Actual Fraud vs. Constructive Fraud: What's the Difference?

Feb 8, 2018

Welcome to KLA Signing Service, your trusted source of information for real estate transactions. In this article, we will dive deep into the topic of actual fraud and constructive fraud, exploring their differences, legal implications, and consequences in the real estate industry.

Understanding Actual Fraud in Real Estate

Actual fraud refers to intentional misrepresentation, deceit, or concealment of material facts with the intention to deceive or defraud another party. It involves deliberate actions, often accompanied by an intent to gain unjustly or deprive someone of their rights.

Examples of actual fraud in real estate transactions may include:

  • Providing false information about property conditions or history.
  • Forging documents or signatures to misrepresent ownership or authorization.
  • Misrepresenting financial information, such as falsifying income or assets.
  • Concealing known defects or issues that could affect the property value.
  • Using misleading marketing tactics to lure buyers or investors.

The consequences of actual fraud in real estate can be severe, leading to:

  • Financial losses for the defrauded party.
  • Legal actions, including civil lawsuits or criminal charges.
  • Voiding of contracts and potential rescission of the transaction.
  • Damages awarded to the victims of fraud.

Exploring Constructive Fraud in Real Estate

Constructive fraud is different from actual fraud in that it doesn't require intentional deception or fraudulent intent. It refers to situations where a party breaches their fiduciary duty, resulting in harm or unfair disadvantage to another party.

Common examples of constructive fraud in real estate transactions may include:

  • Negligent misrepresentations regarding property conditions or value.
  • Breach of duty by a real estate agent or broker.
  • Failure to disclose potential conflicts of interest.
  • Failure to follow proper procedures or industry standards.
  • Exploitation of a vulnerable party's trust or lack of knowledge.

Constructive fraud can still have serious consequences, and the injured party may seek remedies such as:

  • Rescission of the transaction.
  • Monetary damages for the resulting losses.
  • Professional sanctions or license revocation for the responsible party.
  • Reputation damage and loss of future business opportunities.

Choosing the Right Real Estate Professionals

Given the potential risks associated with actual and constructive fraud, it is crucial to work with reliable and trustworthy professionals throughout your real estate journey. Here are some tips to help you choose the right real estate professionals:

  1. Do thorough research on real estate agents, brokers, and other professionals involved in your transaction.
  2. Check their credentials, licenses, and certifications.
  3. Read reviews and testimonials from previous clients.
  4. Ask for recommendations from friends, family, or trusted advisors.
  5. Interview potential professionals to gauge their experience and expertise.

By selecting ethical and knowledgeable professionals, you can minimize the risks of fraud and ensure a smooth real estate transaction process.


In summary, understanding the differences between actual fraud and constructive fraud is essential for anyone involved in real estate transactions. Both types of fraud can have serious legal and financial consequences. It's important to remain vigilant, conduct proper due diligence, and seek professional guidance to protect your interests.

At KLA Signing Service, we strive to provide you with comprehensive information to navigate the complexities of real estate. Contact us today to learn more and ensure a secure and successful real estate transaction.

Mike Giorgio
Misrepresentation: Know-it-all 👍
Oct 15, 2023