Texas Real Estate Fraud Lawsuits

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

As a Real Estate Attorney in San Antonio, Tx, I am experienced at litigating real estate fraud and nondisclosure suits arising from the purchase, sale, transfer and exchange of real property.

Fraud in a Real Estate Transaction (irrespective of whether the real property in question is residential or commercial), occurs when:

• there is a false statement or material misrepresentation of facts related to real property (whether made by the Seller or his agent). In some cases, it is not even necessary for the person to know that the statement is false at the time it is made;
•  concealment or nondisclosure of material facts related to real property; and/or
• there is a breach of fiduciary duty by a real estate agent, real estate broker, title company, escrow officer or attorney. The agent may represent either the Buyer or the Seller.

We file/prosecute and defend claims and lawsuits based on fraud or concealment in a real estate transaction, including cases involving a Seller's non-disclosure of facts (the existence of an undisclosed easement, prior problems or repairs, prior flooding, title clouds, competing ownership claims, size/acreage discrepancies, etc.). We also handle and defend cases against real estate professionals (brokers and agents) concerning fraud, professional misconduct and breaches of fiduciary duty. 

When evaluating the feasibility of a real estate fraud case, several factors are considered, including the following:

1)  Was the Fraudulent Activity “Affirmative,” or a “Misrepresentation by Non-Disclosure?” Affirmative fraud generally arises when a seller or his realtor knowingly makes a false statement or misrepresentation of material fact with an intent that the Buyer relies on the false statement. By contrast, Fraud by Non-Disclosure (also referred to as “fraudulent concealment”) generally occurs when the Seller or his real estate agent fails to disclose a material fact about the property, including known defects and title issues, with an intent to effect the Buyer’s decision concerning whether to purchase the property, and at what price.

2)  Was the Seller's Real Estate Agent Aware of the Fraud? If a seller's broker has knowledge of material facts, not known to the buyer, the seller's broker is under a duty of disclosure and may be held liable for mere nondisclosure since his/her conduct in the transaction amounts to a representation of the nonexistence of the facts, which he has failed to disclose.

3)  Is the Real Estate Transaction Implicated by "As-Is" or Other Contractual Nuances? Sellers and their real estate brokers are always under a duty to disclose concealed or known material facts that are not known or observable by the buyer.  A property sold "As-Is" may limit the Seller’s disclosure duties, but an "As Is" provision will not relieve the Seller or Seller's Agent fraud liability arising from purposeful nondisclosure or concealment. 

4) Does the Fraudster have Insurance or the Resources to Satisfy a Judgment?   A sometimes sad and frequently frustrating reality of litigation (particularly unfortunate in lawsuits arising from fraud) is that the costs and burdens of filing a lawsuit must be economically feasible. In other words, before pursuing a claim, the claimant/fraud victim should have reasonable assurances that the opposing party can pay money to settle the claim or satisfy a Judgment in the event that the case goes to trial. In instances where the party engaging in fraud has no resources, no non-exempt assets, and no insurance policy available to satisfy a  claim, it frequently doesn't make "financial sense" to spend the time, money and energy to pursue a civil lawsuit for money damages.  While alternate remedies may exist when the fraudster lacks resources (rescission of sale, criminal charges, etc.), the victim sometimes has to make a tough decision of whether to risk "throwing good money after bad." However, where the party engaging in fraud has a professional liability insurance policy, financial resources and/or non-exempt property, the "economically feasible" consideration is more easily resolved.

Misrepresentations and the DTPA -- Even Unknowingly False Statements Can Lead to Liability

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

As a real estate lawyer in San Antonio, TX, I have always perceived the Texas Deceptive Trade Practices Act ("DTPA") to be a mixed bag -- one of those statutes with equal parts good and bad implications. My belief has been developed over the past decade based upon what I characterize as a "strict liability" interpretation of the DTPA adopted by the Texas Supreme Court and its subordinate Texas state courts.

One would be hard-pressed to argue legitimately against the DTPA's policy purpose:  to protect consumers against false, misleading, and deceptive business practices, unconscionable actions, and breaches of warranty.  However, the DTPA's application in real estate fraud cases has oft' reminded me of the old maxim: "the road to hell paved is with good intentions." 

For better or worse, since at least 2002, Texas courts have  rejected the argument that an individual cannot be held liable under the DTPA when he does not know the falsity of his representations.  Stated differently, the law in Texas provides for strict liability for misrepresentations, as follows:

“[A] DTPA claim does not require that the consumer prove the [defendant] acted knowingly or intentionally. The DTPA requires that the consumer show that the misrepresentation was false and that the false misrepresentation was the producing cause of the consumer's damages. A consumer is not required to prove intent to make a misrepresentation to recover under the DTPA."

Miller v. Keyser, 90 S.W.3d 712, 716 (Tex. 2002)(emphasis added). Moreover, "misrepresentations that may not be actionable under common law fraud may be actionable under the DTPA." Id.

In the context of a typical real estate dispute, DTPA claims are frequently asserted in connection with misrepresentation or failure to disclose (concealment) allegations. These allegations are usually made by a Buyer against the former Seller and/or that Seller's broker-agent. Often the DTPA is thrown-in as a "catch-all" allegation, when the real crux of the Plaintiff's claims sound in fraud or breach of contract. 

I have seen DTPA causes of action filed in cases relating to a given property's: a) suitability for a certain purpose; b)  zoning classification; c) propensity to flood; d) right of access to a water well; e) existence or non-existence of a foundation warranty; and f) access to a public roadway. The underlying representations were made innocently -- without knowledge of their falsehood, and in all of these instances, the Seller-Defendant (or that defendant's broker) asserted some variant of the defensive argument that they did not know that their representations were false at the time that they were made.  Because this defensive theory goes to intent, which is not a necessary element of proof for recovery under the DTPA (or any strict liability claim), it is usually unsuccessful.

Thus, where real estate representations (or misrepresentations) are concerned, a DTPA violation is usually much easier to prove than a fraud claim.  This is so because, in order to prevail on a fraud claim, the Plaintiff must prove that the Defendant knew (or should have known) of the falsehood of their representation at the time that such representation was made.  Proving 'intent to defraud' can be difficult because it requires some evidence of the state of mind or knowledge of the actor. By contrast, simple falsehood (however innocent) is the only showing required by the DTPA, and can usually be proven by circumstantial evidence without inquiry into an actor's knowledge or intent. 

DTPA claims are nebulous; and, thus, tough to defend.  For the Plaintiff they can be tough to prosecute because of various procedural requirements.  This is definitely one area in which having a knowledgeable lawyer can make a huge difference.

NOTE:  Section 17.49(i) of the Texas Business & Commerce Code exempts from the DTPA claims against TREC licensees arising from an act or omission by the person while acting as a broker or salesperson, except for claims arising from

(1)  an express misrepresentation of a material fact that cannot be characterized as advice, judgment, or opinion;

(2)  a failure to disclose information in violation of Section 17.46(b)(24); or

(3)  an unconscionable action or course of action that cannot be characterized as advice, judgment, or opinion.