Escrow Account
No Commingling or Misappropriation
Mixing money belonging to others or adding business or personal money to the escrow account (except for service charges) is a very serious offense for brokers. For this reason, the Commission has created these specific standards: A broker cannot commingle money (or interest earned on an escrow account) that is supposed to be in escrow with any other funds- business, personal or operating; A broker may deposit business or personal funds to provide for service charges charged by the bank or depository in order to keep a minimum balance; A broker cannot misappropriate money that is required to be held in escrow for any reason for any account!
Escrow
taking care of other peoples' money, money that is held in trust and must be accounted for at all times. It may not be commingled with the broker's money nor taken out of the account (conversion) by the broker without authorization to pay the broker's bills.
Deadline for Depositing Money into an Escrow Account
A broker must deposit money belonging to another into an escrow account by the end of the next business day following its receipt in the real estate office where the escrow records are maintained. If the money comes from another broker in the form of a check, the broker may, with written consent, refrain from depositing the money into an escrow account pending the seller's or lessor's acceptance of the offer. The broker must deposit the check into an escrow account within one business day of the seller or lessor's acceptance of the offer.
The Commission is charged by the legislature of the Commonwealth to make sure that every broker complies with the following in regard to escrow accounts: Every broker must:
Deposit all money accepted by all licensees who work for a broker and hold those monies until the consummation or termination of the transaction involved; Account for the full amount of all monies given to the broker at the time of consummation or termination; Have each salesperson or associate broker give the broker promptly a receipt of monies for a transaction for which he is engaged on behalf of the broker-employer; Immediately deposit monies belonging to others in a separate custodial account or trust fund maintained by the broker with a bank or recognized depository until the transaction is consummated or terminated. At this time the broker must account for the full amount received; Not deposit advance fees into the broker's business or personal account or be commingled with any funds he may have on deposit; Keep personal and business money separate from escrow money. The broker cannot commingle funds; Keep careful and good records of all funds deposited in the escrow account indicating: The date he received the money, From whom he received the money, Date deposited, The dates of withdrawals, Pertinent information related to the transaction, Show clearly for whose account the money is deposited, To whom the money belongs.
One of the most important things a broker does is keep track of other's people money. It is the responsibility of the broker to deposit the money in an escrow (trust) account until the money can be used for closing, or paid out for bills etc. or whatever purpose the buyer/tenant has to do.
Escrow money must be in an account by itself. No operating or rent funds can be deposited in this fund. No advance fees can be placed in this account. Each associate broker or salesperson must give money promptly to put into the account and the broker must deposit the money immediately. Careful records must be maintained of all the funds in the escrow account. The records must include the date the broker received the funds, from whom he received the funds, date deposited, date of withdrawal, pertinent information related to the transaction, who does the money belong to and how was the money withdrawn and taken out of the account. The records of these accounts must be available for inspection by the Commission or its representatives during any regular or special inspection and upon written notice. Money in escrow accounts must be placed in a federally or state-insured accounts with the broker or broker of record as the person designated to handle the accounts. The broker may not seek nor receive a waiver of escrow responsibility by seeking the approval of all the parties to a transaction. When a sale is co-brokered, usually the listing broker handles the escrow money. The selling broker has the responsibility to inform the buyer that the money will be held by the listing broker. A broker may seek approval to delay the check deposit until one business day after the seller or lessor's acceptance of the offer. Generally, the escrow money is placed in a non-interest bearing account. If, however, the account will be held longer than six months, the broker is encouraged to seek an interest-bearing account with a clear understanding of who will receive the funds, except the broker who is not allowed to collect interest. A broker cannot commingle funds or misappropriate funds for his own private use. He may deposit his own funds to pay service charges as charged by the bank. When the escrow money is in dispute the broker may retain the money in the account until the situation is settled; or the broker may turn over the money to the county court having jurisdiction to interplead the case.
The Commission is charged by the legislature of the Commonwealth to make sure that every broker complies with the following in regard to escrow accounts:
Every broker must: Have records of the escrow account available for inspection by the Commission; Have each separate or escrow account designate the broker as trustee and each account must provide for withdrawal of funds without previous notice; Have records available to the Commission immediately after proper demand or after written notice or upon written notice given to the depository. A broker does not have to hold rents in escrow that he receives for a lessor in property management. These funds must be deposited in a rental management account which is also separate from the broker's escrow and general business accounts. A broker may deposit his own money into an escrow account to cover service charges to this account assessed by the banking institution. A broker must have at least two different types of accounts: an escrow account an operating account A rental/property management broker will have three accounts: an escrow account, a rental account and an operating account.
Responsibility for Escrow in a Co-brokerage Transaction
Frequently, sellers list their properties to be sold with a broker who is a member of a multi-list organization. This makes it possible for brokers and their salespeople of different companies to sell each other's properties. This also results in a listing and selling broker. The question then comes as to which broker will hold the escrow (usually earnest money). The Commission says: If the sales deposit (earnest money) is given by the buyer to the listing broker, the listing broker assumes the duty and responsibility for escrow. If the sales deposit is given by the buyer to the selling broker with the selling broker giving prior notice to the buyer that the selling broker will turn the money over to the listing broker, the listing broker then assumes responsibility for escrow. If prior notice is given by the selling broker to the buyer, the prior notice must include: The name of the listing broker The selling broker's acceptance of the buyer's deposit if not on behalf of the listing broker as a subagent* for the listing broker. That the listing broker is a licensed real estate broker who is required to hold the deposit in escrow That the listing broker be designated as payee, if the buyer's deposit is in the form of a check; If the deposit is given by the buyer to the selling broker without prior notice, the selling broker has the responsibility for the escrow. Subagency will be talked about in the next session under relationship of the parties.
The Escrow Account
Must be in a federally or state-insured bank or recognized depository; Must designate the broker as trustee; Is an account that provides for withdrawal of funds without prior notice; Must be used only for escrow purposes. The employing broker may give an employee written authority to deposit money into the account and may give a licensed employee the written authority to withdraw funds from the escrow account that is chargeable to the account. If the money held in escrow is expected to be held six months or longer, the broker is encouraged to deposit the money into an interest bearing escrow account. The interest on an interest bearing account will be disbursed in the same manner as the principal amount, unless the parties direct otherwise by agreement. A broker cannot collect the interest on an interest-bearing account unless the broker is a lessor as provided for in the Landlord Tenant Act. The broker must give the Commission or its authorized representative, upon written request or under an office inspection, a letter addressed to the bank or depository where the escrow account is maintained, containing authorization to release records pertaining to the escrow account.
What to Do When the Escrow Money is in Dispute
Occasionally, for a variety of reasons, the money being held in the escrow account is in dispute by two or more of the parties to the transaction. This is sometimes the case when the transaction falls apart and the seller blames the buyer and the buyer blames the seller. The Commission says: If there is a dispute about money being held in escrow, the broker must retain the money in escrow until the dispute is resolved. If the dispute will not likely happen for several weeks, the broker may, following 30 days notice to the parties, petition the county court having jurisdiction in the manner to interplead the rival claimants. Interplead: seeking a court decision to determine who should receive the funds held for two parties by a disinterested third party. (Let the judge decide.) Effective September 2009, Act 14 of 2009 made a change to Pennsylvania's RELRA: Escrow account requirements found Section 604(a)(5) of RELRA are moved to a new Section 608.5. The most significant change involves when a broker may release escrow funds. Currently the law allows a broker to release for (a) consummation of the transaction or (b) termination of the transaction with no dispute or (c) a court order. The new amendment permits a broker to also release escrow funds where there is: A prior agreement in writing or electronic form as to disposition of the funds in the event of a dispute regarding entitlement, OR Receipt of instructions in writing or electronic form, signed by all of the parties at any time after the broker's receipt of the funds, directing the broker to release some or all of the funds. Any existing regulations that conflict with the new amendments will not be enforced.
Duty to Deposit Money Belonging to Another into an Escrow Account
The Commission has established standards of conduct and practice to administer and enforce the laws regarding escrow requirements. A broker must deposit money belonging to others into an escrow account in a federally or state-insured bank. The money is held until a pending transaction is consummated or terminated. If there is no dispute at the time a transaction is terminated, the broker may pay over the full amount to the party entitled to receive it. It is the responsibility of the broker of record to perform escrow responsibility if the broker is a corporation, association or partnership. The broker is not required to hold money in escrow that is rent money he receives as a property manager for a lessee. This money shall be deposited into a rental management account which is separate from any escrow or general operating account the broker has. When handling money on an installment land contract, the broker can consider the transaction completed when the buyer has been afforded the opportunity to record the agreement, unless the agreement specifies otherwise. When handling money for another under an agreement of cemetery property, the transaction is considered closed when the buyer receives a copy of the agreement of sale.
The broker must keep careful and exact records of all monies entrusted to him.
The records of escrow accounts must contain: The name of the party from whom the broker received the money; The name of the party to whom the money belongs; The name of the party for whose account the money is deposited; The date the broker received the money; The date the broker deposited the money into the escrow account; The date the broker withdrew the money from the escrow account.
Occasionally, other items are placed in escrow with a broker such as a boat or a diamond ring. These can be accepted by the broker so long as all parties to the transactions are aware and have agreed in writing to this fact. The broker must handle these items with the same care as money in an account and is responsible for all escrow items given to him.
The word "escrow" is used several places in real estate brokerage. For purposes in this session, escrow refers to the money (or items) put in trust by a buyer, seller, tenant or landlord with the broker. An escrow account refers to the account where the money of other people is kept by the broker. Sometimes this account is called a "trust account." The broker is responsible for all monies entrusted to his care and must be able to account for all funds.
Security Deposits and Escrow Accounts
When a security deposit is held by a broker in an escrow account, the completion of the transaction shall be the end of the tenancy*. If a sale of the property or a change in property management occurs during the tenancy, the broker may transfer the security deposit from the broker's escrow account to the escrow account of the lessor, or the lessor broker upon notification in writing to each tenant from whom the broker received a deposit. The notice must contain the name and address of the banking institution where the deposit is held and the amount of the deposit. Tenancy: occupancy of the property by legal means. No Waiver of Escrow Duty A broker may not relieve himself of escrow responsibility with a written waiver between any or all of the parties to the transaction, or between any or all of the brokers involved in the transaction
In general,
a broker must account in a timely manner for all money and property received from or on behalf of any consumer to a transaction consistent with the provisions of 604. (a) (5).