Md. regulation discourages referrals by real estate agents

If you live in Maryland and your real estate agent refuses to refer you to a mortgage lender, he isn’t being rude. Real estate agents making referrals to service providers in Maryland can now be fined up to $5,000 if they violate a new state Real Estate Commission regulation.

That regulation requires agents to make a referral in writing, to verify that the service provider has a current state license, to provide the date on which the agent last checked the state-licensing database and to provide an electronic link to the licensing record.

Making real estate agents the de facto “license police” under this unduly burdensome regulation will more than likely prevent licensed real estate agents from making any referrals when providing routine brokerage services.

Previously, experienced real estate agents, familiar with the good and bad service providers, were able to pass along, on an informal basis, the names of service providers they found to perform good work at reasonable prices. The public will no longer be able to readily take advantage of the valuable experience that licensed agents brought to the real estate buying process.

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It is safe to assume that when faced with the risk of being fined and reprimanded or even losing their licenses, real estate agents will demur when a client asks for a referral.

“This regulation interferes with the professional relationship between the agent and his client, censors the agent’s ability to give meaningful information to their clients, and turns the agent into an agent for the state,” said Dennis Melby, former president of the Greater Capital Area Association of Realtors, district vice president of the Maryland Association of Realtors and a real estate agent in Bethesda.

This regulation’s broad scope includes, but is not limited to, referrals to mortgage lenders, mortgage brokers, real estate appraisers, home inspectors, home improvement contractors, plumbers, electricians, heating, ventilation and air-conditioning contractors, and all others who are required to be licensed. The regulation covers referrals provided in connection with “the provision of real estate brokerage services.”

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“The new regulation is intended to protect the public,” said Kathie Connelly, executive director of the Real Estate Commission.

“If the public uses a non-licensed contractor and is harmed, the consumer will not have access to the Maryland Home Improvement Commission’s Guaranty Fund,” Connelly added. That fund can reimburse the aggrieved consumer up to $20,000 per claim. A consumer harmed by the unlicensed contractor can still resort to the courts for a remedy.

Insurance companies that provide errors and omissions insurance for Maryland real estate agents certainly see the potential for increased claims against agents. This regulation will add to the huge number of frivolous claims being filed against agents. As a result, insurance premiums may have to be reevaluated.

The District and Virginia maintain similar real estate transaction-guaranty and education funds to assist consumers who have been harmed by their licensees. Neither has or contemplates a similar regulation governing referrals. Nor are any other licensees in the region required to “vouch” for other licensees’ bona fides.

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For example, a Maryland licensed plumber may freely refer a consumer to an electrician without having to check on that electrician’s license and without fear of jeopardizing his plumbing license.

It is a simple matter to verify licensing in Virginia by visiting the Virginia Department of Professional and Occupational Licensing site, www.dpor.virginia.gov/LicenseLookup. In the District, go to www.pearsonvue.com/dc/realestate for licensing data.

“It took me three hours to locate a licensed inspector with the necessary credentials,” said Anne Brown, a real estate agent with Prudential PenFed Realty in Olney, Md. She added, “I am almost to the point of not making any more referrals.”

The Maryland Division of Occupational and Professional Licensing is responsible for licensing and regulating the activities of more than 210,000 individuals, corporations and partnerships. There are 23 licensing boards, commissions and programs appointed by the governor regulating 24 different licensed occupations.

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Most but not all of these licenses can be verified at www.dllr.state.md.us/pq . Mortgage lender, broker and originator licenses can be verified at www.dllr.state.md.us/finance/industry/licsearch.shtml .

Harvey S. Jacobs is a real estate lawyer with Jacobs & Associates Attorneys at Law in Rockville. He is an active real estate investor, developer, landlord, settlement attorney, lender and Realtor. This column is not legal advice and should not be acted upon without obtaining your own legal counsel. Contact Jacobs at 301-300-6252, jacobs@jacobs-associates.com or ask@thehouselawyer.com.

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