Agency Highlights: 2Q 2019

The agency cases this quarter address the scope of real estate brokerage services. In one case, the court found that the broker was not acting in his capacity as a real estate licensee, therefore precluding the buyers’ claims. In another case, the court determined that reliance was not an element of a violation of the state real estate licensing laws.

  1. Vallakalil v. Texas Real Estate Comm'n, No. 05-18-00702-CV, 2019 WL 2266663 (Tex. App. May 24, 2019)

Construction activities are not included in the definition of real estate brokerage services.

The buyers entered into a contract for the construction of a new house with a limited liability company (the “LLC”). The contract was signed on behalf of the LLC by a person who described himself as a real estate agent with experience in home construction. The construction project experienced numerous problems and delays, after which the buyers filed suit against the LLC for breach of contract, negligence, and violations of the Texas Deceptive Trade Practices Act (DTPA). Upon learning the LLC filed for bankruptcy, the buyers also sued the signatory of the contract individually, alleging that he was personally liable for the damages caused by the LLC. Additional claims were added for fraudulent inducement/statutory fraud, civil conspiracy, and unjust enrichment. When the individual failed to file an answer, the trial court entered a default judgment awarding the buyers significant monetary damages. Thereafter, the individual defendant filed for Chapter 7 bankruptcy protection. After failing to collect the judgment against the individual defendant, the buyers filed an application for an order directing payment from the Texas Real Estate Recovery Trust Account (RTA). The defendant Real Estate Commission opposed the buyers’ request, contending that while the individual was a licensed real estate agent, he was not acting in his capacity as a real estate licensee when he committed the alleged actions that were the basis of the claims. The trial court agreed, declining to permit recovery from the RTA. Buyers appealed.

The appellate court determined there was no evidence to support a claim that the agent ever acted in his capacity as a real estate licensee in the transaction in question, and that the construction contract did not identify any tasks that must be performed by a real estate licensee. The court further noted that the legislature made it clear that construction activities are not included in the definition of real estate brokerage services. Because the buyers were not aggrieved by the actions of someone acting in the capacity of a real estate licensee, the appellate court affirmed the trial court’s order barring recovery from the RTA. 

  1. Edson v. Fogarty, No. 1-18-1135, 2019 IL App (1st) 181135 (Ill. Ct. App. May 14, 2019)

Reliance is not an element of claim under the Illinois Real Estate License Act.

A real estate broker listed a space in a condominium building as zoned B1-3, a non-existent classification that was allegedly commercial. The broker informed the purchaser that the space could be used for a grocery store. After the sale, the purchaser learned that the space was zoned residential and not for commercial use. The purchaser brought an action against the listing broker alleging fraud, negligent misrepresentation and violations of both the Illinois Consumer Fraud and Deceptive Business Practices Acts, as well as the Illinois Real Estate License Act, alleging that the broker misrepresented to the purchaser that the property was zoned for commercial use, and that the buyer had relied on this representation in making the purchase. The trial court concluded that “[t]he consumer fraud and the negligent misrepresentation and even the Real Estate Licensing Act all require that there be reasonable reliance” and granted the broker’s motion for summary judgment. The purchaser appealed.

The appellate court held that the purchaser was not required to show reliance on the broker’s misrepresentations in order to make a claim under either the Deceptive Business Practices Act or the Illinois Real Estate License Act. The appellate court further held that the misrepresentations made to the purchaser were misrepresentations of fact, and not misrepresentations of law. As such, the appellate court reversed the trial court’s entry of summary judgment, and remanded the matter back to the trial court to determine whether the purchaser’s evidence in support of damages should be barred.1

Statutes and Regulations 2

Connecticut

Connecticut enacted a new law specifying that no person may conduct a real estate closing unless that person is a “Connecticut-licensed attorney who has not been disqualified from the practice of law due to resignation, disbarment, being places on inactive status, or suspension.” The law defines “real estate closing” as a closing for: (1) a mortgage loan to be secured by real property in Connecticut, other than a home equity line of credit or any other loan transaction that does not involve the issuance of a lender’s or mortgagee’s policy of title insurance; or (2) any transaction in which consideration is paid for a change in the ownership of real property in Connecticut.3

Alaska

Alaska real estate regulations were amended to include the definition of “team,” which is defined as two or more licensees within the same brokerage who work together as one unit under a collective name, and who provide services or perform activities that require a professional license in real estate. 4

Alaska also amended its regulations to require that the guidelines and procedures for the supervision of teams should include a policy covering the usage of the consumer disclosure and how consumers are represented within a team. 5

Illinois

In Illinois, the regulation defining “advertising” in connection with residential mortgage lending was amended to include business cards as a form of advertising. 6

In addition, an Illinois regulation relating to disclosures in mortgage lending advertisements was amended to state that advertisements must not be “false, misleading, or deceptive.” The amended regulation further states that the licensee’s Nationwide Mortgage Licensing System (NMLS) unique identifier shall not appear in any advertisement that relates to activities other than residential mortgage lending or brokerage, unless wording relating to the licensee's residential mortgage services also appears in the advertisements at least as prominently as the language regarding its other activities. 7

Volume of Materials Retrieved

Agency issues were identified in twenty-three cases.  Breach of fiduciary duty and buyer representation were each addressed in multiple cases this quarter.  Three agency statutes were retrieved this quarter. Six agency regulations were retrieved this quarter.


1 This case has not yet been resolved.
2 This second quarter update reviews legislative activity from the following jurisdictions: Alabama, Alaska, Colorado, Connecticut, Delaware, Florida, Hawaii, Louisiana, Maine, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, Oklahoma, Oklahoma, Rhode Island, South Carolina, Tennessee, Texas, and Vermont.
3 Conn. S .B. 320 (2019) 
4 Alaska Admin. Code tit. 12, § 64.990 (2019) 
5 Alaska Admin. Code tit. 12, § 64.117 (2019) 
6 Ill. Admin. Code § 1050.920 (2019) 
7 Ill. Admin. Code § 1050.950 (2019)

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State Law Based Changes

Read a summary of this quarter's additions to the State Law Based Changes.