Fraud in Texas Residential Real Estate Transactions

by David J. Willis J.D., LL.M.

Fraud claims can arise from several sources of law. This article discusses three main areas: fraud at common law, fraud pursuant to the Statutory Fraud Act, and fraud under the Deceptive Trade-Consumer Protection Act, all within the context of residential real estate.


Elements of Common Law Fraud

The generic definition of fraud can be found in historical common law. The required elements of a successful common-law fraud action are:

(1) the defendant made a representation to the plaintiff;

(2) the representation was material;

(3) the representation was false;

(4) when the defendant made the representation the defendant knew it was false or made the representation recklessly and without knowledge of its truth;

(5) the defendant made the representation with the intent that the plaintiff act on it;

(6) the plaintiff relied on the representation; and

(7) the representation caused the plaintiff injury.

See Shandong Yinguang Chem. Indus. Joint Stock Co., Ltd. v. Potter, 607 F.3d 1029, 1032-33 (5th Cir. 2010) (citing Ernst & Young, L.L.P. v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001)).

Two specific subsets of common law fraud are especially important in the context of real estate transactions: fraudulent misrepresentation and fraudulent inducement.

Fraudulent Misrepresentation

To make a case for fraudulent misrepresentation, the plaintiff must prove that the defendant made a material misrepresentation that was false, and which was either known to be false when made or which was asserted by the defendant without knowledge of its truth, which was intended to be acted upon, which was relied upon, and which caused damage to the plaintiff. Sears, Roebuck & Co. v. Meadows, 877 S.W.2d 281 (Tex. 1994).

A plaintiff must show that a fraudulent misrepresentation was knowingly made by the defendant. There is an interesting pro-seller Travis County case where the seller was sued post-closing for not disclosing defects in a well—and after declaring that “everything in this home works the way it should work.” The court of appeals stated that “to the extent that the effect of an ‘as is’ contract may also be nullified through the seller’s use of fraud, we find no evidence of record illustrating that [the seller] knew the actual condition of the [defective] well when he made representations about it being functional or having a certain level or amount of water. Nor does the record contain evidence from which reasonable minds could infer that he garnered such knowledge after making those representations and before the closing date.” The court refused to attribute actual knowledge to the seller even though the seller had recently conducted repairs on the well! Summary judgment in favor of the seller was upheld. Boehl v. Boley, No. 07-09-0269-CV (Tex.App. Jan. 26, 2011).

Fraudulent Inducement

Fraudulent inducement is a related cause of action that pertains specifically to a contract between a seller and a buyer. Bohnsack v. Varco, LP, 668 F.3d 262, 277 (5th Cir. 2012). A cause of action for fraudulent inducement requires the existence of an enforceable contract. Zorilla v. Aypco Constr. II, LLC, 58 Tex. Sup. Ct. J. 1140 (Tex. 2015).

The Texas Supreme Court has stated that fraudulent inducement claims are not subject to the usual economic loss rule. Formosa Plastics Corp. United States v. Presidio Eng’rs & Contractors, 960 S.W.2d 41 (Tex. 1998).

Non-Disclosing Sellers of Residential Real Estate

Is an actively-stated misrepresentation or false promise by a seller required in order to prove fraud at common law? What about failure of a seller to disclose known material facts concerning a residential property? According to a Dallas case:

A misrepresentation may consist of the concealment or nondisclosure of a material fact when there is a duty to disclose. 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 [Italics added]. A fact is material if it would likely affect the conduct of a reasonable person concerning the transaction in question.

See Coldwell Banker Whiteside Associates v. Ryan Equity Partners, 181 S.W.3d 879, 888 (Tex. App.—Dallas 2006, no pet.).

The passive withholding of known material facts by a seller clearly breaches the duty outlined in Coldwell; therefore a seller of residential real estate who fails to disclose known material defects and adverse conditions is culpable of common-law fraud.


The Statutory Fraud Act (Bus. & Com. Code Sec. 27.01) defines fraud in real estate and stock transactions as follows:

Bus. & Com. Code Sec. 27.01. Fraud in Real Estate and Stock Transactions

(a) Fraud in a transaction involving real estate or stock in a corporation or joint stock company consists of a (1) false representation of a past or existing material fact, when the false representation is (A) made to a person for the purpose of inducing that person to enter into a contract; and (B) relied on by that person in entering into that contract; or a (1) 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.

Elements of Statutory Fraud

Elements of statutory fraud under Section 27.01(a) are the same as the elements of common law fraud (discussed below) except that Section 27.01(a) does not require proof of knowledge or recklessness as a prerequisite to the recovery of actual damages. Miller v. Argumaniz, 479 S.W.3d 306 (Tex.App.—El Paso 2015, pet. denied). This eases the plaintiff’s burden of proof under the Act considerably, which increase the risk of a judgment against a non-disclosing seller.

The Nelson case summarizes the elements of fraud under the Statutory Fraud Act:

To establish statutory fraud, the plaintiff must show the following: (1) the transaction involves real estate or stock; (2) the defendant made a false representation of a past or existing material fact or made a promise to do an act with the intention of not fulfilling it; (3) the defendant made the false representation or promise for the purpose of inducing the claimant to enter into a contract; and (4) the plaintiff relied on the false representation or promise in entering into the contract.

See Nelson v. McCall Motors, Inc., 630 S.W.3d 141 (Tex.App.—Eastland 2020, no pet.).

Contract Required

The Statutory Fraud Act “is applicable only when a conveyance of the property has been made or, in the very least, when there is a valid real estate contract. . . .” BLM of Brownwood, Inc. v. Mid-Tex Cellular, Ltd., No. 11-11-00311-CV, 2014 WL 1285765 (Tex.App—Eastland 2014, no pet.). Note that the requirement of a contract does not exist with respect to fraud under the Deceptive Trade Practices Act, discussed below.

Damages under the Statutory Fraud Act

Violations of the Statutory Fraud Act can result in actual as well as exemplary damages plus reasonable and necessary attorney’s fees, expert witness fees, deposition costs, and costs of court. Actual awareness of the falsity of the representation or promise is required for the award of exemplary damages but may be inferred by surrounding circumstances. Hines v. Hash, 843 S.W.2d 464 (Tex. 1992). Actions under the Statutory Fraud Act must be brought within four years of the time when the claimant knew or should have known of the harm.

Note that there is a tie-in provision connecting the Statutory Fraud Act to the DTPA. Section 27.0015(b) states that “a violation of Section 27.01 [of the Statutory Fraud Act] that relates to the transfer of title to real estate is a false, misleading, or deceptive act or practice” as defined by the DTPA. Accordingly, DTPA remedies are available as well.


False, Misleading, Deceptive, or Unconscionable Acts

The Deceptive Trade Practices-Consumer Protection Act (DTPA, Bus. & Com. Code Sec. 17.46 et seq.) states that “false, misleading, or deceptive acts or practices in the conduct of any trade or business are hereby declared unlawful. . . .” Also unlawful are misrepresenting the characteristics and uses of a particular item; representing that goods or services are of a particular quality and standard when they are not; advertising with intent not to sell as advertised; and failing to disclose information in an attempt to induce the consumer into buying. Additionally, a consumer may seek relief if the consumer relied to the consumer’s detriment upon a seller’s breach of an express or implied warranty (Sec. 17.50(a)(2)) or if the seller is culpable of “any unconscionable action or course of action. . . .” (Sec. 17.50(a)(3)).

The last-mentioned statutory wording bears repeating: any unconscionable action, which is a broad standard indeed. An “unconscionable action or course of action is defined as an act or practice which, to a consumer’s detriment, takes advantage of the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree.” Martinez v. Martinez, No. 13-19-00518-CV, 2020 WL 5887587 (Tex.App.—Corpus Christi 2020, no pet.).

The key factor in unconscionability is the taking advantage of another who is less sophisticated and less informed. Insurance Co. of N. Am. v. Morris, 981 S.W.2d 667,677 (Tex. 1998). This should give real estate investors pause. It is highly likely that investors will be considered by a jury to be the party with superior knowledge in nearly every encounter with a consumer, making it easier for a plaintiff to paint a picture of unconscionability. This is true regardless of whether the investor is a real estate license holder or not.

DTPA Relief is Limited to Consumers

One must qualify as a consumer to seek relief under the DTPA. A consumer may be an individual, partnership, corporation, LLC, or even a state agency. Excluded are business consumers with assets of 25 million or more. Suit may also be brought in the interest of consumers at large by the Texas attorney general’s consumer protection division and, with the AG’s consent, by local county and district attorneys. The DTPA is intended to be construed liberally in favor of consumers (Bus. & Com. Code Sec. 17.44(a)).

The consumer’s claim must relate to consumer goods. The issue of whether or not residential real estate is a consumer good subject to DTPA remedies was resolved long ago. It is. Chastain v. Koonce, 700 S.W.2d 579, 582 (Tex. 1985). In fact, the definition of consumer good includes just about everything except intangibles such as accounts receivable, stock, and money.

A requirement of 60 days’ notice and demand was included in the DTPA to promote settlement and avoid frivolous lawsuits (Bus. & Com. Code Sec.17.505). As an accommodation to business, the DTPA provides a means of minimizing potential damages by giving the defendant an opportunity to make a reasonable offer of settlement, but this offer must encompass both the consumer’s damages and attorney’s fees (Bus. & Com. Code Sec. 17.5052).

A lawsuit pursuant to the DTPA must be brought within two years after the false, misleading, or deceptive act took place—or within two years after the consumer should reasonably have discovered such an act (the discovery rule). This period may be extended up to 180 days if it can be proven that a late filing resulted from the defendant’s actions in attempting to avoid or delay the filing (Bus. & Com. Code Sec. 17.565).

In the event the Act conflicts with the Property Code, then Property Code provisions will prevail (Bus. & Com. Code Sec. 17.44(b)).

DTPA Producing Cause Standard

A consumer who claims to have suffered economic damages or damages for mental anguish may seek relief if the other party’s action was a producing cause of the damages. Any offense enumerated in the laundry list of offenses contained in Section 17.46 is a basis for a consumer claim so long as the defendant’s actions were relied on by the consumer to the consumer’s detriment (Bus. & Com. Code Sec.17.50(B)).

According to the Texas Supreme Court, it is not even a requirement that harm to a potential consumer be foreseeable. Helena Chem. Co. v. Wilkins, 47 S.W.3d 486 (Tex. 2001). All that is required is that a seller’s dishonesty be a producing cause of harm, perhaps one of several such causes. Foreseeability of harm is not required. Intent to harm is not required. A reasonable prospect that harm might occur is not required.

The DTPA protects even the ignorant from the consequences of their ignorance: “An act is false, misleading, or deceptive if it has the capacity to deceive an average or ordinary person, even though that person may [be] ignorant, unthinking, or credulous.” Daugherty v. Jacobs, 187 S.W.3d 607 (Tex.App.—Houston [14th Dist.] 2006, no pet.).

No Purchase is Required

There is no requirement that a consumer actually pay for the goods or services in question—only that the consumer must be seeking or in the process of acquiring them by means of either purchase or lease. Martin v. Lou Poliquin Enterprises, Inc., 696 S.W.2d 180 (Tex.App.—Houston [14th Dist.] 1985). Under the DTPA, it is required only that the consumer be the intended beneficiary of goods or services. Arthur Anderson & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 815 (Tex. 1997).

There is not even a requirement that the consumer be in privity (in a direct contractual or business relationship) with the defendant—only that the claimed violation occurred in connection with the consumer’s transaction. Amstad v. U.S. Brass Corp., 919 S.W.2d 644, 649 (Tex. 1996). “The connection can be demonstrated by a representation that reaches the consumer or by a benefit from the second transaction to the initial seller.” Todd v. Perry Homes, 156 S.W.3d 919, 922 (Tex.App.—Dallas 2005, no pet.).

Consumers Buying Residential Real Estate

A real estate consumer under the DTPA does not need to have signed a contract with a seller. The Act applies even in the absence of contractual privity, meaning that seller liability for misrepresentation or non-disclosure in a proposed residential real estate transaction can arise even prior to execution of an earnest money contract. “To be actionable under the DTPA, the defendant’s deceptive conduct must occur [only] in connection with [italics added] a consumer transaction.” In other words, it is entirely possible that a non-disclosing seller of residential real estate can get into trouble by engaging in deception while showing the property. A signed contract is not required. Todd v. Perry Homes, cited above.

Consumer Damages under the DTPA

Business & Commerce Code Section 17.50 spells out relief available to consumers. There is a low threshold for liability. As previously noted, a consumer may sue for damages if a seller’s actions were a producing cause of those damages (even in the absence of legal privity) so long as the seller’s misrepresentations were relied upon by the consumer to his detriment.

Additionally, if a trial court determines that the defendant’s actions were committed knowingly, then the availability of treble damages plus attorney’s fees is triggered (Bus. & Com. Code Sec. 17.50(b)(1)). Otherwise, a DTPA claim does not require that the consumer prove that the defendant acted knowingly or intentionally, at least so long as the plaintiff’s objective is merely actual rather than exemplary damages. Miller v. Keyser, 90 S.W.3d 712, 716 (Tex. 2002). Note, however, that exemplary damages may be available to the plaintiff by other means—common law or statutory fraud, for instance.

Mere Puffing is Not Illegal under the DTPA

Even though the DTPA laundry list of offenses is daunting in scope, a certain level of factual flexibility in advertising is recognized by courts as the commercial norm—so mere puffing, as the case law calls it, is not actionable under the DTPA:

Three factors are considered in determining whether a representation is ‘mere puffing:’ (1) the specificity of the representation; (2) the comparative knowledge of the buyer and seller; and (3) whether the representation relates to a future event or condition.

See Bossier Chrysler Dodge II, Inc. v. Rauschenberg, 201 S.W.3d 787, 800 (Tex.App—Waco, 2006).

Whether a representation is a warranty or merely an expression of [the seller’s] opinion depends in part upon whether the seller asserts a fact of which the buyer is ignorant, or merely states an opinion or judgment on a matter on which the seller has no special knowledge and on which the buyer may be expected to have an opinion and exert his judgment. . . . [A] general statement concerning a future event . . . should be looked at differently than a statement concerning a past or present event or condition.

See Humble Nat’l Bank v. DCV, Inc., 933 S.W.2d 224, 230 (Tex.App.—Houston [14th Dist.] 1996, writ denied).

Bait and switch is not considered mere puffing (Bus. & Com. Code Sec. 17.46(B)(10); Martin v. Lou Poliquin Enterprises, Inc., cited above).

Waiver of Consumer Rights

A consumer may waive DTPA rights in writing pursuant to Section 17.42, but the requirements for a valid waiver are extremely strict—including the requirement that the consumer be represented by a lawyer. Also, the defense of waiver is not assertable in an action that is brought by the attorney general on behalf of the public generally (Sec. 17.42(e)); nor will a waiver be effective against anything the DTPA expressly defines as a deceptive or wrongful act. Southwestern Bell Tel. Co. v. FDP Corp., 811 S.W.2d 572, 576-77 (Tex. 1991). As a result, DTPA waivers (at least valid ones) are uncommon.

Professional Services Exemption

Fortunately for brokers and real estate attorneys, their services fall within the professional services exemption of Bus. & Com. Sec. 17.49(c). The professional services exemption is lost, however, in cases of fraud or misrepresentation. Since fraud is nearly always alleged in suits involving real estate, professionals in this area should expect to have to fight diligently to protect their status under this exemption.

Cumulative Remedies

DTPA causes of action are cumulative as to other remedies (Bus. & Com. Code Sec. 17.43) meaning that a plaintiff can throw not only DTPA allegations at a defendant but just about everything else arising from both statutory and common law, so long as the plaintiff can plausibly argue that the defendant’s conduct was a producing cause of economic damages or damages for mental anguish (Bus. & Com. Code Sec. 17.50(a)).


Consumer Financial Protection Act

The Dodd-Frank Wall Street Reform and Consumer Financial Protection Act of 2010 (CFPA, 12 U.S.C. Sec. 5567) contains Title X (often abbreviated as Title X of the Dodd-Frank Act). The CFPA generally prohibits unfair, deceptive, or abusive acts and practices (UDAAPs) in interstate commerce. The Act also established the Consumer Financial Protection Board (CFPB) which is charged with rulemaking and enforcement in the area of financial products and services that are offered to consumers.

In its guidelines (see Manual V.3, March 2022), the CFPB echoes the wording of the Texas Deceptive Trade Practices Act:

CFPB Guidelines (March 2022)

The standard for unfairness in the Dodd-Frank Act is that an act or practice is unfair when (1) it causes or is likely to cause substantial injury to consumers; (2) the injury is not reasonably avoidably by consumers; and (3) the injury is not outweighed by countervailing benefits to consumers or to competition.

A representation, omission, act, or practice is deceptive when (1) the representation, omission, act, or practice misleads or is likely to mislead the consumer; (2) the consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances; and (3) the misleading representation, omission, act, or practice is material.

An abusive act or practice [is one that] materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service or takes unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs, or condition of the product or service; the inability of the consumer to protects its interest in selecting or using a consumer financial product or service; or the reasonable reliance by the consumer on a covered person to act in the interests in the consumer.

Although abusive acts also may be unfair or deceptive, examiners should be aware that the legal standards for abusive, unfair, and deceptive [practices are] separate.

Inherent in the foregoing is the principle that for a practice to be unlawful, a consumer must reasonably rely on that practice to their detriment (or injury as the CFPB puts it), although the CFPB also states:

Actual injury is not required in every case. A significant risk of concrete harm is also sufficient. However, trivial or merely speculative harms are typically insufficient for a finding of substantial injury. Emotional impact and other more subject types of harm also will not ordinarily amount to substantial injury. Nevertheless, in certain circumstances such as unreasonable debt collection harassment or discriminatory conduct, emotional impacts or dignitary harms may amount to or contribute to substantial injury.

This is an excellent example of bureaucratic doublespeak: substantial harm is required except when we decide that it’s not.

Examples of wrongdoing that can merit CFPB enforcement include refusing to release a lien on real estate after a consumer tenders the final payment; making misleading cost or sales price claims (no-money-down claims in the presence of substantial upfront fees); using bait and switch techniques; failing to provide services as promised; and offering inadequate disclosure or clarity in the communication of material terms (such as the true cost of a mortgage loan).

The CFPB may issue a cease and order against violators, charge a civil penalty of up to $10,000 for each violation, and commence a civil action in federal district court (15 U.S. Code Sec. 45(l) and (m)).

There is, however, a key difference between the federal Consumer Financial Protection Act and the Texas DTPA: unlike in Texas where aggrieved consumers may file suit, no private right of action is granted by the federal statute. One is therefore in the position of having to file an administrative complaint with the CFPB and then hoping that the agency will act.


A buyer who believes he has been deceived in a real estate transaction may sue a non-disclosing seller on grounds of common-law fraud, separate and apart from causes of action under the DTPA or the Statutory Fraud Act. Other related causes of action may be available.

This shotgun approach—pursuing multiple causes of action simultaneously—is designed to insure that at least one or more of the causes of action presented will be successful at trial. DTPA and statutory lawsuits may be somewhat more popular than common law actions because attorney’s fees can easily be recovered as part of the judgment.


Information in this article is provided for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. No attorney-client relationship is created by the offering of this article. This firm does not represent you unless and until it is expressly retained in writing to do so. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well.

Copyright © 2024 by David J. Willis. All rights reserved. Mr. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website,