4.30 Trust Funds

Company policy is to handle all trust funds with care and comply with all laws. The Company primarily maintains trust fund bank accounts for its property management services, not for earnest money deposits of residential/commercial sales or leasing. Earnest money deposits of residential/commercial sales or leasing are exclusively made by the client directly to the settlement or escrow company. The Company only maintains a trust fund bank account in certain States, depending on each State’s regulations and requirements and whether or not the Company is conducting property management services in that State. Inquire with your supervising Broker/Manager as to what the policy is in your state.

Introduction

Since trust fund handling violations are a major reason for disciplinary action it is company policy not to handle checks. A thorough understanding of and compliance with the laws and regulations regarding trust funds are of the utmost importance. This section will focus on the laws and regulations governing the handling of trust funds and the maintenance of a trust fund bank account.

Definition of Trust Funds

• Deposit checks made payable to the broker, the seller, a title (escrow) company or an attorney.

• Rent money received from a tenant.

Amount of Days to Deposit Trust Funds

Within a certain amount of days (per each State’s licensing laws), when a licensee accepts trust funds on behalf of the licensee’s broker, the licensee must take one of the following actions:

• The funds can be given to their owner. (Note: written instructions are required from all principals to do so);

• The funds can be deposited into a neutral escrow depository; or

• The funds can be deposited into the broker’s trust fund account.

Licensees must be familiar with and abide by contractual timeframes for their clients to deposit their Earnest Money Deposit (EMD).

Ownership of Trust Funds

An initial good faith deposit given by a buyer will be considered the buyer’s funds. However, if the buyer defaults, ownership of the funds, depending on the agreement between the buyer and the seller, may transfer to the seller.

The buyer’s deposit cannot be refunded to the buyer without the express written consent of the seller. The reason for this rule relates to ownership of the money. Depending on the terms of the underlying offer to purchase, the ownership of the funds can move from the buyer to the seller upon the occurrence or non-occurrence of specified events.

Advance Fees

All advance fees received by a broker must be deposited into the broker’s trust fund account. They are not the funds of the broker. They are the funds of the client. If the funds are deposited directly into the account of the broker, such a deposit is deemed embezzlement, and the principal can recover damages, in certain States treble damages (triple the normal amount), and attorney’s fees. Once the fees have been deposited into the trust fund account, they cannot be withdrawn except for the benefit of the principal whose funds they are. They may be withdrawn for the benefit of the broker when the agent’s services are completed, and then only upon following required procedures. DO NOT PERSONALLY ACCEPT ADVANCE FEES. YOU MUST HAVE APPROVAL FROM YOUR BROKER/MANAGER AS ALL ADVANCE FEES MUST BE DEPOSITED ELECTRONICALLY INTO THE TRUST ACCOUNT.