When a license holder forms a business entity to perform real estate brokerage activities or to receive a commission or fee for brokerage activities, the business entity must have its own Texas real estate broker license. If not, serious penalties and other discipline could result. The entity must also designate an individual broker who holds a Texas real estate broker license in active status and is in good standing with the Commission. Good standing means, at a minimum, that the broker is not on probation and does not owe the Commission any money. In addition, the designated broker must be a manager of the LLC, an officer of the corporation, or a general partner in the partnership and must sign the application for a business entity license. If the designated broker does not own 10 percent or more of the business entity, then the business entity must provide proof to the Commission that the entity maintains errors and omissions insurance with a minimum annual limit of $1 million for each occurrence. These requirements are stated in The Real Estate License Act, Texas Occupations Code Section 1101.355, and the Rules of the Commission at Section 535.4(f). Enforcement Frequently, the agency reviews situations where an unlicensed business entity engages in an activity that requires a license. When caught, the penalties can be harsh for any license holders involved in the activity. Sections 1101.652(b)(11) and (26) of the Texas Occupations Code prohibit paying a commission or fee to, or establishing an association by employment or otherwise with a person other than a license holder if the person is expected or required to act as a license holder. The Rules provide for suspension or revocation of a license and/or administrative penalties of $1,000 to $5,000 per violation per day for such a violation. Please avoid all unlicensed activity. If you have questions on this subject, contact the Commission or your attorney. You can apply for a business entity broker license from TREC.
NO LICENCE= LIABILITY UP TO THREE TIMES THE MONEY RECIEVED
Under the Real Estate License Act, Occupations Code § 1101.754, there is a private cause of action for certain violations by a broker:” A person who receives a commission or other consideration as a result of acting as a broker or salesperson without holding a license or certificate of registration under this chapter is liable to an aggrieved person for a penalty of not less than the amount of money received or more than three times the amount of money received.” The statute does not define “aggrieved person.” Courts have held, as did this one, that an aggrieved person under this Statute must have paid all or part of the fee or profit to the unlicensed broker
The Goldmans requested that Hewett assist them with the purchase of a new home. They decided to make an offer to the Olmsteads to buy their house. The Goldmans obtained a prequalification letter from Band of America to submit with their offer. The Goldmans and the Olmsteads entered into a contract for the purchase and sale of the house. The Olmsteads’ broker was Sally Smith, who was Mrs. Olmstead’s mother. After the contract was entered into, the Goldmans had difficulty obtaining financing. After having been turned down twice, Mr. Goldman applied for a loan from Bank of America. In connection with that application, he supplied false information regarding his employer and income. Bank of America turned the Goldmans down because they couldn’t verify income. Ultimately, after making some other efforts to obtain a loan, the Goldmans were unable to close. They sent a letter to the Olmsteads terminating the contract based on their inability to obtain financing. The Olmsteads sued and the Goldmans answered, also filing third party petitions against Hewett and her company. The claims against the broker were for negligence, breach of fiduciary duty, violations of the DTPA, fraud in a real estate transaction, common law fraud, and negligent misrepresentation. Hewett asserted a counterclaim against the Goldmans for fraud, alleging Mark Goldman provided false information to Bank of America in order to obtain the prequalification letter. The trial court ruled in favor of the Olmsteads on the breach of contract issues, awarding over $50,000 in damages and a whole lot of attorneys’ fees. The trial court also ruled against the Goldmans on their claims against Hewett and awarded her a whole lot of attorneys’ fees.
Illegibility and Sloppiness will not get you out of the Contract
On appeal, the Goldmans claimed that the contract was indefinite because it was illegible. It was a standard TREC form. The copy of the original contract was difficult to read, but the parties had executed a clean copy at the request of Bank of America as part of its loan application process. Accordingly, the court held that the contract was not indefinite because of illegibility. The Goldmans next argued that the contract was indefinite because the sellers’ names were not inserted on the first page of the contract. The court noted that the sellers’ names were all over the contract otherwise and that each page was initialed and the signature page signed by the Olmsteads. That was sufficient. The Goldmans then argued that because the contract was illegible and indefinite for failure to identify the sellers, it failed to comply with the statute of frauds. To comply with the statute, the writing must contain the essential terms of the contract, expressed with such certainty that they may be understood without resorting to oral testimony. The contract for the sale of the Stanford house was in writing, contained the essential terms of the agreement, and was signed by both the Olmsteads and the Goldmans. It, therefore, complied with the statute of frauds.
CARRYING COSTS IN BREACH OF CONTRACT CASE ARE NOT RECOVERABLE
The Goldmans finally complained about the damages that were awarded. The trial court awarded damages based on the carrying costs of the house after the breach of contract. The Goldmans asserted the proper measure of damages for breach of a residential real estate contract is the difference between the contract price and the market value of the property on the date of the breach and that the carrying costs recovered by the Olmsteads, while perhaps recoverable as part of an equitable accounting in a suit for specific performance of the contract, are not recoverable in a suit for damages.
LOSS OF THE BENEFIT OF BARGAIN IS CORRECT MEASURE
Generally, the measure of actual damages in a breach of contract case is the loss of the benefit of the bargain, which would put the plaintiff in the same economic position he would have been in had the contract actually been performed. In this case, the Goldmans agreed to purchase the Stanford house for $810,000, and the Olmsteads admitted the market value of the house on the date of the breach was $810,000. Under Texas law damages are measured by the difference between the contract price and the market value of the house on the date the Goldmans breached the contract. The evidence established there was no difference in the contract price and the market value on the date the Goldmans breached the contract. The court held that the trial court had used an improper measure of damages and concluded that the Olmsteads failed to prove they suffered any damages under the correct legal measure of damages.
FAILURE OF AGENT TO DISCLOSE RELATIONSHIP WITH PRINCIPAL WILL NOT VOID THE CONTRACT. (OR ANY OTHER VIOLATION OF THE ACT)
The Goldmans requested that Hewett assist them with the purchase of a new home. They decided to make an offer to the Olmsteads to buy their house. The Goldmans obtained a prequalification letter from Band of America to submit with their offer. The Goldmans and the Olmsteads entered into a contract for the purchase and sale of the house. The Olmsteads’ broker was Sally Smith, who was Mrs. Olmstead’s mother. The Goldmans contended that the contract was void or voidable as against public policy because the Olmstead’s broker, Smith, failed to disclose that she was Mrs. Olmstead’s mother. Section 1101.652(a)(3) of the Occupations Code provides that TREC may suspend or revoke a broker’s license or take disciplinary action if a broker engages in misrepresentation, dishonesty, or fraud when selling real property in the name of a person related to the license holder within the first degree by consanguinity. The regulations under that statute require disclosure to be made in the contract or in writing before the contract is entered into. The Goldmans argue that the statute and the Occupations Code set out the public policy in Texas and where disclosure is required but not provided, public policy makes the contract void or voidable.
The court disagreed. Section 1101.652 of the Occupations Code relates solely to the suspension or revocation of a license. Neither section 1101.652 of the Occupations Code nor any applicable version of section 535.144 of the administrative code provides that the non-compliance of the license holder causes any related contract for the sale of real estate to be void.