RECOVERING UNDER THE TEXAS REAL ESTATE RECOVERY TRUST ACCOUNT

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

The statute allowing recovery under the Real Estate Recovery Trust Account is found in Chapter 1101 of the Occupations Code. See generally TEX. OCC. CODE ANN. ch. 1101, subch. M & N (West 2012). The statute states that the Trust Account is maintained "to reimburse aggrieved persons who suffer actual damages" at the hands of a license holder. TEX. OCC. CODE ANN. 1101.601(a) (West 2012).  

Texas appellate courts agree "[t]he purpose of the Account is to `guarantee the fidelity and honesty of the real estate salesman in his dealings with the public and to insure and indemnify any member of the public against damages or injury caused by a violation of the Act.'" Wilson v. Bloys, 169 S.W.3d 364, 366 (Tex. App.-Austin 2005, pet. denied) (quoting State v. Pace, 640 S.W.2d 432, 433 (Tex. App.-Beaumont 1982), aff'd, 650 S.W.2d 64 (Tex. 1983)). The statute requires the claimant to show "that the judgment is based on facts allowing recovery under this subchapter." Id. § 1101.607(1) (West 2012).

Simply put, a person who obtains a judgment for actual damages caused by the misconduct of real estate license holders can, when certain specified statutory conditions are met, obtain reimbursement from the Account if the license holder is unable to pay the judgment. Tex. Occ.Code Ann. § 1101.601.  

To recover under the Act, a person who has an uncollectable judgment against a real estate broker may file a verified claim in the court in which the judgment was rendered and, upon notice to the commission and the judgment debtor, apply for an order directing payment out of the fund. Id.  A hearing is then conducted on the application at which the commission is authorized to appear for the limited purpose of protecting "the fund from spurious or unjust claims...." Id.  At this hearing, the claimant must show, among other things, that its prior judgment is against a licensed real estate broker who caused the claimant's damages while acting as a broker. Id. § 8, part 1(a) and part 3(c). 

NOTE:  TEX. OCC. CODE ANN. § 1101.602 provides that when a license holder is selling property in his own name instead of as an agent for someone else, a claimant may not recover from the Trust Account unless the license holder engages in the following enumerated wrongful conduct:

1101.653(3):  acting in bad faith;

1101.652(a)(3): engaging in misrepresentation, dishonesty, or fraud when selling, buying, trading, or leasing real property in the name of himself, his spouse, or his relatives; 

1101.652(b): See list here;

1101.653(1): engaging in dishonest dealing, fraud, unlawful discrimination, or a deceptive act;

1101.653(2):  making a misrepresentation; or 

1101.653(4):  demonstrating untrustworthiness.

Judgment for Plaintiffs Entered in Suit Against Property Management Company

On June 2, 2010, the Honorable Janet Littlejohn entered Final Judgment in a Bexar County lawsuit filed by Trey Wilson against a San Antonio real estate firm in October 2008. Wilson filed the suit on behalf of a Los Angeles, California real estate investor who, in 2006, purchased six homes in San Antonio, Texas. The homes were to be used as rental properties, and to eventually fund the Plaintiff's retirement.

After purchasing the homes, the Plaintiff -- a California nurse and home health care/hospice operator -- contracted with the real estate agent who represented her in the purchases to manage the properties. Under the terms of the written Property Management Agreement, the Texas realtors were required to collect rents from tenants, maintain the properties, file appropriate tax documents, and remit rental proceeds to the owner.

In early 2008, the Owner received an IRS form 1099 indicating that the rents collected by her San Antonio real estate management firm were almost double the amount remitted to her. Upon performing an audit of rents received versus those collected, the Owner demanded a complete accounting from the Texas realtors. The property managers were unable to account for the missing funds, including security deposits paid by various tenants of the rental properties.

The owner hired San Antonio real estate litigation attorney Trey Wilson in April 2008. After multiple meetings with the real estate agent and broker, and their attorneys, it became apparent that the missing funds could not be accounted for.

Wilson then filed the lawsuit, alleging that the Defendants breached the Property Mangement Agreement, breached their fiduciary duty to the Plaintiff (including the Texas Real Estate Commission Rules applicable to brokers and the Cannons of Ethics), committed common law fraud, and committed conversion of the missing funds.

The case went to jury trial on May 18, 2010 in the 150th District Court of Bexar County, Texas. On May 21, 2010, the jury returned a unanimous verdict in favor of the Plaintiff on her claims for breach of contract, breach of fiduciary duty, common law fraud, and conversion. In addition, the jury awarded Plaintiff attorneys' fees in the amount of $29,000.00.

Following the jury's finding that the Realtor and Broker had breached their fiduciary duty to Plaintiff, Wilson moved for equitable forfeiture of all commissions and fees paid to the real estate firm. Judge Littlejohn granted the request, and ordered fee forfeiture in the amount of $6,8880.00 -- representing all management fees and leasing commissions paid to the realtors.

The Judgment entered by the Court was for $67,336.75 (not including costs or pre-judgment interest), and contains an affirmative finding of knowing and intentional breach of the real estate professionals' fiduciary obligations to the property Owner.