Topic 6.3: Real Estate Recovery Fund

Learning Objectives

After successfully completing this topic, you will be able to
• state the limits of payments from the recovery fund,
• list the categories of persons who are not eligible to be paid from the fund, and
• describe the EDO exemption that protects brokers from suspension if they are paid from the fund.

Purpose of the Fund

The purpose of the Recovery Fund is to reimburse any person or corporation who has sustained a loss due to the misconduct of an active licensee.

The person who claims reimbursement for loss must have made a claim for recovery within 2 years from an act giving rise to the claim or within 2 years from the time the act is discovered. In no event may a claim for recovery be made more than 4 years after the date of the act.

A claim for recovery must be the result of a civil suit against a licensee resulting in an uncollectible judgment.

Persons Not Qualified to Make a Claim

Certain persons are not eligible to collect monies from the fund
• a licensee who wants to recover from damages resulting from a transaction in which he participated as a licensee,
• the spouse of a licensee who committed the offense,
• persons who sold or purchased property from a person who did not have a current, active real estate license at the time of the transaction, and
• persons who have sued a corporation or partnership without naming an individual licensee.

Payment for Claims from the Fund

Payments from the fund due to a licensee’s misconduct will result in automatic suspension of the person’s license. The individual’s license may not be reinstated until the licensee has repaid in full, plus interest, the amount paid from the fund.

The suspension will not apply to bankrupt licensees if the suspension conflicts with federal bankruptcy laws.

Authorized fund limits

Payments from the fund are a maximum of

• $50,000 from any one transaction, or
• $150,000 from multiple judgments/transactions for one licensee.

The recovery fund pays for compensatory damages only. The fund will NOT pay for punitive damages or interest.

EDO Exception

A broker may also receive reimbursement for court‑awarded damages because the broker followed an escrow disbursement order. The broker must have defended against the court action in order to get reimbursement.

The broker is entitled to court costs and attorney’s fees. FREC may not take disciplinary action against the broker. The law also requires the fund to pay the plaintiff’s court costs and attorney’s fees if the plaintiff wins the lawsuit.

Fees and Fund Replenishment

At the time of renewal, brokers pay a special fee of $7 (3.50 per year) and sales associates pay $3 ($1.50 per year) into the recovery fund. The special fee is discontinued when the fund balance exceeds $1,000,000, and begins again when the fund drops below $500,000.

In addition, all moneys collected from fines imposed by the Commission are transferred into the Real Estate Recovery Fund.