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NO REAL ESTATE FRAUD BASED ON BUYERS’S LACK OF INVESTIGATION

Not all failures of a Seller to disclose property conditions constitute actionable fraud. In fact, sometimes Sellers have no duty to disclose at all. Sellers can be excused from a disclosure obligation where the Buyer/Purchaser had an equal opportunity to discover the condition through exercise of ordinary care, reasonable diligence, or a reasonable investigation.

TEXAS LAW RECOGNIZES TWO KINDS OF REAL ESTATE FRAUD 

Under Texas law, real estate fraud can be prosecuted under two similar but distinct causes of action:  common law fraud and statutory fraud.

The elements of common-law fraud are (1) a material misrepresentation; (2) that was false when made; (3) that was known by the speaker to be false when it was made or that was made recklessly as a positive assertion without knowledge of its truth; (4) the speaker made it with the intent that it should be acted upon; (5) the party justifiably relied on the representation; and (6) the party was injured as a result. See Ernst & Young, L.L.P. v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001).

The elements of statutory fraud in a real estate transaction are (1) a false representation of a past or existing material fact, when the false representation is (A) made to a person for the purpose of inducing the person to enter into a contract and (B) relied on by that person in entering into that contract; or (2) a false promise to do an act, when the false promise is (A) material, (B) made with the intention of not fulfilling it, (C) made to a person for the purpose of inducing that person to enter into a contract, and (D) relied on by that person in entering into that contract. Tex. Bus. & Com. Code § 27.01(a). Like common-law fraud, the plaintiff’s reliance in statutory fraud must be justifiable. TCA Bldg. Co. v. Entech, Inc., 86 S.W.3d 667, 674 (Tex. App.-Austin 2002, no pet.).

MISREPRESENTATION IS AN ESSENTIAL ELEMENT OF ALL REAL ESTATE FRAUD

Misrepresentation is an essential element of any claim for fraud involving real estate.  A misrepresentation may consist of the concealment or nondisclosure of a material fact when there is a duty to disclose. Custom Leasing, Inc. v. Texas Bank & Tr. Co., 516 S.W.2d 138, 142 (Tex. 1974)Miller v. Kennedy & Minshew, P.C., 142 S.W.3d 325, 345 (Tex. App.-Fort Worth 2003, pet. denied).

Misrepresentation can be intentional or negligent.  It can also be affirmative (a false statement) or occur by omission (failing to disclose when disclosure is required).

SELLER’s DUTY TO DISCLOSE DOES NOT EXTEND TO FACTS OR CONDITIONS PURCHASER HAD EQUAL OPPORTUNITY TO DISCOVER

A seller of real estate is under a duty to disclose material facts that the purchaser, by the exercise of ordinary care and diligence, would not discover, or that a reasonable investigation and inquiry would not uncover. Smith v. Nat’l Resort Communities, Inc., 585 S.W.2d 655, 658 (Tex. 1979).

The duty to disclose arises when one party knows that the other party is ignorant of the true facts and does not have an equal opportunity to discover the truth. Miller, 142 S.W.3d at 345. A fact is material if it would likely affect the conduct of a reasonable person concerning the transaction in question. Custom Leasing, 516 S.W.2d at 142Miller 142 S.W.3d at 345.

Generally, a Purchaser’s common-law and statutory fraud claims are predicated on the contention that the Seller failed to disclose a condition of the property and that such failure constituted a misrepresentation giving rise to liability. However, when the evidence establishes that the Purchaser had an equal opportunity to discover the condition through exercise of ordinary care, reasonable diligence, or a reasonable investigation, then the Seller has no duty to disclose such condition.

One example of a condition easily ascertainable from a reasonable investigation (of public records) is a Property’s platting status.  Thus, a Seller’s  failure to disclose that a Property is unplanted  cannot constitute a misrepresentation for purpose of either common-law or statutory fraud in a real estate transaction. See  Morales v. Carlin, __ S.W.3d ___ (Tex. App. – Austin 2019);  Custom Leasing, 516 S.W.2d at 142 (nondisclosure of material fact may constitute misrepresentation only if there is duty to disclose it).

THE TAKEAWAY

Material misrepresentation is an essential element of a claim for common-law fraud and statutory fraud. Where there is no material misrepresentation, a Purchaser cannot prevail on a fraud claim.