25.3 AL – Recovery Fund

When someone wins a judgment for actual (compensatory) damages against a broker or salesperson, the licensee may be ordered
to pay—but sometimes they don’t. To help protect the public in those situations, Alabama law requires AREC to establish and maintain a
Recovery Fund.

Purpose of the Fund

• Helps an aggrieved party recover actual/compensatory damages that were ordered but not paid by the licensee.
• Damages must be sustained within Alabama and must result from conduct of a broker or salesperson that violates
  Article 1 or 2 of the Alabama License Law or AREC rules.
• The Recovery Fund is not used to pay interest or court costs.

Payment Into the Fund (How It’s Funded)

• Funded by a $30 fee paid by each applicant for an original broker or salesperson license
  (in addition to other fees).
• If AREC does not issue the license, the $30 fee is refunded.
• The fee is generally paid only once at original application.
  If a salesperson already paid it, they do not owe it again when applying for a broker license.
• If someone pays the fee twice, they can request a refund of the extra fee.
• Monies are deposited into the State Treasury and held in the Recovery Fund in trust by AREC.
• The State Treasurer may invest the funds in investments domestic life insurance companies may legally invest in under Alabama law.

Payment From the Fund (Conditions + Limits)

When the Fund Will NOT Pay

• No payment for acts/omissions of a broker/salesperson acting on their own behalf or on behalf of their child, spouse, or parent.
• No payment for acts/omissions of an inactive licensee.
• No payment for acts/omissions of a corporation/branch office/partnership as an entity
  (except for its licensed brokers/salespersons as individuals).
• No payment for acts/omissions while marketing or developing a time-share project.

Dollar Limits (Exam Favorite)

• Max total payments for judgments/settlements against any one licensee: $50,000
• Max total for multiple claims from the same transaction: $25,000 (no matter how many claimants)

Who Can Receive Payment

• Payments will not be made to a licensee or bonding company unless either was the principal party
  to the real estate transaction on which the judgment was based.

How a Claimant Seeks Payment (Process)

1. Notify AREC early: An aggrieved person seeking payment must notify AREC when the action for judgment is initiated.
2. AREC may defend/settle: After notice, AREC may take steps to defend the accused or the Commission, review the matter,
   or settle the claim. Costs of defending/satisfying/settling are paid from the Recovery Fund.
3. Get a valid court judgment: If the aggrieved person obtains a valid judgment against a broker/salesperson, they may apply
   for a court order for payment from the Fund for the unpaid amount.
4. 10-day written notice: The claimant must give the Commission 10 days’ written notice that they are seeking the court order.

What the Claimant Must Show the Court

• The claimant is not the spouse/child/parent of the debtor (or personal representative of those persons)
• The claimant has obtained a judgment
• How much is still owed on the judgment as of the application date
• The claimant joined any bonding companies that issued corporate surety bonds and other necessary parties
• Any money recovered from the debtor, bonding companies, and out-of-court settlements has been applied to the damages awarded

If the claimant meets the requirements, the court orders payment from the Recovery Fund in the amount the court determines is due.

What Happens After the Fund Pays

• If AREC pays from the Recovery Fund to satisfy a judgment or settle a claim, AREC may terminate all licenses the licensee holds.
• AREC may refuse to issue a new license until the licensee repays the Fund in full and with interest.
• When repaid, the payment (including interest) is deposited back into the Recovery Fund.
• If the Fund balance is insufficient to pay a claim, AREC must pay the claim plus interest when the Fund is restored.
  Claims are paid in the order originally filed.

Minimum Fund Balance (When Extra Fees Are Triggered)

If the Recovery Fund balance drops below $500,000, AREC will order each broker and salesperson to pay a $30 fee
for each license held. This is in addition to the original Recovery Fund fee.

• The additional fee is deposited into the Recovery Fund.
• A licensee on inactive status does not pay the additional fee until the license is activated.

Exemptions (When the $30 Fee Is Waived)

All applicants for an original broker or salesperson license must pay the $30 Recovery Fund fee unless the original license is issued on
inactive status. In that case, the fee is waived until the license is activated.

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