Real Estate Broker Essentials – Breach of Fiduciary Duty and Self Dealing Litigation.
Real estate brokers should spend their time out on the streets MAKING money, not in Court SPENDING money on real estate lawyers. This blog helps identify various legal issues (particularly the prohibition against self-dealing) that can get a broker into a legal wrangle with courts, ethics boards, and even with the California Bureau of Real Estate (“BRE”) in the form of a licensing dispute, cite and fine case, or real estate accusation.
What are the fiduciary duties California real estate brokers owe their clients?
Most brokers are aware of the duties they owe their clients when they are engaged in an agency relationship (express, implied, or ostensible agency), these duties are commonly described by California Courts as:
The duty to counsel and advise
In Field v. Century 21 Klowden-Forness Realty, 63 Cal. App. 4th 18, 25-26, 73 Cal. Rptr. 2d 784, 789 (1998), as modified (Apr. 17, 1998) the Califonia Appellate Court discussed the duty to counsel and advise:
What is real estate broker “SELF DEALING” under California law?
In general, a real estate broker in California must avoid self-dealing and seeking seeking profits at the expense of his client. California case law has discussed this legal principle:
As these cases suggest, a real estate broker has to be very careful to make sure they do not compete with their clients. This can be tough when sometimes the real estate broker sees a great deal (ex. a great fix and flip opportunity, or an ability to buy a property and try to assign the contract for a profit). If you are involved in a real estate dispute involving the duty to avoid self dealing and secret profits, contact a CA real estate law firm by filling out the form below.
What is the difference between breach of fiduciary duty and professional negligence?
What about Negligent Misrepresentation?
Another common cause of action against real estate brokers is “intentional” and “negligent misrepresentation.”
Typical types of legal violations that land real estate brokers in hot legal water?
Self-dealing in real estate transactions is something to be very concerned about. For example, let’s say you are representing a commercial real estate investor and you show an office or industrial building. The client has you place an offer on the property and the offers are rejected without counteroffer. Then, you wait a couple weeks then go make an offer yourself and as real estate agent (acting as principle in the transaction) you acquire the property at the same price the client tried to purchase the property for. This could potentially raise self-dealing issues. This is not to say it is per se illegal, but instead just something to think about. This type of scenario could lead you into a lawsuit where breach of fiduciary duty, and broker self dealing is alleged.
What are the measure of damages in a breach of fiducicary duty real estate lawsuit?
Will my insurance company pick up my defense?
Yes, but they may “reserve their rights” (called a reservation of rights). One of the most important things about defending yourself in these types of cases is to make sure you have good records of all your real estate transactions. All your calls, letters, emails and contracts should be well documented and kept in a file. A real estate broker self-audit can be very important (especially in regard to your trust account for property managers), and we offer these services to our real estate clients. You also want to make sure the real estate law firm that is appointed to represent you in your case understands real estate law, and the type of transaction at issue. For example, if your case involves mortgage law or loan modification having a law firm experienced in those areas would be best to pick up your defense. Foreclosure and short sale cases can also present special problems that require a qualified real estate attorney. Certain commercial real estate transactions (ex. industrial, apartment, or multi-family deals) can also require special expertise.
It is very important to make sure your law firm has the skill and experience to represent you. If not, you have the right to pay for your own counsel in most cases. Fill out the contact form below to have us evaluate your case.
Will my real estate license be lost if I am sued for breach of fiduciary duty?
There is always a strong possibility that when someone sues you they will also file a complaint with the Department of Real Estate (now the Bureau of Real Estate). This can result in an investigation by the Bureau and can lead to an accusation being filed. The prudent thing to do when your real estate license may be on the line is to contact a real estate lawyer to ensure that your due process rights are enforced.
If I am in property management, and a property owner files a civil complaint will that trigger an investigation by the BRE?
Again, this is a possibility. The BRE normally investigates property managers in random audits, and having a complaint filed against you (at least in my opinion) will increase your chances of being audited and investigated.
California Broker Fiduciary Duty Resources
2. Broker’s statutory defense rejected (National Association of Realtors)
3. California Jury instruction benefit of the bargain rule (CACI 1924)
Contact a California real estate broker lawyer
Attorney Steve Vondran is not only a lawyer licensed to practice law in California and Arizona, he has also earned real estate broker licenses in both states and has experience in mortgage lending, residential and commercial real estate transactions. If you need an experienced real estate lawyer to help you assert or defend a broker fiduciary duty or self dealing case, contact us at (877) 276-5084.
Likewise, if you have broker’s E&O insurance (errors and omissions), and they deny your defense (ex. say you are sued for intentional fraud and they determine that they do not have to represent you, contact us for representation quotes. We offer low and affordable legal fees.
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