Texas law recognizes a cause of action for fraud in real estate.  This cause of action is codified in the Texas Business and Commerce Code. Tex. Bus. & Com. Code Ann. § 27.01.  Fraud in a transaction involving real estate occurs when: (1) the defendant makes a false representation of a past or existing material fact (2) to a person for the purpose of inducting that person to enter into a contract, that is (3) relied upon by that person in entering into that contract. Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 343 (5th Cir. 2008).


Elements.  The statute applies to any fraud in a transaction involving real estate or stock in a corporation or joint stock company and consists of: (1) false representation of a past or existing material fact, when the false representation is (a) made to a person for the purpose of inducing that person to enter into a contract; and (b) relied on by that person in entering into that contract; or (2) false promise to do an act, when the false promise is (a) material; (b) made with the intention of not fulfilling it; (c) made to a person for the purpose of inducing that person to enter into a contract; and (d) relied on by that person in entering into that contract.  Tex. Bus. & Com. Code Ann. § 27.01 (a).   But just because real estate may be somehow involved in the transaction does not automatically make the fraud in real estate statute applicable to a particular transaction.  For example courts have held that a loan transaction, even if secured by land, is not considered to come under this statute. Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 343 (5th Cir. 2008); see also Marketic v. U.S. Bank Nat'l Ass'n, 436 F. Supp. 2d 842, 856 (N.D. Tex. 2006).   


Recoverable Damages.  A person defrauded can recover their actual damages caused by the fraud.  Tex. Bus. & Com. Code Ann. § 27.01 (b).  In addition, a defrauded plaintiff can recover exemplary damages if it is proven that the defendant made the false representation or promise with actual awareness of its falsity.  Tex. Bus. & Com. Code Ann. § 27.01 (c). Exemplary damages are damages awarded as a penalty or by way of punishment but not for compensatory purposes.  Tex. Civ. Prac. & Rem. Code §41.001(5).   A third party can also be responsible to the defrauded plaintiff for exemplary damages if it is proven that the third person: (1) had actual awareness of the falsity of a representation or  promise made by another person, (2) failed to disclose the falsity of the  representation or promise to the person being defrauded, and (3) benefitted from the false representation or promise.  Tex. Bus. & Com. Code Ann. § 27.01 (d).  Actual awareness may be inferred where objective manifestations indicate that a person acted with actual awareness. Id.§ 27.01 (c) and (d).  


Attorneys Fees Recoverable.  Any person who violates the provisions of this section shall be liable to the person defrauded for reasonable and necessary attorney's fees, expert witness fees, costs for copies of depositions, and costs of court.  Tex. Bus. & Com. Code Ann. § 27.01 (e).



INSURANCE PROCEEDS.  There are also specials provisions related to the provision of goods or services that will reasonably be expected to be paid by property insurance.  The Code requires that in any contract to provide a good or service that is reasonably expected to be paid wholly or partly from the proceeds of a claim under a property insurance policy and that has a contract price of $1,000 or more must contain the following notice in at least 12-point boldfaced type:  


"Texas law requires a person insured under a property insurance policy to pay any deductible applicable to a claim made under the policy.  It is a violation of Texas law for a seller of goods or services who reasonably expects to be paid wholly or partly from the proceeds of a property insurance claim to knowingly allow the insured person to fail to pay, or assist the insured person's failure to pay, the applicable insurance deductible."


It is a class B misdemeanor for anyone who: 


(1)  advertises or promises to provide a good or service to an insured under a property insurance policy in a transaction in which: (A)  the good or service will be paid for by the insured from the proceeds of a property insurance claim; and (B)  the person selling the good or service will, without the insurer's consent: (i)  pay, waive, absorb, or otherwise decline to charge or collect the amount of the insured's deductible; (ii)  provide a rebate or credit in connection with the sale of the good or service that will offset all or part of the amount paid by the insured as a deductible; or (iii)  in any other manner assist the insured in avoiding monetary payment of the required insurance deductible; or


(2)  provides a good or service to an insured under a property insurance policy knowing that the insured will pay for the good or service with the proceeds of a claim under the policy and, without the insurer's consent: (A)  pays, waives, absorbs, or otherwise declines to charge or collect the amount of the insured's deductible; (B)  provides a rebate or credit in connection with the sale of the good or service that offsets all or part of the amount paid by the insured as a deductible; or (C)  in any other manner assists the insured in avoiding monetary payment of the required insurance deductible.


Statute of Limitations.  A statutory claim for fraud in real estate must be brought within four years of when the fraud was or should have been discovered by reasonable diligence. Ford v. Exxon Mobil Chem. Co., 235 S.W.3d 615, 617 (Tex. 2007). 

Fraud in Real Estate

© 2020 Mark J. Courtois

© 2020 Funderburk Funderburk Courtois, LLP.   All rights reserved.

Unless otherwise noted, attorneys in the firm are not certified by the Texas Board of Legal Specialization.

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