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Several years ago, I represented a husband and wife as plaintiffs in a real estate fraud case. At the conclusion of a case hearing, the defendant — a realtor — confidently told me, “You can’t squeeze blood out of a turnip” before he defiantly walked away.
The defendant thought that my clients could get nothing from him, and he could not be held accountable for his misdeeds. Fortunately for my clients, however, the state of Texas provided my clients a helpful recourse — a fund of last resort called the Texas Real Estate Recovery Trust Account, provided for by Chapter 1101, Subchapter M, of the Texas Occupations Code.
After prevailing on a motion for summary judgment, my clients were partially compensated from this fund by the Texas Real Estate Commission (TREC) because the defendant was a real estate license holder who was found to have committed several of the specific misdeeds listed in Section 1101.652 of the Texas Occupations Code.
TREC may award funds from the Texas Real Estate Recovery Trust Account to a person who obtains a civil judgment against a TREC license holder for specific types of misconduct identified by the code. This includes fraud, negligence, incompetence, offering property for sale without the consent of the owner, various types of mismanagement of money, discrimination, and many more. However, these payouts are subject to a per-transaction recovery cap.
When I assisted my clients in exercising this option back in 2021, the recovery cap (per transaction) was a mere $50,000 per transaction. This figure fell very short of the half–a–million–dollar judgment obtained by my clients. (Note: attorneys’ fees and judgment amounts combined can still only be recovered up to the cap).
Upon the conclusion of the case, and after my clients had received a $50,000 payment from TREC, my colleagues and I prepared a letter to the Legislature to draw attention to this matter, in hopes that the cap could be increased, given current market conditions. Not long after, effective on Jan. 1, 2024, the cap was indeed raised by 150% and is now $125,000 per transaction.
While the application for payment from the fund is a post-judgment process, it’s important to consider the possibility of recovery at each stage of the litigation process.
First, for access to the fund, a lawsuit against a license holder must be initiated within two years of the events giving rise to the claim. This two-year limitations period applies to the underlying cause of action, regardless of whether the underlying cause of action ordinarily has a longer limitations period.
Next, when forming your case strategy, you’ll need to verify whether your client has any causes of action arising from specific misconduct referenced in Section 1101.602 of the Texas Occupations Code.
In settlement negotiations, it’s helpful to bear in mind the possibility of future recovery from the fund, whether leverage for a plaintiff or a risky potential outcome for a license holder. It is also important to be aware that any agreed judgment entertained in connection with a negotiated settlement would need to be pre-approved by TREC.
For a case that goes to trial, it is essential to obtain specific findings addressing each action that serves as a basis for recovery from the fund, under Section 1101.652. Additionally, claims against all other defendants must be resolved before TREC will approve payment from the fund. This could involve non-suits, default judgments, or final judgments.
Finally, there are several post-judgment procedural steps required. The judgment must be abstracted and a writ served (which must be returned nulla bona), and an application for order directing payment must be filed in the case where the judgment was entered, with notice to TREC. It is very important to maintain close communication with TREC throughout the post-judgment process.
Once the court orders TREC to issue payment on the judgment (up to the cap), TREC is subrogated to the rights of the plaintiff, who must assign his or her right, title, and interest in the judgment up to the amount it paid out. If the defendant fails to repay TREC within 31 days after notice from TREC, his or her license is revoked.
In conclusion, when representing plaintiffs who have been harmed by misconduct by a real estate license holder, it is important to be aware of the potential for future recovery that these clients may have from the Texas Real Estate Recovery Trust Account.
On the flip side, when representing license holders in basic real property/transactional matters, it is essential to ensure that your clients understand their duties and are aware of those statutes which, if violated, could form a basis for recovery against the fund and jeopardize the realtor’s license.
Cassandra M. Payton is an associate attorney at Cantey Hanger, LLP. She can be reached at [email protected]