Liability of Broker in Real Estate Transactions
A broker can be found liable on a contract or tort basis. A broker who is involved in a contract would be found liable if they do not comply with provisions in the stated contract. A broker who conflicts with state or common law is found liable on a tort basis. One of the most common tortious actions is fraud: both intentional and negligent. Fraud can be defined as either actual or constructive.
There are five main types of actual fraud:
- Intentional Misrepresentation: When a broker knows and does not believe something is true but says it’s true it is considered intentional misrepresentation. In order for damages to be recovered, a plaintiff has to prove that the broker intended to create detriment or risk.
- Negligent Misrepresentation: When a broker states something true without factual evidence to warrant such a positive statement, it is considered negligent misrepresentation. In order for it to be considered negligent misrepresentation, there must be a positive statement involved — not simply disclosing information.
- Promissory Fraud: A broker can be found guilty of promissory fraud if they promise to do something without any intention of doing it.
- Non-Disclosure / Concealment:
- If brokers conceal a fact materially that negative affect a property
- Known these negative facts were unknown to the other party
- Had the duty to disclose fact or omitted such facts
- This type of fraud is a catchall for conduct defined as deceit, but does not fall under the above categories.
Constructive fraud is defined as fraud that had no intent behind it, yet a broker gained advantage. To claim constructive fraud it must be proven that:
-A broker had a fiduciary obligation to the plaintiff
-This fiduciary obligation was breached
-The breach resulted in broker profit