Real Estate Recovery Fund: Another Source for Recovery

Whether it's a shopping center, office building or a house, some real estate brokers and agents have regrettably resorted to fraud in order to make a sale and earn a quick commission. In one example, a broker, in order to complete a difficult sale, told the buyer of a house that the roof was new, and therefore the buyer did not have to worry about leaks. This misrepresentation was made despite the seller telling the broker that the roof was several years old and had leaked before. After the buyer moved in, the roof leaked and caused significant damage to the buyer's belongings. After the buyer obtained a $20,000 judgment for fraud against the broker, the buyer could not collect anything since the broker had no assets. The broker's insurance company denied coverage since the judgment was based on fraud.

Although most victims in this situation would be out of luck, fortunately for this buyer, the California Department of Real Estate has established the Real Estate Recovery Fund from which the buyer may seek compensation. The following are requirements for seeking reimbursement from this fund: (1) a final civil judgment, arbitration award or criminal restitution order must be obtained against the licensee; (2) the judgment or award must be based on a finding of intentional fraud or conversion of trust funds in connection with a transaction requiring a real estate license; (3) the victim must make a reasonable search for the licensee's assets and attempt to collect from the licensee as well as all other parties that may be liable to the victim; and (4) other procedural requirements outlined in Business and Professions Code Section 10471 et seq. must be followed.

If the application is granted, the Department of Real Estate will pay the victim his or her actual and direct loss in a transaction, up to a statutory maximum of $50,000 per transaction, with a possible total aggregate maximum of $250,000 against a licensee. When a payment is made from the Recovery Fund, the agent or broker's license will be automatically suspended until the amount is repaid into the Recovery Fund, with 10% interest, by the offending licensee. Since the inception of the Recovery Fund, approximately $33 million has been paid out to deserving victims of real estate fraud.

If you or someone you know has been the victim of a real estate fraud by an agent or broker, our knowledgeable real estate attorneys are available to guide you in pursuing the appropriate recoveries.

Kenneth W. Chung is a Managing Partner with Kring & Chung, LLP. Mr. Chung is also a licensed California real estate broker. He can be contacted at (949) 261-7700 or

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