Broker's Liability for Another's Misrepresentations (including a client's) is Limited By Statute

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

It is inevitable in real estate transactions that Buyers sometimes feel as if certain facts or circumstances surrounding property were not properly disclosed to them prior to the sale. Some non-disclosures are intentional acts of concealment rising to the level of fraud, while others much more innocuous.  

In any event, listing brokers  -- even completely innocent agents --  sometimes find themselves being accused, along with their Seller-Clients, of statutory fraud or fraudulent misrepresentation by non-disclosure.  Another Plaintiff-lawyer's favorite is an allegation of DTPA (Texas Deceptive Trade Practices Act) violations.  Enterprising Plaintiffs lawyers also recognize that brokers frequently maintain policies of professional liability ("malpractice") insurance, while Sellers usually have no coverage for negligent or intentional actions taken in connection with the sale of real estate.  Thus, brokers are sometimes dragged along solely as a "pocket" or source of recovery.

Whether recovery can be had from a broker, however, depends largely on what the broker actually knew, and on whether the Plaintiff is alleging vicarious liability (arising from the Seller-Client's misrepresentations or concealment) or direct liability based upon the broker's own concealment. 

When a plaintiff seeks to hold a real estate broker or agent liable for the misrepresentations of another, the plaintiff must prove the broker or agent (1) knew of the falsity of the misrepresentation or concealment; and (2) failed to disclose the party’s knowledge of the falsity of the misrepresentation or concealment. TEX. OCC. CODE ANN. § 1101.805(e),(f).  Thus, when seeking to assign vicarious liability, the burden falls on the Plaintiff to prove what the broker knew (and when), but failed to disclose. Even when it can be proven that a Seller intentionally concealed or misrepresented material facts, the broker cannot be held vicariously liable for such concealment in the absence of evidence of the broker's KNOWLEDGE that such fact was false.

The specific facts and circumstances of a given dispute become particularly important when, as often happens, a broker makes certain representations about a real property (in sales literature, MLS listings, internet advertising, etc.). In those instances, one of the key facts for a court to analyze in determining whether the statutory protection found in  TEX. OCC. CODE ANN. § 1101.805(e),(f) applies is whether the broker's representations were based upon information obtained from other sources (surveys, government records, the Seller, etc.) or constitute the broker's own representations. Even if the representations published by the broker were false (and based upon misinformation received from a third-party source which the broker reasonably believed to be true or accurate) unless the broker knew of that falsehood, he may be insulated from liability for misrepresentation.

While the statute goes a long way in protecting brokers from the false statements made (or silence in the face of  duty to disclose), it is not a perfect, "silver bullet" defense.