Does Texas Currently Require Attorneys to Supervise Real Estate Transactions?
The National Association of Realtors (NAR) class action settlement in 2024 that eliminated mandatory broker compensation offers on Multiple Listing Services (MLS) changed how the residential real estate industry operates in the United States. The allegations in the case involved anticompetitive practices and violations of antitrust laws. The fundamental concern is transparency in residential real estate transactions and how broker fees are determined and paid. The NAR settlement requires written agreements between all parties in real estate transactions. Many states have required written agreements between brokers and buyers for years. The settlement simply requires it of members of the National Association of Realtors (NAR). Several states, even before the NAR settlement required licensed attorney supervision of real estate transactions. The argument for attorney supervision is that title searches, contracts, and the laws governing them constitute the practice of law. As for Texas, currently, no laws require attorney supervision of real estate transactions, nor is there any pending Texas legislation to impose attorney supervision requirements. Even while there is a trend nationwide for mandatory attorney involvement in real estate transactions, Texas currently does not seem to be revisiting its position to protect unrepresented buyers, even in light of the NAR settlement changes. This absence or response in the Texas legislature and courts does not mean that Texas will not revisit its residential real estate policies, procedures and practices. As it stands right now, Texas residential buyers have substantial consumer protection rights under current Texas law as I will point out in detail in a moment.
Residential Real Estate Consumer Protections in Texas:
Although NAR class-action settlement has had little to no impact on residential real estate law in Texas, Texas residential real estate buyers possess robust consumer protections rights already. This has been true for years! The state recognizes a specific cause of action called “Fraud in a Real Estate Transaction” under Texas Business and Commerce Code Section 27.01, which provides easier proof standards than common law fraud. Buyers are further protected by the comprehensive Texas Deceptive Trade Practices Consumer Protection Act (DTPA), and mandatory seller disclosure requirements.
As our readers probably know, courts can be very slow and generally it takes time for cases to work their way through the courts to final judicial decisions. It could take several years before we see Texas courts address concerns or claims arising from the March 2024, NAR settlement. Texans enjoy robust Real Estate License Act remedies, and traditional contract and tort claims. Extremely viable legal paths exist for residential real estate buyers in Texas. Legal paths, including; statutory fraud claims for fraud, deception and misrepresentations can be pursued through the Deceptive Trade Practices Act (DTPA), Fraud in a Real Estate Transaction Statutory claims can be pursued, and victims can pursue claims under the Real Estate Recovery Trust Account Statute. These statutory claims are in addition to common law contract breach claims and tort law claims. The statutory and common law claims are robust measures to protect Texans and others buying residential real property in the State. Now, let’s take a closer look at the legal-framework of the consumer protection laws In Texas designed to protect residential real transaction buyers.
TEXAS DECEPTIVE TRADE PRACTICES CONSUMER PROTECTION ACT
The DTPA provides the most comprehensive protection for residential real estate buyers in Texas. Under Section 17.50, consumers may recover economic damages and attorney’s fees when they prove a producing cause relationship between deceptive acts and their injuries. For knowing violations, consumers may also recover damages for mental anguish and up to three times economic damages, while intentional violations allow treble damages on both economic damages and mental anguish. The Act is “liberally construed and applied to promote its underlying purposes, which are to protect consumers against false, misleading, and deceptive business practices.
Significantly, the DTPA contains no damage cap for residential real estate transactions, unlike the general $500,000 limitation that applies to other consumer transactions pursuant to Texas Business and Commerce, Section 17.49. Attorney’s fees are mandatory for prevailing consumers, making litigation economically viable even for smaller claims.
Courts measure DTPA damages using either the out-of-pocket or benefit-of-the-bargain standard, whichever is greater for the consumer, as established in case law interpreting the statute’s economic damages provision.
FRAUD IN A RESIDENTIAL REAL ESTATE TRANSACTION
Texas Business and Commerce Code Section 27.01 establish a specify cause of action for fraud in real estate transactions that provides significant advantages over common law fraud claims. The statute covers two types of fraudulent conduct: false representations of past or existing material facts, and false promises made with the intention of not fulfilling them.
The key advantage of statutory fraud is that the statute does not require proof of knowledge or recklessness as a prerequisite to the recovery of actual damages, unlike common law fraud which requires scienter. However, exemplary damages under the statute require actual awareness of the falsity. Exemplary damages are punitive damages that gives the victim extra money to punish a defendant for malicious, fraudulent, or grossly negligent conduct and to deter others, not to compensate the victim. Exemplary damages, unlike some damages designed to compensate, are gross income to victims and are subject to federal taxes as a skilled federal tax lawyer can explain. The fraud in a real estate transaction statute also creates liability for those who have actual awareness of the falsity of a representation or promise made by another person and fail to disclose it while benefiting from the false representation.
Seller’s fraudulent statements in disclosures, real estate listings and other representations could be sufficient evidence to support a statutory fraud claim when the residential real estate buyer reasonably relied on those representations to their detriment. Moreover, when the seller is actually aware of the fraudulent disclosures, real estate listings and other representations the victim can recover exemplary damages. Again, this is different for actual damages which does not require the seller’s actual knowledge of the falsity of the representations.
COMMON LAW INTENTIONAL AND NEGLIGENT MISREPRESENTATION
Texas recognizes traditional common law fraud claims in real estate contexts. For negligent misrepresentation claims made by the residential property seller, buyers must prove the defendant made an actionable representation, supplied false information for guidance, failed to exercise reasonable care in obtaining or communicating the information, that the buyer justifiably relied on the false information, and that the reliance proximately caused injury. However, real estate agents generally owe limited duties to buyers who are not their clients unless a special relationship is established. It is important to watch future developments in the Texas legislature and in future court decisions with respect to changes in real estate agents’ liability in light of the NAR Settlements of 2024. Currently, Texas court cases demonstrate that real estate agents can be liable for fraud even when they did not make the false representations directly, if they “benefited from false representations made by another real estate agent” in the transaction. Again, this is an area to watch for future development in the law.
MANDATORY DISCLOSURE LAWS – TEXAS PROPERTY CODE
Texas Property Code Section 5.008 mandates that sellers of residential property provide written disclosure of property conditions to buyers on or before the effective date of the purchase contract. The disclosure must cover extensive categories including structural components, environmental hazards, flooding history, and known defects in property systems.
Importantly, the disclosure represents only the seller’s knowledge as of the date signed by seller and is not a substitute for any inspections or warranties the purchaser may wish to obtain. If sellers fail to provide the required disclosure, buyers may terminate the contract for any reason within seven days after receipt.
Significantly, an ‘as is’ agreement in an arms-length transaction negates the causation element in a fraud or DTPA claim by the buyer unless the seller impaired the buyer’s inspection or the ‘as is’ agreement itself was induced by fraudulent representation or concealment, such as, intentional and even negligent misrepresentations in seller’s disclosures or real estate listings to induce the buyer to go through with the transaction. This, in essence, constitute fraud in the inducement.
REAL ESTATE RECOVERY TRUST ACCOUNTS
The Texas Real Estate License Act (TRELA) provides additional consumer protections through licensing requirements and the Real Estate Recovery Trust Account. Under Section 1101.754, persons who act as brokers or sales agents without proper licensing face liability of not less than the amount of money received or more than three times the amount of money received.
The Recovery Trust Account reimburses consumers who suffer actual damages caused by licensed real estate professionals’ violations of the Act. However, recovery is limited to situations where the professional was acting in their capacity as a real estate salesperson, and the transaction must involve interests covered by the statutory definition of ‘real estate.’ This cause of action should never be summarily taken off the table when holding sellers and real estate agents liable for wrong doing during residential real estate transactions. Victims and their attorneys should consider all options. Let us finally take a closer look at the basic breach of agreement option that is available to residential real estate buyers in Texas.
CONTRACT BREACH CLAIMS
Texas courts readily grant specific performance for real estate contracts because damages are generally believed to be inadequate in connection with real property. However, residential real estate buyers must keep this little tip-bit in mind: buyers seeking specific performance must prove that they are ready, willing, and able to perform under the contract.
Alternatively, buyers may elect monetary damages using either the out-of-pocket measure (difference between what was given and what was received) or benefit-of-the-bargain measure (difference between value as represented and actual value). The election between specific performance and damages is required. Buyers should have election of remedy discussions with their attorney early on in the process since buyers cannot pursue both remedies simultaneously.
The Texas Supreme Court has held that buyers can potentially recover expenses along with specific performance when such expenses are directly traceable to the defendant’s delay in performance, (2) foreseeable at the time of contracting, and (3) commercially reasonable.
When the breach involves a new home construction contract, Texas recognizes an implied warranty of good workmanship under the DTPA that applies when construction contracts do not specify performance standards. Although general contractors can be held liable for implied warranty violations directly to homeowners under the DTPA, generally subcontractors cannot. This is a privity of contract issue with respect to subcontractors and the home owner. There are other ways home owners can hold subcontractors accountable for the quality of their work.
KEY TAKEAWAYS
We have concluded our walk-through various consumer protection laws that applies to residential real estate transactions. It should be clear by now that even without an immediate response to the NAR Setttlement, Texas residents and others purchasing residential property enjoy pretty robust consumer protection laws in residential real property transaction. Buyers have rugged consumer protection rights through multiple statutory and common law path ways. The state recognizes a specific cause of action called “Fraud in a Real Estate Transaction” under Texas Business and Commerce Code Section 27.01, which provides easier proof standards than common law fraud. Buyers are protected by the comprehensive Texas Deceptive Trade Practices Consumer Protection Act (DTPA), mandatory seller disclosure requirements, Real Estate License Act violations remedies, and traditional contract and tort claims. The 2024 NAR Settlement has not yet generated specific Texas case law, but commission disclosure and buyer representation issues remain active areas of litigation. Successful legal paths include statutory and common law fraud claims for misrepresentations, DTPA violations for deceptive practices, breach of contract remedies including specific performance, and Real Estate Recovery Trust Account claims against licensed professionals.
This law blog is written by attorneys at Coleman Jackson, P.C., which is located at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206 for educational purposes; it does not create an attorney-client relationship between this law firm and its reader. You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.
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