Know The Exceptions
Most real estate brokerage activity is exempt from the Deceptive Trade Practices Act. But there are three major exceptions you should know about:
- An express misrepresentation of a material fact that cannot be characterized as advice, judgment, or opinion
- Failure to disclose information known at the time of the transaction if the reason for not disclosing the information was to induce the consumer into the transaction (see Section 46(b)(24) of the Texas Business and Commerce Code)
- An unconscionable action or course of action that cannot be characterized as advice, judgment, or opinion.
As the name suggests, the Deceptive Trade Practices-Consumer Protection Act (DTPA) protects Texas consumers against deceptive business practices, unconscionable actions, and breaches of warranty.
DTPA and breach of contract allegations frequently appear in lawsuits, in part because successful claimants can recover attorney fees. Even if you do everything perfectly, you as the seller’s agent may become involved in a buyer’s lawsuit.
Susan Schwartz is a partner in the Dallas office of national law firm Wilson Elser Moskowitz Edelman & Dicker. She and Lee Santos, AXA XL TX Claim Manager, work with Pearl Insurance, a Texas REALTORS® risk management partner. “From a risk management perspective, we always preach: document, discuss, and disclose,” Santos says.
The best way to protect yourself from DTPA claims is to keep detailed records, Schwartz says. Retain communications with clients and vendors. If you communicate with clients via text message, save the messages or follow up with an email that reiterates what was written.
The more detailed and complete your files, the better able you are to defend yourself in non-disclosure claims. Schwartz recommends saving all written communication, but she has even heard of situations when agents produced audio or video communications to help their cases.
Avoid casual language and shorthand references when communicating professionally. “If you say OK to mean you received the information, a buyer’s attorney could later argue that you were consenting to something,” she says.
Schwartz and Santos recommend calling your errors and omissions insurance provider as soon as you receive a formal demand letter or if you believe an issue is on the horizon.
Don’t try to fix any issues yourself; tell your broker immediately. The brokerage may have dealt with your issue before. Staying up to date on your training helps, too.
Don’t be afraid to tell clients that a question or request is not part of your job. Real estate professionals are required to stay in their lane and not operate outside of their experience.
It’s also a good idea to trust your gut, Santos says. If you don’t have a good feeling about the client, or they aren’t being forthright, consider not doing business with them. “I know that’s difficult because that’s your income source, but whom you work with is a consideration in risk management,” he says.
“Most claims are about failure to disclose, such as mold or foundation issues,” Schwartz says. “There’s also a series of damages claimants can seek, such as asking for the property to be basically rebuilt. Some ask for mental anguish damages.”
Make sure that your clients are properly completing necessary disclosures and that you do your job carefully and thoroughly to limit your risk.
DTPA claims in Texas come with significant costs—around $30,000 on average. Schwartz says there’s also the stress of legal proceedings and litigation. Participating in legal proceedings also distracts you from practicing real estate.
Furthermore, if you take the case to trial and lose, the judgment is a public record and can affect your professional reputation, Santos says.
If you have questions, reach out to your E&O provider.