Legal FAQs for REALTORS® — Brokerage Liability Issues
Texas Association of REALTORS® Legal Fund

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Legal disclaimer

Is it difficult for a Texas REALTOR® to obtain assistance from the legal fund? (updated Nov. 1, 2002)

There is a formal application and certification that an applicant, or his attorney, must complete. The application is submitted to the applicant’s local association for review. The local association may forward the application to the Texas Association of REALTORS® Legal Review Committee recommending that the application be approved, or it may deny the application and return it to the applicant. The Legal Review Committee, in turn, makes a recommendation to the Texas Association of REALTORS® Board of Directors either to approve or deny the application. Probably, the most crucial requirement to satisfy in the application process is that the case must be of significance to REALTORS® as a class or the real estate industry as a whole.


What kind of cases or actions has the Texas Association of REALTORS® Legal Fund been used for in the past? (updated Nov. 1, 2002)

Every six months, the Texas Association of REALTORS® Legal Review Committee reviews applications and requests for funding from the Legal Fund from Texas REALTORS® and litigants involving cases that significantly affect the entire real estate industry. A brief summary of three recent cases is noted below. Case 1: A REALTOR® was sued by a buyer who alleged the agent failed to properly advise him that the property lay near an environmentally contaminated site. At the time of the contract, the agent provided the buyer with a detailed written statement (signed by the buyer) about the toxic dangers and health hazards posed to residents of the subdivision, since it was known that a nearby site was environmentally contaminated. The REALTOR®'s errors-and-omissions insurance carrier refused coverage on the basis that the claim involved bodily injury that was excepted from the policy. The buyers originally alleged damages in excess of $30 million. The legal fund assisted the defendant in resolving the case favorably. Case 2: The association filed an amicus brief in an Austin case in which a savings and loan association filed suit against the attorney general of Texas, arguing that federal regulations preempted the Texas Constitution regarding its homestead protection. The Austin Federal District Court disregarded the savings and loan’s claims and upheld the Texas Constitution. The Fifth Circuit Court of Appeals reversed and held that the Texas Constitution had been superseded. The case was ultimately moot as a result of Congressional action initiated by Rep. Gonzales of San Antonio that amended the Home Owner Loan Act so that it was clear that Congress did not intend to supersede the Texas Constitution. Through the Legal Fund, the Texas Association of REALTORS® was able to monitor and participate in the action. Case 3: A REALTOR® was sued by a buyer alleging that the agent did not disclose that the property lay in a flood-prone area or that the property had previously flooded. The buyer purchased the property under an assumption and refinanced the lien six months after closing. At the time of the purchase, flood maps for the area showed the property not to lie in a flood hazard area. About a month after closing, the flood maps were revised and included the property in a flood hazard area. At the time of the refinance a survey incorrectly stated that the property did not lie in a flood hazard area. Three years after the purchase, the property flooded and the buyers then learned that the property had previously flooded. The case proceeded to a jury which found for the defendant REALTOR®. The Legal Fund was able to assist the REALTOR® in defeating the unfounded claim.


What is the purpose of the legal fund? (updated Nov. 1, 2002)

The Legal Fund is used for a number of expressed purposes: 1. Helping Texas REALTORS® understand their legal rights and duties under law 2. Providing legal assistance for matters pending in court or governmental agencies 3. Defraying all or a portion of legal expenses for pending litigation in which a member is a party 4. Defraying legal expenses for cases in which the association intervenes or files briefs as a friend of the court 5. Monitoring and participating in the actions of governmental agencies 6. Reimbursing travel expenses of Texas REALTORS® who participate in form-development task forces


What is the Texas Association of REALTORS® Legal Fund? (updated Nov. 1, 2002)

The Texas Association of REALTORS® Legal Fund is maintained by the association through the oversight of the Legal Review Committee. The fund is used only for purposes authorized by the Texas Association of REALTORS® Board of Directors and may only be accessed by REALTORS® through a formal application process. It is primarily reserved for paying the legal expenses of cases that are significant to Texas REALTORS® as a class or the real estate industry.


Are there any additional restrictions or limitations for access to the legal fund? (updated Nov. 1, 2002)

The rules and regulations of the legal fund set forth specifically all of the application procedures and the requirements that must be met before assistance from the legal fund may be authorized. For copies of the procedures or applications, contact the Legal Affairs Department.


Is the legal fund like an errors and omissions insurance policy? (updated Nov. 1, 2002)

No. The legal fund is not a substitute for errors-and-omissions insurance. The Texas Association of REALTORS® strongly encourages members to maintain E&O insurance. There are many lawsuits in which a Texas REALTOR® may be involved that are not significant to Texas REALTORS® or the real estate industry as a whole. In fact, the Legal Review Committee recommends that a number of applications be denied each year.


Is the legal fund the same as the recovery fund? (updated Nov. 1, 2002)

No. The Real Estate Recovery Fund is a fund created by the Real Estate License Act that is maintained by the Texas Real Estate Commission (the state agency regulating Texas real estate brokers and salesmen). The Recovery Fund is funded by a $10 fee paid with every broker’s or salesman’s original license application. The recovery fund is a state-run consumer protection fund used to reimburse aggrieved persons who suffer actual damages by reasons of certain acts committed by brokers, salesmen, or their unlicensed employees or agents. A number of statutory elements must be satisfied by the consumer before he can file a claim for payment out of the recovery fund, including first obtaining a judgment against the broker or salesman that is not satisfied.


Is the legal fund ever used for purposes not directly related to REALTORS®? (updated Nov. 1, 2002)

Very rarely. Ultimately, the board of directors must make a determination if the use of the Legal Fund satisfies the purposes and intent of the fund. Persons who are not members of the REALTOR® organization have asked TAR to file amicus briefs in cases in which no REALTOR® is involved. For example, litigants in one case involving antitrust issues asked the association to file briefs with the court. In another case, litigants in a city-zoning dispute asked the Texas Association of REALTORS® to file briefs with the court. After careful review, the board of directors chose not to file the requested briefs. However, the fund has been used to pay for expenses in filing briefs in cases involving homestead issues (as discussed above), contractual issues and other issues. It has also been used to fund the filing of analyses and comments before governmental agencies. In each of these cases, the board of directors determined that there was a significance to REALTORS® as a class.


Legal Disclaimer: The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.

While the Texas Association of REALTORS® has used reasonable efforts in collecting and preparing materials included here, due to the rapidly changing nature of the real estate marketplace and the law, and our reliance on information provided by outside sources, the Texas Association of REALTORS® makes no representation, warranty, or guarantee of the accuracy or reliability of any information provided here or elsewhere on TexasRealEstate.com. Any legal or other information found here, on TexasRealEstate.com, or at other sites to which we link, should be verified before it is relied upon.

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