A fiduciary duty is a legal obligation wherein one party is legally required to act in the best interests of another. The obligated party is known as the fiduciary and is entrusted with the care of the other party’s finances, property, or other valuables. When a breach of this legal duty occurs, it can result in serious repercussions for both parties. Understanding how a breach of fiduciary duty in real estate transactions can occur is essential to protecting one’s assets and finances.
When it comes to real estate, in the event a real estate professional is acting as an “agent,” they owe their client a fiduciary duty. Though commonly referred to as real estate agents, it is actually rare for real estate deals to involve real estate professionals acting within the legal definition of an agent.
Not All Real Estate Agents Are Bound by a Fiduciary Duty
If you’re thinking of buying a house, it’s easy to assume the real estate agent or agency you’re working with has your best interests at heart. Whether you’re buying or selling, it’s hard to imagine that these entities would only think of themselves, right?
The Consumer Federation of America found that “real estate agents often are not required by law to represent the interests of buyers or sellers.” This means some real estate agents’ clients can fall prey to poor transactions or self-dealing, as real estate agents are not legally obligated with a fiduciary duty to their clients.
Most states have enacted laws requiring a specific signed document to give a real estate professional the status of a legal agent. In Texas, the Texas Real Estate Commission (TREC) has specific rules in place governing a real estate broker or salesperson acting as an agent or fiduciary of another. Certain laws – like the Texas Real Estate License Act, the Inspector Act, the Residential Service Company Act, and the Timeshare Act – helped codify and solidify these rules.
How Can Real Estate Professionals Breach Their Fiduciary Duty?
Even with applicable laws and regulations in place, a breach of fiduciary duty can still occur in a real estate transaction. When a real estate professional is granted agent status, the resulting fiduciary duty requires them to be honest and candid with the buyer they are representing. The agent will spend the majority of the buying or selling process working independently of the client by negotiating with other parties, coordinating inspections, and reviewing documents. The real estate agent is ultimately required to act as a proxy for their client by making decisions for them and reporting information in an open and honest manner.
A breach of the real estate agent’s fiduciary duty to their client can occur when the agent decides to act in ways that benefit themself instead of in the best interest of their client.
Breaches of fiduciary duty in real estate transactions can occur when:
- The agent receives secret profits or fees not disclosed to the client
- The agent fails to inform a seller of other offers on the table after an offer has been accepted
- The agent fails to advise a buyer of any material defects to the property
- There is dual representation or facilitating a sale of a property by acting as the real estate agent for both the buyer and seller without either or both of the parties’ knowledge
- The agent provides the client’s personal information to the other broker without the client’s permission
- The agent declines or accepts an offer without the client’s approval
Each breach can have a serious financial impact on the client and can cause irreparable damage, including leaving a buyer stuck with a house full of defects or a client having their personal details disclosed to unknown individuals and/or entities.
In the event a breach of fiduciary duty in a real estate transaction occurs, there are several available legal remedies, including:
Rescission
When a real estate agent breaches their fiduciary duty, the client can ask the court to rescind the contract and restore them to its status before entering the agreement. This can involve the return of the sold property to the seller along with a refund of the purchaser’s money.
Forfeiture of Commission
A real estate agent is not entitled to payment if they breach their fiduciary duty. Because of this, an agent can be required to refund any compensation received.
Damages
If a breach of fiduciary duty by a real estate agent damages their client, the agent must compensate the client for those damages. In the event the agent of a seller failed to present a better offer than what was accepted, the agent would be required to reimburse the seller for the difference between the lower and higher offers.
Breach of Fiduciary Duty Attorneys
Failing to uphold a fiduciary duty can have serious legal ramifications. Any time fiduciary profits off of a real estate transaction through self-dealing or causes a loss to their client, they can be held legally accountable for their actions. The attorneys at Feldman & Feldman routinely handle allegations of breach of fiduciary duty. We understand these claims often involve delicate situations, so we will protect your interests while exploring all options for resolution. If you have been accused of breaching a fiduciary duty or if you believe your fiduciary’s actions constitute a breach, we can help.
Our commercial litigation attorneys understand the complexities and nuances of the fiduciary relationship, and we represent clients in pursuing and/or defending against these claims. Contact the real estate transactions attorneys at Feldman & Feldman today to discuss your needs.