Real Estate Fraud Laws in Los Angeles, CA
Broker’s Liability in Real Estate Transactions: Fraud or Lack Thereof
Real estate brokers, generally, might be found liable on contract or tort basis. A broker is found liable on contractual basis for not specifically complying with provisions of the stated contract. Broker is found liable on tort for running afoul of statute or common law. One of the most frequent tortious grounds is fraud. Fraud could be intentional or negligent. Let us explore this important subject matter of Los Angeles Real Estate Fraud Laws further.
Fraud is referred to deceptive conduct by broker. Such fraud could be either ACTUAL or CONSTRUCTIVE.
A. ACTUAL FRAUD
There are five main types of fraud:
1. INTENTIONAL MISREPRESENTATION
Intentional misrepresentation is when the broker does not believe something is true but says it is true. Generally, to recover damages under this type of fraud, the plaintiff MUST show the defendant Broker INTENDED to INDUCE the plaintiff to change a position leading to plaintiff’s detriment or risk. Since, often, large sums of money is involved in real estate transaction, the temptation might be to deceive the principals, lender or seller to commit to the transactions by making statements the broker does not believe it is is true.
2. NEGLIGENT MISREPRESENTATION
Negligent misrepresentation is when the broker states something is true but the information broker has does not warrant making such positive statement. This is noteworthy there must be a positive statement, and not merely failing to disclose something to constitute negligent misrepresentation. For instance, broker might be liable for making affirmative statements as to the exact square footage of a property without adequate investigation. In addition, broker could be found liable for making affirmative statement as to the structural condition of the property without knowing there was a report by an engineer stating the property would not withstand an earthquake.
3. PROMISSORY FRAUD
Broker could be found liable for promising a party to do something without any INTENTION of performing it. For instance, broker could be liable for promising buyers to find them tenants when they buy a property, but would not have ever intended of fulfilling it.
4. CONCEALMENT OR NON-DISCLOSURE
For concealment or non-disclosure, broker MUST have:
- Concealed a fact MATERIALLY affecting the desirability of the property in the eyes of the other party;
- Known the fact was unknown to the other party; AND
- Had a duty to disclose such fact OR had stated other facts which omitting a particular fact would have misled the other party.
This type of fraud serves as a catchall for conduct construed as deceit but not fitting other categories. For example, if a broker affirmatively states to a prospective buyer that an easement would not have any impact on the right of way and would not impede the buyer’s pathway, but in reality the terms of easement would prevent the buyer from having a driveway on that portion of easement.
As a matter of public policy, statements in a contract absolving or exculpating brokers from intentional misrepresentation or fraud are void.
B. CONSTRUCTIVE FRAUD
Constructive fraud could be a cause of action against a broker where there was no actual intent to defraud, yet broker gained an advantage.To claim constructive fraud, it must be shown, among other things:
- The broker had a fiduciary duty to the plaintiff;
- The fiduciary duty was breached; AND
- As a result of the breach of the fiduciary duty, the broker gained a profit, even though he did not fraudulently intend to.
For instance, a broker could be held liable for constructive fraud for asserting a particular property is exactly what the buyers are looking for without really investigating what really the buyers desire, despite having no fraudulent intent, but making a commission by selling the property.
What Does A Quiet Title Action in California Entail?
Quiet title action is brought to determine who the real owner of a property is or who possesses what interests in the property. This article explores in some depth some of the requisite legal procedures to be followed in a quiet title action as well as some of the issues to be mindful of in mounting an incisive title action suit.
SOME LEGAL BACKGROUND
Usually, plaintiff in a quiet title action should predicate its case on the strength of its own case as opposed to predicating the case on the weakness on the opposing party. This latter statement does not necessarily mean a plaintiff in a quiet title action should have a perfect ownership record. It is then understood that Plaintiff needs to allege some interest in the property AND that the defendant asserts a claim in the same real property adverse to the plaintiff. Accordingly, the court decides who has what interest in the property, if any.
FRAUD AS A BASIS IN QUIET TITLE ACTION
A quiet title action may often be pleaded with general allegation. Nonetheless, there is an important exception to such general rule. The exception involves alleging fraud in obtaining title by defendant. In fact, if fraud is alleged as the underlying reason for quiet title, the fraud allegations must be pleaded with specificity.
As importantly, a complaint consisting of 2 or more causes of action one dealing with quiet title action and others involving fraud and undue influence, STILL alleges one count of FRAUD and needs to be pleaded with specificity. This means such complaint overcomes summary judgment or falls victim to a summary judgment, based on the specificity or lack thereof the fraud allegations.
- If Defendant holds title to property as a result of a fraudulent deed, the proper cause of action would be cancellation of deed or rescission, probably.
- If Defendant holds title to property as a result of a mistaken deed, the proper cause of action would be rescission of deed, probably.
CLOUD OF TITLE
It is important to first define clouding of title. When a title to a property is marred by the existence of another instrument, then it is stated that the instrument clouds the title. Such instrument could be a fraudulent deed.
In general, to constitute a cloud on title, the instrument MUST on its face be valid. Examples of being valid on its face include: when defendant fraudulently obtained the executed deed from plaintiff and recorded such fraudulently obtained executed deed in county recorder’s office.
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