But it goes to show that people who dabble in real estate investing should be wary of claims for lead paint and other unknown environmental problems, and should consult a lawyer about ways to protect themselves.

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