Fiduciary duties lie at the heart of the real estate profession. When individuals engage a real estate broker to help them navigate the process of purchasing property, they are entitled to honesty, loyalty, and the utmost good faith. If a broker breaches these fiduciary duties for personal gain, courts in New Mexico—and elsewhere—have a range of equitable remedies at their disposal. Chief among them is the imposition of constructive trust.
A General Scenario
Consider a family-owned business—Restaurant Alpha—a well-known establishment operating out of a commercially leased building. When the owner of the building puts the property up for sale, the owners of Restaurant Alpha agree that purchasing the property would be a wise move. It would retain rental income within the business and reduce long-term operational costs.
Broker Smith, a licensed real estate broker and manager at Restaurant Alpha, has intimate knowledge of the company’s finances and offers to assist with the acquisition. Over several months, negotiations with the seller appear to progress. Alpha even makes a competitive financial offer.
However, Broker Smith later informs the company that the seller has decided not to move forward with the sale.
The Broker’s Undisclosed Purchase
Unbeknownst to Alpha, Broker Smith secretly forms an entity, XYZ Holdings, and proceeds to purchase the building. The acquisition occurs shortly after he told Alpha the deal was off. More troublingly, the purchase is made under terms that are exactly similar—or even more favorable—than those initially negotiated by Alpha.
Broker Smith failed to disclose these developments or obtain the company’s informed consent, as required by law. His actions raise serious concerns about the misuse of confidential information and breach of fiduciary duty.
When Courts Impose Constructive Trusts
A constructive trust is an equitable remedy imposed by courts to prevent unjust enrichment resulting from wrongful conduct. Unlike express trusts, constructive trusts do not arise from agreement or intention. Rather, they are created by courts in response to situations involving:
· Fraud or misrepresentation.
· Breach of fiduciary duty.
· Undue influence or duress.
· Abuse of confidential relationships.
Importantly, the constructive trust is often retroactive, taking effect from the date of the wrongdoing.
As explained in Velasquez v. Mascarenas, 1962-NMSC-157, ¶ 3, 71 N.M. 133:
“In general, whenever the legal title to property, real or personal, has been obtained through actual fraud, misrepresentations, concealments, or through undue influence, duress, taking advantage of one’s weakness or necessities… equity impresses a constructive trust on the property thus acquired in favor of the one who is truly and equitably entitled to the same.”
The New Mexico Supreme Court echoed this sentiment in Mitchell v. Allison, 1947-NMSC-039, 51 N.M. 315, stating:
“Even though no pre-existing fiduciary relationship existed, and even though the defendant was not professionally employed by the complainant or expected to maintain an ongoing fiduciary duty, if the defendant undertakes to purchase property on behalf of the complainant but instead acquires it for himself, he may be held as a constructive trustee of the property.”
Applying Constructive Trust Principles
In the scenario described, a court may find that Broker Smith violated his fiduciary duties by:
· Misusing confidential information for personal gain,
· Concealing material facts from his principal, and
· Failing to obtain informed consent (in writing) before acting adversely to the client’s interest.
These actions support the imposition of a constructive trust. Such a trust could compel Broker Smith (or XYZ Holdings) to transfer title to Alpha or provide equitable restitution for the wrongful gain.
Conclusion
Fiduciary responsibilities are foundational to real estate professionalism. Violations threaten public trust. Courts, equipped with remedies such as constructive trust, actively discourage misconduct and ensure fairness.
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