Tex. Bus. & Com. Code § 27.01; Tex. Civ. Prac. & Rem. Code § 16.004(a)(4); PJC 105.7
Statutory fraud in Texas real estate and stock deals — § 27.01, and why it beats common-law fraud
A claim in Texas district and county courts · Last verified August 26, 2026
Section 27.01 is a narrow statute that does two things common-law fraud will not. For actual damages it drops the scienter requirement — you do not have to prove the speaker knew the statement was false. And it shifts attorney's fees, expert witness fees and deposition costs to the person defrauded.
The price of those advantages is scope. The statute reaches only transactions involving real estate or stock, and Texas courts read that limit strictly.
What the claim is
In a sale of real estate or corporate stock, someone made a false statement of fact — or a promise they never intended to keep — to get you to sign, and you signed.
Where the right comes from
Statute. Business and Commerce Code § 27.01, which has descended largely unchanged from a 1919 act aimed at land-sale fraud.
What a plaintiff has to prove — PJC 105.7
- A transaction involving real estate or stock in a corporation or joint stock company.
- A false representation of a past or existing material fact, or a false promise to do an act made with no intention of performing it.
- Made for the purpose of inducing the plaintiff to enter a contract.
- The plaintiff relied on it in entering the contract.
Section 27.01(a). Note what is absent: knowledge of the falsity is not an element of actual damages. It becomes an element only for exemplary damages, which require that the defendant made the representation with actual awareness of its falsity, or made the promise with actual awareness that it would not be carried out (§ 27.01(c)–(d)).
How long you have to file
Four years, under CPRC § 16.004(a)(4), which covers fraud without distinguishing the statutory from the common-law variety. Accrual follows the same discovery principles as common-law fraud.
What has to happen before you file
Nothing.
What the claim pays
Actual damages.
Exemplary damages where the defendant had actual awareness of the falsity of the representation or the promise, and failed to disclose it.
Attorney's fees, expert witness fees, costs for copies of depositions, and costs of court to the person defrauded, under § 27.01(e). This is the provision that makes the statute worth pleading, and it is one-way: it runs to the defrauded plaintiff, not to a prevailing defendant.
Who can be sued — including someone who did not speak
The obvious defendant is the person who made the false representation or the empty promise.
Section 27.01 reaches further. A person who benefits from the false representation or promise, who had actual awareness of its falsity, and who failed to disclose it to the person defrauded, is liable to the extent of that benefit. Where the defendant intended to induce the plaintiff to enter the contract, that liability extends to exemplary damages as well.
That provision matters in transactions with several participants. A seller's principal, a co-venturer, or a company that took the proceeds of a sale it knew was procured by a lie can be a defendant even though it said nothing to the buyer.
What counts as a real estate or stock transaction
The statute reaches a transaction involving real estate or stock in a corporation or joint stock company. Texas courts read both terms as referring to the transfer itself.
Inside the statute: sales of land and improvements, contracts for deed, sales of a business conveyed through its stock.
Outside it, as courts have generally held: loans secured by real property, construction contracts, leases, and the sale of a business structured as an asset purchase rather than a stock purchase.
Common defenses
- The transaction was not real estate or stock. The recurring winner. A loan secured by real property is generally not a real estate transaction for § 27.01 purposes, and neither is an agreement to build on land as opposed to convey it.
- No reliance, or reliance that was not justifiable.
- The statement was opinion or puffery, not a representation of past or existing fact.
- An "as is" clause or a disclaimer of reliance, on the same principles that apply to common-law fraud.
- Limitations.
- Failure to tie the fraud to the qualifying transaction in the jury charge, which has cost plaintiffs their fee awards on appeal even after a fraud finding.
What people get wrong
A mortgage is not a real estate transaction under this statute. Borrowers who were misled by a lender routinely plead § 27.01 and lose on scope. The statute is aimed at the conveyance, not at the financing.
Construction contracts are outside it. An agreement to build a house is not a transaction involving real estate for these purposes; the deed is.
Actual damages need no proof of intent. This is the whole advantage, and it is frequently overlooked — plaintiffs plead the statute and then try their case as though scienter were required.
The jury charge has to connect the two. A fraud finding that is not tied to the real estate or stock transaction will not support the statutory fee award.
Where it came from
The Legislature enacted the predecessor to § 27.01 in 1919, in a market where speculative land sales and unregistered stock offerings were common and proving what a promoter knew was close to impossible. Removing scienter from the damages case was the point of the statute.
It moved into the Business and Commerce Code in 1967 and has been amended only lightly since — most significantly to add the fee and expert cost recovery, and to add liability for a person who benefits from a fraud while aware of it.
Common questions
How long do I have to file a § 27.01 claim?
Four years, on the same fraud limitations rules as common-law fraud.
Do I get attorney's fees?
Yes. The statute awards the person defrauded reasonable and necessary attorney's fees, expert witness fees, deposition copying costs and court costs.
Is this easier to prove than regular fraud?
For actual damages, yes. You do not have to prove the speaker knew the statement was false. For exemplary damages you do.
Does it cover my mortgage or home loan?
Generally not. Courts have held a loan secured by real estate is not itself a real estate transaction under the statute.
Does it cover a contract to build a house?
No. Section 27.01 applies to the conveyance of real property, not to construction agreements.
Can I plead this and common-law fraud together?
Yes, and plaintiffs usually do. They have different scienter requirements and only the statutory claim carries fees.