1.4 The Arkansas Real Estate Recovery Fund

The Arkansas Real Estate Recovery Fund is a consumer-protection pool that pays victims of licensee misconduct when they cannot collect from the licensee. It is created and administered by AREC under Ark. Code Ann. § 17-42-403, and it is a favorite state-portion topic because the dollar caps and the payment trigger are precise — and widely misstated in older materials.

Funding the Fund

The renewal assessment is collected only as needed: the fee is the lesser of $25 or the amount required to restore the fund to its $250,000 target. If the fund is already healthy, AREC may not charge the full $25 in a given year.

Common Trap: The fee licensees pay ($25) is a completely different number from what the fund can pay out. Do not confuse the $25 contribution with the payout caps below.

Payout Limits (Corrected)

The maximum amounts the fund will pay are set in Ark. Code Ann. § 17-42-406:

Warning: Many guides incorrectly say "$50,000 per transaction and $50,000 per licensee." The correct figures are $25,000 per violation/series and $75,000 aggregate. Memorize $25,000 / $75,000.

What the Fund Covers

The fund pays actual (compensatory) damages arising from a licensee's fraud, misrepresentation, deceit, or conversion of money/property in a transaction. It does not pay:

• Punitive or exemplary damages
• Interest on the loss
• Attorney fees or court costs
• Losses from a transaction in which the wrongdoer was the principal/owner rather than acting as a licensee for another

Exam Tip: If a fact pattern mentions punitive damages or attorney fees, those amounts are excluded — only the actual loss (up to the caps) is recoverable from the fund.

How a Claim Is Paid (the Arkansas Model)

Many states require a consumer to first obtain a court judgment and exhaust collection before tapping the recovery fund. Arkansas is different — it pays through the AREC disciplinary process:

1. A consumer is harmed by a licensee's fraud, misrepresentation, or conversion.
2. AREC investigates and, after a disciplinary hearing, finds a violation and determines the actual damages.
3. AREC orders the licensee to pay the harmed party.
4. If the licensee does not pay within 30 days of the Commission's final order, and the order is not appealed to circuit court, AREC pays the harmed party from the Recovery Fund (up to the $25,000 / $75,000 caps).

Consequences for the Licensee

Once the fund pays on a licensee's behalf, under Ark. Code Ann. § 17-42-409:

• The licensee's license is immediately suspended and stays suspended until the fund is fully reimbursed.
• Reimbursement must include interest (up to 10% per year).
• AREC is subrogated to the consumer's claim and may pursue the licensee for repayment.

Key Point: The triggering event in Arkansas is an unpaid, unappealed AREC order after 30 days — not a separately obtained civil court judgment. That distinction is exactly the kind of detail the state portion tests.

Worked Example

Suppose a salesperson collects a $30,000 earnest-money deposit and a $5,000 "fee" from a buyer, deposits none of it, and disappears with the funds — a clear conversion. The buyer complains to AREC.

• AREC investigates, holds a hearing, and finds the licensee converted $35,000 in actual losses.
• AREC orders the licensee to repay the buyer $35,000.
• The licensee does not pay within 30 days and does not appeal.

The buyer applies for payment from the Recovery Fund. Even though the actual loss was $35,000, the fund will pay no more than $25,000 for this single violation/continuing series (§ 17-42-406). The buyer must pursue the licensee individually for the remaining $10,000. Meanwhile, the licensee's license is suspended and stays suspended until the fund is reimbursed the $25,000 plus interest.

Exam Tip: Watch for fact patterns where the loss exceeds the cap. The fund pays only up to $25,000 per violation/series and $75,000 aggregate per licensee — the consumer absorbs or separately pursues the rest. Also remember the fund never pays for losses the wrongdoer caused as a principal/owner rather than as a licensee acting for another.

Why the Fund Exists

The Recovery Fund is a consumer-confidence mechanism: it assures the public that even if an individual licensee is judgment-proof, a limited, statute-backed pool stands behind the profession. It is not insurance for licensees and does not protect the wrongdoer — to the contrary, a payout suspends the offender's license and creates a debt with interest. The fund also reinforces deterrence, because licensees know misconduct can end their careers and follow them financially through subrogation.