LESSON 11: DECEPTIVE TRADE PRACTICES Flashcards
What is fraud in real estate?
Fraud is when someone deliberately intends to gain something of value or cause damage to another. An example is when an agent tells a buyer that a property is sure to double in value in a year while knowing the area’s values only go up by 10% a year. Fraud is intentional and carries more severe legal penalties than misrepresentation.
What is misrepresentation in real estate?
Misrepresentation is the failure to provide all the relevant facts. For instance, if an agent doesn’t disclose that a creek behind a property overflows and the house has flooded twice in the past two years, that’s misrepresentation. It can also apply if an agent knows the seller is being dishonest in the seller’s disclosure or not disclosing everything.
How is fraud different from misrepresentation?
Fraud involves an intention to mislead, while misrepresentation is typically unintentional or negligent. For example, saying “I told the client the roof didn’t leak (even though I knew it leaked) so they would make an offer” is fraud, while “I didn’t tell the client about the leaking roof, although I didn’t know if it leaked” would be misrepresentation or negligent misrepresentation.
What is the Texas Real Estate License Act Section 1101.805 on misrepresentation or concealment?
Under Sec. 1101.805, a party is not liable for misrepresentation or concealment unless they knew about the falsity and failed to disclose it. This applies to license holders who fail to disclose their knowledge of a misrepresentation or concealment made by others.
What is a warranty of authority in real estate?
A warranty of authority is a promise made by an agent to confirm they are authorized to act on behalf of someone. If an agent acts without authority and the third party contracts with them, the agent could be personally liable.
What are the possible outcomes of negligence or wrongdoings in real estate?
Possible outcomes include: 1) Professional sanctions (such as fines or suspension of a license), 2) Rescission (the principal may cancel the agreement), 3) Avoidance (the principal can avoid the obligation to pay commission), and 4) Legal recourse (damages for the injury caused).
What is the Texas Deceptive Trade Practices Act (DTPA)?
The DTPA, enacted in 1973, protects consumers from false, misleading, and deceptive practices, unconscionable actions, and breaches of warranty. In 1995, it was amended to exempt real estate licensees from DTPA claims unless they commit an unconscionable act, misrepresentation of a material fact, or failure to disclose to induce a transaction. In 2011, real estate brokerage was specifically exempted unless the agent’s conduct meets these criteria.
What types of disclosures are required by good business practices or TRELA in real estate?
Required disclosures include: full property condition, things making the property notorious (e.g., murder/suicide), events in the area that affect the property (e.g., planned highways), or anything a typical buyer would want to know.
What disclosures are permitted but not required in real estate?
Examples of permitted but not required disclosures include: 1) Death on a property (by suicide, natural causes, or accident), 2) Information about registered sex offenders (if the seller chooses to disclose).
What disclosures are prohibited under real estate laws?
Disclosures prohibited by law include anything about protected classes under the Fair Housing Act, such as race, color, religion, sex, handicap, national origin, familial status, and sexual orientation and gender identity for NAR members.
What is the acronym “FRESH CORN” used for in real estate?
“FRESH CORN” is used to remember the protected classes under the Fair Housing Act: F - Familial Status, R - Religion, E - Ethnicity, S - Sex, H - Handicap, C - Color, O - Orientation, R - Race, N - National Origin.
How does the Texas Deceptive Trade Practices Act apply to sellers?
Sellers can be held liable under the DTPA for deceptive or unfair practices. This includes false or misleading business practices, which could result in legal consequences for the seller.
What is the role of the DTPA in Texas consumer protection?
The DTPA, enacted in 1973, protects consumers from false, misleading, and deceptive practices, unconscionable actions, and breaches of warranty. It offers no-fault liability and attractive remedies for consumers, providing a strong protection against deceptive business practices.
Who is considered a “consumer” under the DTPA?
A consumer under the DTPA is defined as any individual, partnership, corporation, or subdivision that seeks to acquire, purchase, or lease goods or services. It includes individuals or entities acquiring goods/services for personal or business purposes.
What is the final element in consumer status under the DTPA?
The purchase or lease must be of “goods or services,” where “goods” are tangible chattels or real property, and “services” are work, labor, or services purchased or leased for use.
What are “goods” according to the DTPA?
“Goods” are tangible chattels or real property purchased or leased for use, including real estate, but excluding intangibles like money, stocks, accounts receivable, etc.
What are “services” according to the DTPA?
“Services” are work, labor, or services purchased or leased for use, including those related to the sale or repair of goods. It also includes repair, construction, and professional services such as medical or legal services.
What is excluded from the definition of “goods” in the DTPA?
Exclusions include money, accounts receivable, stock, options contracts, certificates of deposit, insurance policy proceeds, trademarks, limited partnership interests, and lottery tickets.
What is excluded from consumer status under the DTPA?
Business consumers with assets of $25 million or more, or entities controlled by such corporations, are excluded from the definition of consumer for the DTPA.
What does the DTPA apply to?
The DTPA applies to false, misleading, or deceptive acts in trade or commerce, covering both tangible goods and services. It also includes unconscionable actions that take advantage of a person’s lack of knowledge or ability.
What is an unconscionable act under the DTPA?
An unconscionable act is one that “takes advantage of the lack of knowledge, ability, experience, or capacity of a person to a grossly unfair degree.”
What does the DTPA not cover in terms of professional services?
The DTPA does not apply to professional services that involve providing advice, judgment, opinion, or similar professional skill.
How does the DTPA relate to violations of other laws like RESPA or Fair Housing?
Violations of federal laws, such as DTPA, RESPA, or Fair Housing, are also violations of the Texas Real Estate License Act (TRELA), leading to consequences such as charges of misrepresentation or concealment.
What happens if a representation under the DTPA is fraudulent?
If a falsehood is an obvious falsehood, made with knowledge of the falsehood, and causes the other party to enter into an agreement, it is considered fraud and may result in civil and criminal liability.
What is a violation of the DTPA also a violation of?
A violation of the DTPA is also a violation of the Texas Real Estate License Act (TRELA) and could lead to disciplinary actions, such as suspension or revocation of the real estate license.
What does Article 2 of the Code of Ethics require from REALTORS®?
REALTORS® must avoid exaggeration, misrepresentation, or concealment of pertinent facts related to the property or transaction. They are not obligated to discover latent defects or advise on matters outside the scope of their real estate license.
What can happen if a real estate agent violates the DTPA?
A license holder who violates the DTPA may face disciplinary action by the Texas Real Estate Commission, including suspension or revocation of their license, fines, sanctions, or criminal action. Civil liability may include compensatory and punitive damages.
What does “intent” mean in relation to the DTPA violation?
The DTPA does not require intent to violate the Act. Even if the violation was inadvertent, the consumer may recover damages. However, intentional violations can result in additional damages up to three times the actual damages.
How does lack of intent affect the outcome of a DTPA case?
If the violation is found to be intentional, additional damages up to three times the actual damages may be awarded. Even without intent, the consumer can recover damages if the prohibited conduct is proven.
What is prohibited regarding goods or services?
Passing off goods or services as those of another.
What confusion is prohibited?
Causing confusion or misunderstanding about the source, sponsorship, approval, or certification of goods or services.
What affiliation or certification confusion is prohibited?
Causing confusion about affiliation, connection, association with, or certification by another.
What deceptive representations are prohibited?
Using deceptive representations or designations of geographic origin in connection with goods or services.
What is prohibited regarding the representation of goods or services?
Representing goods or services as having sponsorship, approval, characteristics, benefits, or qualities that they do not.
What is prohibited regarding the condition of goods?
Representing goods as original or new if they are deteriorated, reconditioned, used, or second-hand.
What false representation is prohibited?
Representing that goods or services are of a certain standard, quality, or grade, or that goods are of a particular style or model when they are not.
What type of disparagement is prohibited?
Disparaging the goods, services, or business of another with false or misleading representations of facts.
What is prohibited in advertising goods or services?
Advertising goods or services with the intent not to sell them as advertised.
What is prohibited in advertising with respect to supply?
Advertising goods or services with the intent not to supply a reasonable public demand, unless the advertisement discloses a limitation of quantity.
What misleading statement is prohibited in pricing?
Making false or misleading statements about the reasons for, existence of, or amount of price reductions.
What is prohibited regarding the representation of an agreement?
Representing that an agreement confers rights, remedies, or obligations that it does not have or involve, or that are prohibited by law.
What is prohibited regarding repair services?
Knowingly making false or misleading statements about the need for parts, replacements, or repair services.
What misrepresentation is prohibited regarding authority?
Misrepresenting the authority of a sales agent, representative, or agent to negotiate the final terms of a consumer transaction.
What is prohibited in repair charges?
Basing a charge for repairs on quantity or warranty rather than the value of actual repairs, without separately stating the charges for work and warranty.
What is prohibited regarding odometers?
Disconnecting, resetting, or turning back the odometer on a motor vehicle to reduce the number of miles indicated.
What type of fraudulent sale representation is prohibited?
Advertising a sale by fraudulently representing that a person is going out of business.
What is prohibited regarding prescription drug discount cards?
Advertising, selling, or distributing a card that falsely purports to be a prescription drug identification card offering discounts.
What is prohibited regarding chain referral sales plans?
Using or employing a chain referral sales plan in connection with the sale of goods, where compensation is contingent on future events after the purchase.
What is prohibited regarding guarantees or warranties?
Representing that a guarantee or warranty confers rights or remedies it does not have or involve.
What promotional scheme is prohibited?
Promoting a pyramid promotional scheme.
What is prohibited regarding work or services performed?
Representing that work or services have been performed or parts replaced when they have not been.
What is prohibited regarding venue for filing suit?
Filing suit based on a written contract for consumer transactions in a county other than where the defendant resides or signed the contract, unless specific conditions apply.
What is prohibited regarding the failure to disclose information?
Failing to disclose known information about goods or services, which would induce the consumer to make a transaction they otherwise would not have entered.
What is prohibited regarding business entity names?
Using terms like “corporation” or “incorporated” in a business entity’s name when it is not incorporated.
What is prohibited regarding annuity contracts?
Selling or promoting an annuity contract that will be the subject of a salary reduction agreement if it is not an eligible qualified investment.
What is prohibited during a disaster?
Taking advantage of a disaster by selling or leasing necessities like fuel, food, or medicine at an exorbitant price.
What are Statutes of Limitations?
Statutes of Limitations are laws that place a time limit on the commencement of lawsuits, typically to ensure the fair adjudication of disputes.
What is the purpose of the statute of limitations?
The purpose is to ensure that claims are brought in a timely manner, preventing the loss of evidence and memory over time.
How long is the statute of limitations for most contractual claims in Texas?
In Texas, oral contracts are subject to a 2-year limit, and written contracts to a 4-year limit. Claims for breach of a real property sales agreement have a 4-year limit.
What is the statute of limitations for DTPA suits?
DTPA suits must be brought within two years after the deceptive act or practice occurred. If the act was over a period, the time starts from the first act.
What if a violation is concealed?
If the violation is concealed, the consumer has two years from discovering or reasonably should have discovered the violation.
What is the extension for the statute of limitations in certain cases?
If the violator knowingly causes a delay in filing, the statute of limitations may be extended for 180 days.
What should be done when the statute of limitations might apply?
Promptly contact competent legal counsel as the statute of limitations can change, and timely attention is important.
What are frivolous claims?
A frivolous claim is one without a reasonable basis. If the court finds a claim was groundless and brought in bad faith or for harassment, it may award the defendant’s attorney’s fees.
What happens if a settlement offer is rejected?
If a defendant offers to settle for the full claimed amount plus attorney’s fees, and the consumer rejects the offer, it may serve as a defense to the consumer’s complaint.
What is a defense to damages in a DTPA suit?
A defense is if the defendant proves they relied on false information from government records or other sources that they could not have reasonably known were false.
What is a waiver under Section 17.42?
A waiver is a voluntary relinquishment of rights under the DTPA, which is enforceable if in writing, signed by the consumer, and made without undue influence or unequal bargaining power.
When is a waiver under Section 17.42 unenforceable?
If the consumer’s legal counsel was selected or influenced by the defendant or their agent, the waiver is unenforceable.
What are the requirements for a valid waiver?
The waiver must be conspicuous, in bold-face type of at least 10 points, and clearly state the consumer is waiving rights under the DTPA.
What is a plea in abatement?
A plea in abatement is filed to dismiss or delay a lawsuit due to issues such as lack of jurisdiction, statute of limitations running out, or improper filing.
What is required before filing a DTPA lawsuit?
The consumer must give a 60-day notice to the defendant detailing the complaint, damages, and expenses.
What is the DTPA?
The DTPA is the Deceptive Trade Practices Act, a law that protects consumers from false or misleading business practices.
What are monetary damages?
Monetary damages are the amount determined to compensate for losses, placing the injured party in the position they would have been if the wrongful act had not occurred.
What is privity?
Privity is a direct relationship between two parties that allows one to sue the other based on a contract or other legal grounds.
What are exemplary damages?
Exemplary damages are awarded to punish the wrongdoer and deter future misconduct, over and above actual damages.
Who is considered a consumer?
A consumer is any individual, partnership, corporation, or governmental entity that acquires goods or services through purchase or lease.
What is puffing?
Puffing is making exaggerated statements about a product or service that a reasonable person would recognize as nonfactual.
What is misrepresentation?
Misrepresentation is an untrue statement of material fact that induces a party to act, which may be intentional (fraud) or unintentional.
What is tort liability?
Tort liability refers to being legally responsible for personal injuries, property damage, or wrongdoing through negligence or intentional misconduct.
What are the options for tort liability?
Options include liability for personal injury, property damage, deceptive trade practices, or employee law violations.
What is the role of the License Act and Code of Ethics?
The License Act and Code of Ethics provide the minimum standards of behavior for real estate professionals, but agents are encouraged to go beyond them with good judgment.
What should a broker do when presented with two similar offers?
The broker should encourage the seller to accept the higher offer, placing the seller’s interests above their own or the buyer’s.
Did the broker violate the license act in the scenario with two offers?
No, the broker followed the seller’s instructions, despite one offer being from within the same office.
What does an agent owe a seller in an agency relationship?
The agent owes the seller the duty of obedience, placing the seller’s interests above their own and above those of the buyer.
