Recovery Fund
The Recovery Fund is a safeguard mechanism established by state Real Estate Commissions. Its primary purpose is to protect the public by reimbursing individuals who suffer financial losses due to the misconduct of real estate licensees (brokers or sales agents). States require licensed real estate professionals to contribute to this fund, which is used to compensate victims who are unable to recover their losses through other means.
Key Features and Functions
- Administration: The fund is typically administered by the state Real Estate Commission.
- Mandatory Contributions: New licensees are required to contribute a specific fee to the fund, which varies by state.
- Assessment Triggers: If the fund falls below a designated threshold, current licensees may be assessed additional fees to replenish it.
- Compensation Limits: The fund sets caps on the amount that can be reimbursed to any one claimant and the total amount that can be paid out on behalf of a single licensee.
- Eligibility: The fund compensates only when the aggrieved party is unable to collect damages directly from the broker.
Examples
- State Contribution Requirement: In some states, new real estate licensees are required to make an initial contribution of $10 to the Recovery Fund.
- Fund Replenishment: If the fund’s balance drops below $500,000, all active licensees may be charged an additional assessment.
- Compensation Limits: Payments from the Recovery Fund to an aggrieved person are typically capped at $10,000, and total disbursements on behalf of any one licensee may not exceed $25,000.
Frequently Asked Questions
Q1: Who administers the Recovery Fund? A: The Recovery Fund is generally administered by the state’s Real Estate Commission.
Q2: Do all states have a Recovery Fund? A: While most states have a form of Recovery Fund, the specifics, including contribution amounts and compensation limits, can vary.
Q3: How much may the fund compensate an aggrieved person? A: Typically, payments from the fund to an aggrieved person may not exceed $10,000; however, this amount can vary by state.
Q4: What triggers additional assessments from licensees? A: Additional assessments are triggered when the fund’s balance falls below a specified threshold, such as $500,000.
Q5: When does the Recovery Fund pay out? A: The Recovery Fund pays out when the aggrieved person has attempted but failed to collect damages from the broker directly.
Related Terms
- Real Estate Commission: An administrative body responsible for licensing and regulating real estate professionals within a state.
- Licensees: Individuals who hold a valid real estate license issued by the state.
- Brokers: Licensed individuals who manage real estate transactions for clients and may supervise other agents.
- Reimbursements: Repayments made to individuals to cover costs or losses.
Online Resources
- U.S. Real Estate Commission Directory
- National Association of Realtors®
- American Real Estate Academy: Real Estate Learning Center
References
- “Real Estate Law,” D.L. & Ramey, M., APA Publishers.
- Articles from the Journal of Real Estate Practice and Education.
Suggested Books for Further Studies
- Real Estate License Exam Prep by Kaplan Real Estate Education.
- Modern Real Estate Practice by Fillmore W. Galaty, Wellington J. Allaway, Robert C. Kyle.
- Principles of Real Estate Practice by Stephen Mettling and David Cusic.
Real Estate Basics: Recovery Fund Fundamentals Quiz
### Who typically administers the Recovery Fund?
- [ ] The Federal Government
- [x] The Real Estate Commission
- [ ] The Real Estate Agency
- [ ] Private Insurance Companies
> **Explanation:** The Recovery Fund is generally administered by the state's Real Estate Commission. Each state has its oversight body responsible for managing this fund.
### What triggers additional assessments on licensees for the Recovery Fund?
- [ ] When a claim is denied
- [ ] Annually
- [ ] Every five years
- [x] When the fund's balance drops below a specified threshold
> **Explanation:** Additional assessments are triggered when the fund’s balance falls below a certain threshold, such as $500,000, to ensure the fund stays adequately funded.
### What is the maximum typical payment to an aggrieved person from the Recovery Fund?
- [ ] $5,000
- [x] $10,000
- [ ] $20,000
- [ ] $50,000
> **Explanation:** Payments from the fund to an aggrieved person are usually capped at $10,000, though the exact amount can vary by state.
### Who contributes to the Recovery Fund?
- [ ] Property Buyers
- [ ] Tenants
- [x] Real Estate Licensees
- [ ] Homeowners Associations
> **Explanation:** Real estate licensees are required to contribute to the Recovery Fund. These contributions may be made at the time of license issuance and through additional assessments as needed.
### Which body handles complaints and pays out from the Recovery Fund?
- [ ] Consumer Protection Agency
- [ ] Local Government Office
- [x] Real Estate Commission
- [ ] Court System
> **Explanation:** The Real Estate Commission handles complaints and manages the payments made from the Recovery Fund to aggrieved parties.
### What is the primary purpose of the Recovery Fund?
- [ ] To fund real estate education
- [ ] To invest in real estate
- [x] To reimburse individuals for losses due to misconduct by licensees
- [ ] To compensate brokers
> **Explanation:** The primary purpose of the Recovery Fund is to reimburse individuals who suffer financial losses due to the misconduct of real estate licensees when such losses cannot be collected directly from the broker.
### Does every real estate transaction automatically involve the Recovery Fund?
- [ ] Yes, by default
- [ ] Only for transactions over $1 million
- [ ] Only if the buyer requests it
- [x] No, it is only used when losses cannot be collected from the broker
> **Explanation:** The Recovery Fund is not automatically involved in every real estate transaction. It is only used to compensate aggrieved individuals when they are unable to collect damages from the broker directly.
### What is the typical total payout limit for any one licensee from the Recovery Fund?
- [ ] $10,000
- [ ] $15,000
- [ ] $20,000
- [x] $25,000
> **Explanation:** The total payouts from the Recovery Fund on behalf of any single licensee are generally capped at $25,000, though this amount may vary by state.
### Who can file a claim against the Recovery Fund?
- [ ] Only real estate agents
- [x] Aggrieved persons who suffer from licensee misconduct
- [ ] Any legal counsel
- [ ] Real estate investors
> **Explanation:** Aggrieved persons who suffer financial losses due to the misconduct of a licensee and are unable to collect from the broker directly can file a claim against the Recovery Fund.
### Is the contribution to the Recovery Fund a one-time fee or can it be recurring?
- [ ] One-time fee only
- [x] It can be both a one-time fee and recurring
- [ ] Recurring weekly only
- [ ] Only if specified during licensure
> **Explanation:** Contributions to the Recovery Fund can be a one-time fee at the time of obtaining a license and can also be recurring when the fund needs replenishment based on its balance.
