What is a real estate RECOVERY FUND (also called Guaranty Fund or Recovery Account)?

REAL ESTATE RECOVERY FUND (terminology varies by state — Recovery Account, Guaranty Fund, Real Estate Trust Recovery Fund): a state-administered fund that provides limited compensation to consumers harmed by licensee misconduct.

Purpose: protect consumers when (1) Licensee has acted fraudulently or with misrepresentation; (2) Consumer has obtained a judgment against the licensee; (3) Judgment is uncollectable (licensee has no assets, has fled, etc.).

Funding: (1) Portion of license fees from licensees; (2) Initial deposits when licenses are first issued; (3) Periodic assessments if fund balance is low.

Recovery limits: (a) PER CLAIM — typical $10,000-$50,000 per claim against one licensee; (b) PER LICENSEE — typical $25,000-$100,000 total per licensee (no matter how many claims); (c) PER CONSUMER — limited; (d) State-specific. PROCESS for consumer recovery: (1) Sue the licensee in court; (2) Obtain a judgment against the licensee; (3) Demonstrate inability to collect from the licensee (writ of execution returned unsatisfied); (4) Apply to the recovery fund; (5) Hearing or review; (6) Payment up to recovery limits.

Automatic license consequences: (a) When the fund pays a claim against a licensee, the licensee's license is SUSPENDED until they REIMBURSE the fund plus interest; (b) Suspension can effectively be a long-term consequence since reimbursement may take years.

Not covered: (a) Disputes that aren't fraud or misconduct (mere contract breaches without fraudulent element); (b) Disputes between licensees (only consumers); (c) Mortgage and lending issues (may have separate funds); (d) Claims that exceed the limits — consumer bears the excess.

Complementary protections: (1) E&O INSURANCE (Errors and Omissions) — some states require brokers to carry; many carry voluntarily; covers professional negligence; (2) BONDS — some states require licensees to be bonded; (3) State fair housing remedies for discrimination.

Exam points: know YOUR state's specific recovery fund: (1) name; (2) per-claim and per-licensee limits; (3) funding source; (4) eligibility process; (5) consequences for the licensee (license suspension until repaid).