9 What Can Expose a Seller to Liability in a Real Estate Transaction

In a real estate transaction, the seller’s legal obligations to the buyer survive the closing. If the buyer discovers they did not receive the full benefit of the bargain, they may still be able to sue the seller and possibly recover monetary damages. In certain situations, they may even be able to rescind the transaction. Buyers often discover, after a transaction closes, that things about a property aren’t what they thought. But not every discovery of this kind may be grounds for litigation.

Failure to Notify the Buyer of Defects

The extent of a seller’s obligation to disclose defects in a property depends on whether it is a residential or commercial real estate transaction. Section 5.008 of the Texas Property Code applies to residential real estate transactions. This law requires sellers to provide buyers with a written notice pertaining to the property. This notice includes information about the property and a section where the seller must disclose defects. There is an explicit question that asks the seller whether they are aware of any defects in the property. If a seller lies or conceals a known defect, the buyer may be able to sue for damages or to rescind the transaction.

Still, this right is not unlimited. The defect must be a material one. If there is a small crack or a minor malfunction, it would probably not be considered material. In addition, the defect must be one that would not be obvious to anyone performing a walkthrough of the home, as was the buyer’s right before the transaction closed. To win a defect lawsuit, the buyer’s suit must concern defects that existed at the time the deal closed, and not those that newly arose after the buyer purchased the home.

Violations of the Texas Deceptive Trade Practices Act

Even though Section 5.008 does not apply to commercial real estate transactions, sellers in those transactions also have a common law duty to disclose known defects. There are other civil laws, such as the Deceptive Trade Practices Act (DTPA), that could allow a consumer who suffered harm in a real estate transaction to file a lawsuit. Practically anyone could be considered a consumer under Texas law, even an LLC or partnership formed to purchase commercial real estate. Under the DTPA, a buyer can hold a seller legally liable for either an affirmative misrepresentation or a failure to disclose that was intended to induce a transaction. The buyer may even be able to recover compensation greater than just their economic damages.

Negligent Misrepresentation

A Texas real estate seller can also be sued for negligent misrepresentation. Here, the seller may have made an affirmative false representation about the property. This misrepresentation must be something material that could impact the price the buyer would pay for the property.

The seller would not be strictly liable for any misrepresentation they made in the sales process. Instead, they must take reasonable care to ensure the information they disclose is true and correct. They may not know a fact at the time they make a false disclosure. They may have disclosed what they believed to be true at the time.

Negligent misrepresentation is not the same as lying, nor is it fraud. This cause of action is when a seller is careless about obtaining information or making any communication about the property. The seller does not need to act intentionally, nor does a buyer need to show the seller knew exactly what they were doing. Here, a buyer’s focus would be on the process that the seller relied on before they made the representation or communication. A real estate attorney would have to reconstruct what the seller did or did not do.

There are two different types of fraud for which a buyer may sue a real estate seller in Texas. First, there is common law fraud, which would apply to any kind of transaction. Secondly, statutory fraud.

Statutory Fraud

The Texas legislature adopted laws regarding fraud in real estate transactions because fraud was unfortunately all too common in these kinds of transactions.

There are three things a buyer must prove to show statutory fraud in a Texas real estate transaction:

  • The falsehood was material
  • The falsehood was made to induce a real estate transaction
  • The buyer relied on the falsehood to their detriment

Unlike negligent misrepresentation, a fraud claim requires the buyer to show the seller had the intent to defraud them, which is a high bar the buyer must reach in order to prove fraud. If the buyer is successful, they will be able to recover monetary damages for their actual losses. In addition, depending on the extent of the fraud, the buyer may be able to recover exemplary damages from the seller, which serve the purpose of punishing the seller for their wrongdoing.

Failure to Deliver Full Title

The seller may also be liable when they did not have full title to the property they were selling. Some sellers may not even own the property in the first place. For example, there may have been an easement on the property giving someone else the right to use it that they failed to disclose during the sales process.

Unless a seller transferred a quitclaim deed to a buyer (which is rare), they can be liable for a buyer’s losses when they did not transfer a full and valid title to the buyer. A residential seller is required to disclose title issues to a buyer at the closing. In addition, the buyer would also have a title company research and inspect the title. They too can be held liable for failing to detect an issue with the title before a real estate transaction closes.

An experienced business attorney can review the circumstances of your residential or commercial real estate transaction to determine whether there is a possible civil lawsuit against the seller.