Legal Question in Real Estate Law in California
Brokers fiduciary responsibility
I am involved in a joint venture with a person in CA who is also a broker. Let's call him Mr. Major. Using jv money (about 145k of which 22k was mine. There were others in the jv), Major made a bridge loan to another person, let's call him Mr. Iron, who wanted to buy a house, but lacked the entire amount of the downpayment. Mr. Iron was represented by Mr. H, who is a licensed broker in CA. As I understand it, escrow had been opend with an escrow company. Major handed the money over to the buyers agent, Mr. H. It turns out that Mr. H was working a fraud, and the money has disappeared. Major's defense is that under CA law, a broker is entitled to handle a closing, and therefore he (Major) is not guilty of any failure of fiduciary responsibility by giving H the money, as H is a licensed broker. I maintain that Major should have handed the money over to the escrow company. Is there any possibility of taking action against Major to secure the return of my money? The case is more complex than I have indicated, but I'm trying to keep it simple.
Thanks in advance for any advice.
WTH
3 Answers from Attorneys
Re: Brokers fiduciary responsibility
The bottom line is that your money has been taken. You probably have fraud and/or negligence claims against both brokers. Most real estate professionals carry insurance. If they don't you can also obtain payment from the Department of Real Estate by applying to their fraud fund. See an attorney for further assistance.
Re: Brokers fiduciary responsibility
That's a complex litigation matter. Clearly you and a number of investors were defrauded. I've worked on a number of similar complex third party financing fraud matters. You should likely sue H, Major, Iron -- conspiracy theory. You should contact me, that case needs an excellent attorney to win due to the complexity.
Re: Brokers fiduciary responsibility
I would recommend filing suit that names both Major and Mr. H as defendants.
Your case against Mr. H would be built squarely upon his own fraud. The case against Major would rest largely upon his breach of various duties such as the duty of care and fiduciary duty, perhaps breach of the jv agreement if his acts were unauthorized, and possibly it should be alleged that he participated in the fraud, as you never know what'll turn up in discovery.
The possibility of adding the jv as a co-plaintiff should be considered; you may or may not have the power to cause it to join; if not, a derivative action on behalf of yourself and the other defrauded joint venturers should be considered. In other words, probably go for the whole 145k in a single action.
The reason for adding Mr. H as a defendant, even if he is unreachable or lacks assets that can be levied upon, is the California Victims of Fraud Fund administered by its Dept. of Real Estate. Anyone who wins a judgment for fraud against a licensed real estate professional and is unable to collect from the defendant can apply for up to $25k of victim compensation from the fund. Despite a rumor that the fund is broke or almost never coughs up any money, I got a $25k payment for a client last year. (Note: there are limits on how much money can be paid out per licensee and per case in addition to the per-party cap.)
The Fund pays on default judgments as well as judgments after trial. Please feel free to contact me with additional questions.
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