Real-estate fraud is prevalent in the United States, and the trend shows no sign of waning anytime soon, according to the Mortgage Fraud Report released by the FBI. In Texas, real-estate fraud is so common that the Legislature has even dedicated a statute dedicated to defining it, and offering specific remedies for victims. The Fraud in a Real Estate or Stock Transaction statute can be found in Chapter 27 of the Texas Business & Commerce Code.
Real-estate fraud can occur in numerous ways:
- When there is a material misrepresentation related to the property – the deliberate falsification or hiding of a fact relating to the property which could have aborted or altered the basis of the real-estate deal if known to the other party
- Concealment or nondisclosure of facts related to the property
- A breach of fiduciary duty by anyone involved in the transaction
Section 27.01 was originally adopted in 1967, but was amended in the 1980’s. Violations of the statute are referred to as “statutory fraud”, unlike traditional false representations which are “common law fraud”. Victims of real-estate fraud may pursue claims under both.
Misrepresentation can be negligent or intentional, and can be based on oral or written statements. In some cases, it is not even necessary to demonstrate that the person knew that the statement they were making was false.
Most instances of negligent misrepresentation are made by sellers, and can be found in property listings, brochures and Seller’s Disclosure Notices. The most common examples of negligent misrepresentation are misstatements of the size or age of a property, repairs to the foundation or the existence of easements.
Most importantly, intent is not a required showing in cases of negligent misrepresentation, and honesty or good faith cannot be used as a defense. Any suppliers of information regarding real-estate transactions must exercise reasonable care in ascertaining the accuracy of the facts on which the information is based.
Statutory fraud cases involve material falsehoods, where material is made for the purpose of inducing entry into a real-estate contract and results in such, including a lease or purchase agreement. Perpetrators of statutory fraud cases are liable to the defrauded party for actual damages, and when fraud is committed with “actual awareness”, they can also be liable for “exemplary damages.”
“Common Law” Fraud
Common law cases can range from simple falsehoods to elaborate cover-ups which are designed to lure parties into business deals and can consist of knowingly false representations of material fact or intentional failure to disclose material fact where duty of disclosure exists. Such cases generally arise when:
- A seller or his agent knowingly makes a false statement about a property, intending for the buyer to rely on this false statement
- A seller or his agent fails to disclose material facts about the property, intending to affect the buyer’s decision regarding the purchase of the property, or the price. This is called Fraud by Nondisclosure or “fraudulent concealment.” This only constitutes fraud if there was a duty to disclose and as such, silence may equate to false representation when the circumstances impose duty on the seller to speak and the deliberately remain silent.
Victims of real-estate fraud in Texas are legally entitled to damages incurred as a result of any fraud, and are often also entitled to punitive damages, attorney’s fees and other fees incurred in bringing a fraud case. The Texas Real Estate Commission takes allegations of fraud against licensed agents very seriously, and should an agent not have the funds to repair damages, they have a fund to pay out unsatisfied judgments.