Record Keeping & Trust Accounts 1 Test
What shows all deposits and payments to and from a broker's escrow account in chronological order? A: Account Journal B: Bank Statement C: Ledger Cards D: Bank Reconciliation
A: Account Journal The account journal lists the movement of all funds in and out of the escrow fund in chronological order.
Money belonging to others is kept separate from other accounts: A: to prevent commingling with your own funds B: to make it easy for the IRS to audit your accounts C: to make it easier to withdraw the funds at any time D: so the money can be withdrawn by the buyer if they need the cash
A: to prevent commingling with your own funds Commingling is illegal and occurs when other people's money is mixed with the broker's operating or personal account.
If a broker establishes an account to hold money belonging to others, which of the following is correct? A: All checks, deposit slips, and bank statements must include the word "escrow" or "trust" as part of the account name B: The names of all authorized signers must be on the checks C: The account cannot be in the same bank as the broker's personal checking account D: An individual account is required for each transaction
A: All checks, deposit slips, and bank statements must include the word "escrow" or "trust" as part of the account name All checks, deposit slips, and bank statements must include the word "escrow" or "trust" as part of the account name.
How long must transaction records be maintained by an independent broker? A: Minimum of four years B: Until the transaction is closed C: Independent brokers who work alone are not required to retain records D: Independent brokers submit records to the real estate commission for safekeeping
A: Minimum of four years Independent brokers and employing brokers must retain transaction records from their brokerage activities for four years.
If there is a dispute regarding earnest money: A: The broker has a choice to interplead the money or await written instructions from the parties B: The broker must turn the money over to the court while awaiting resolution of the dispute C: Seller and Buyer must sue the broker to resolve the impasse D: The broker may move the money to an operating account
A: The broker has a choice to interplead the money or await written instructions from the parties The broker has two options - to interplead the money or await written instructions from the parties. If the money is in dispute, the only thing an agent cannot do is make a decision as to who gets the money. An agent is not a judge or arbiter. Interplead means the agent turns the money over to a court to determine the ownership rights of the rival claimants to the earnest money. More on the process of returning Earnest Money: The Colorado Contract to Buy and Sell Real Estate (AKA Purchase Contract) says the agent holding earnest money has 5 days to return earnest money to whomever is supposed to get it after receipt of written instructions to do do. This is covered in the Broker Acknowledgements sections of the purchase contact.The actual language reads like this - "Broker agrees that if Brokerage Firm is the Earnest Money Holder and, except as provided in § .., if the Earnest Money has not already been returned following receipt of a Notice to Terminate or other written notice of termination, Earnest Money Holder will release the Earnest Money as directed by the written mutual instructions. Such release of Earnest Money will be made within five days of Earnest Money Holder's receipt of the executed written mutual instructions, provided the Earnest Money check has cleared."BUT!!!!!! to make it even more fun for you, the Real Estate has issued Commission Position 6, whereby they say that if there is no controversy over who gets the earnest money, they want the money returned as quickly as possible and the agent does NOT have to get writen permission from all parties to do so.Most companies, as a prudent measure, have both parties sign that they agree who gets the earnest money before they release it. This just makes sense, woe to the agent who releases the earnest money and one of the parties throws a fit over it. Safer to get the parties to agree in writing first.However, sometimes the party that is giving up the earnest money and their agent makes this a pretty low priority on their things-to-do-list. Keep in mind, they are grumpy the deal is dead and even if they know they need to release the earnest money, they are not happy about it. In the meantime, the other party wants their money. Buyers in particular are anxious as they are back on the market looking for a property and can't make an offer until they get their earnest money returned. Therefore, the Commission has made is very clear, that they do not want slow paperwork to hold things up when there is no controversy.Does this occasionally put us in an awkward position? Yup. Smart agents who do not like to even get within sniffing distance of having to write out a personal check to cover a perceived, if not actual screw up (that be me, except my wife would probably dispute the "smart" assertion) will move heaven and earth to get quickly signed releases by both parties before releasing earnest money.If you find that one of your parties due to the stress of the failed deal ran instantly to consult with the yogi on the mountaintop and are not returning messages, you need to have a talk with your managing broker before doing something you may regret. It is always cooler to share the love and say "my managing broker said to do it and will make it good" then "how do I spell your name on my check".
How many single-family residences can a broker manage without having to open a trust account only for rents and deposits (separate from his sales trust accounts)? A: Up to seven B: Anytime he manages property he must open a separate trust account C: 10 or more D: Unlimited
A: Up to seven Money belonging to others must always be placed in a trust account. If a broker manages less than 7 properties, he may use his sales escrow account to deposit property management funds. He does not have to open a special property management trust account until he manages more than 6 properties.
A broker writes checks from the trust account into his operating account. A: broker is commingling and could have his license revoked B: broker may be netting earned commission against earnest money deposits C: broker is taking a negative ledger short cut, which is okay, but not advised D: broker is commingling and will have his license revoked
A: broker is commingling and could have his license revoked Commingling is mixing money from the trust account and the operating account; conversion is using some of the trust account money for your own use.
According to the provisions in the Contract to Buy and Sell Real Estate, if a broker has an interest-bearing trust account, the: A: interest may accrue to a nonprofit affordable housing fund B: interest earned belongs to the broker C: broker must transfer the interest to the seller D: interest earned may be applied to closing
A: interest may accrue to a nonprofit affordable housing fund The contract clearly states who gets the interest. "Earnest Money. The Earnest Money set forth in this section, in the form of a ______________________, will be payable to and held by ________________________________________ (Earnest Money Holder), in its trust account, on behalf of both Seller and Buyer. The Earnest Money deposit must be tendered, by Buyer, with this Contract unless the parties mutually agree to an Alternative Earnest Money Deadline for its payment. The parties authorize delivery of the Earnest Money deposit to the company conducting the Closing (Closing Company), if any, at or before Closing. In the event Earnest Money Holder has agreed to have interest on Earnest Money deposits transferred to a fund established for the purpose of providing affordable housing to Colorado residents, Seller and Buyer acknowledge and agree that any interest accruing on the Earnest Money deposited with the Earnest Money Holder in this transaction will be transferred to such fund." Commission Position 4 allows for the interest to be given to either the buyer, seller, or housing fund, however the negotiated contract between buyer and seller supersedes the statute.
In the absence of language to the contrary in the Property Managment Agreement a property manager must: A: Deliver security deposits to owner B: Deposit security deposit into escrow account C: Deposit security deposit into operating account D: Refuse to accept security deposit from tenant
B: Deposit security deposit into escrow account Short version: put it into the escrow account first, even if you are going to immediately transfer it to the owner. However, before the owner transfers it you need to provide appropriate written notification to the tenant as to who is holding the deposit and the holder's contact info. CP-5 Commission Position on Advance Rentals and Security DepositsPursuant to C.R.S. 12-61-113 (l)(g.5) and Commission Rule E-l and E-16, all money belonging to others which is received by a broker must be placed in an escrow or trust account. This applies to tenant security deposits and advance rental deposits, including credit card receipts, held by a broker.A broker may not deliver a security deposit to an owner unless notice is given to the tenant in the lease, rental agreement, or in a separate written notice that the security deposit will be held by the owner. Such notice must be given in a manner so that the tenant will know who is holding the security deposit, and shall include either the true' name and current mailing address of the owner or the true name and current mailing address of a person authorized to receive legal notices on behalf of such owner, along with specific requirements for how the tenant is to request return of the deposit.If, after receipt by the broker, the security deposit is to be transferred to the owner or used for the owner's benefit, the broker, in addition to properly notifying the tenant, must secure the consent of the owner to assume full financial responsibility for the return of any deposit which may be refundable to the tenant. The broker shall not withhold the identity of the owner from the tenant if demand for the return of the deposit is properly.
An escrow trust account: A: Is the account where the payroll taxes for withholding is placed B: Is a separate account established to hold money belonging to others C: Should have the words "Operating Account" in its account identification
B: Is a separate account established to hold money belonging to others A trust account is established to hold earnest money or security deposits.
Who holds the earnest money in a transaction with a listing broker and a buyer's agent? A: Buyer's Broker B: Listing Broker C: Must be in a neutral escrow company D: The brokers establish a joint escrow account
B: Listing Broker The listing broker usually establishes the escrow account, but the parties can always agree on any other practice they specify.
An employing broker (AKA sponsoring broker) is required to: A: be a signer on all bank accounts opened in the company name B: be a signer on all trust accounts opened in the company name C: be a signer on all contracts negotiated in the company name D: all of the above
B: be a signer on all trust accounts opened in the company name An employing broker, also referred to as a sponsoring broker, must be able to write checks drawn on his trust account with just his signature, and must be a signer on all trust accounts opened in the company name.
All of the following are "good funds" except: A: A wire transfer to the closing agent's bank B: A check on the broker's escrow account C: A cashier's check from a commercial bank D: A teller's check from a savings and loan
B: A check on the broker's escrow account This would be considered third party funds which are not considered good funds. From the Contract to Buy and Sell (Purchase Contract) Good Funds. All amounts payable by the parties at Closing, including any loan proceeds, Cash at Closing and closing costs, shall be in funds that comply with all applicable Colorado laws, including electronic transfer funds, certified check, savings and loan teller's check and cashier's check (Good Funds). This is also covered in Real Estate Commission Rule E-36: E-36. Good funds at closingPursuant to 38-35-125, a real estate licensee who provides closing services shall not disburse funds or instruct an agent to disburse funds until those funds have been received and are either:(1) available for immediate withdrawal as a matter of right from the financial institution in which the funds have been deposited or(2) available for immediate withdrawal as a consequence of an agreement of a financial institution in which the funds are to be deposited or a financial institution upon which the funds are to be drawn. Such agreement with a financial institution must be for the benefit of the licensee providing the closing service. If the agreement contains contingencies or reservations no disbursements can be made until these are satisfied.
Which of the following is correct concerning a broker's establishment of an account to hold money belonging to others? A: An individual account is required for each transaction B: All checks, deposit slips and bank statements must include the word "escrow" or "trust" as part of the account name C: The names of all authorized signers must be on the checks D: The account cannot be in the same bank as the broker's personal checking account
B: All checks, deposit slips and bank statements must include the word "escrow" or "trust" as part of the account name The escrow account must be identified as such and the checks, deposit slips, and statements must have the name of the account and the name of the brokerage entity.
When must an employing broker keep a ledger? A: When paying salaries to brokers B: When putting money in an account to maintain it C: When accepting money belonging to others D: When receiving an earned commission
C: When accepting money belonging to others What is a "Ledger"? A record collectively called a "ledger" or an equivalent component of an accounting system which records in chronological sequence all money which is received or disbursed by the broker on behalf of each particular beneficiary of a trust account. This record must show the monetary transactions affecting each individual beneficiary and must segregate such transactions from those pertaining to other beneficiaries of the trust account. The Real Estate Commision does not require a ledger when an Employing Broker is only managing company money. However, if s/he accepts money belonging to others both an escrow account and a ledger for that account is required. If an employing broker does not take physical possession of earnest money (buyers write checks directly to the title company), rents (written directly to owners), security deposits (written directly to owners) and such; then the emplying broker does not need an escrow account. If s/he does not need an escrow account, s/he does not need a ledger.
The illegal act of a real estate broker who places his client's or customer's funds with his own funds is known as: A: panic selling B: redlining C: commingling D: blockbusting
C: commingling Commingling, or mixing funds, is ILLEGAL and brokers who commingle funds can be prosecuted. Each of the other terms listed here fall under the realm of Fair Housing violations.
Reconciliation refers to: A: getting back together with your significant other B: looking over account balances to be sure you are still operating at a positive cash flow C: monthly review and comparison of the bank statement with your records D: what is turned over to the bookkeepers for safe keeping
C: monthly review and comparison of the bank statement with your records Reconciliation is required monthly to balance the escrow account against individual accounts.
Which of the following forms of payment would be considered good funds? A: Savings and Loan teller's check B: Electronic transfer of funds C: Cashier's check D: All of the above
D: All of the above From the Contract to Buy and Sell (Purchase Contract) Good Funds. All amounts payable by the parties at Closing, including any loan proceeds, Cash at Closing and closing costs, shall be in funds that comply with all applicable Colorado laws, including electronic transfer funds, certified check, savings and loan teller's check and cashier's check (Good Funds). This is also covered in Real Estate Commission Rule E-36: E-36. Good funds at closing Pursuant to 38-35-125, a real estate licensee who provides closing services shall not disburse funds or instruct an agent to disburse funds until those funds have been received and are either: (1) available for immediate withdrawal as a matter of right from the financial institution in which the funds have been deposited or (2) available for immediate withdrawal as a consequence of an agreement of a financial institution in which the funds are to be deposited or a financial institution upon which the funds are to be drawn. Such agreement with a financial institution must be for the benefit of the licensee providing the closing service. If the agreement contains contingencies or reservations no disbursements can be made until these are satisfied.
A note accepted by the seller as earnest money must be: A: Made payable to buyer B: Made payable to seller C: Made payable to broker D: Held by the title company or listing broker, whichever is designated in the Contract to Buy & Sell
D: Held by the title company or listing broker, whichever is designated in the Contract to Buy & Sell The earnest money is held as designated in the contract.
How much in personal funds can you keep in the escrow account? A: none B: $100 C: $500 D: Only enough to maintain the account
D: Only enough to maintain the account Generally, mixing personal funds with escrow funds is considered a bad thing and even has a name attached to it called "commingling". However, the Commission does recognize that as a practical matter, banks sometimes have require a minimum balance in the account. Under these circumstances ONLY it is permitted to maintain an amount of personal funds in the escrow account to meet minimum balance requirements.
A broker managing how many properties must maintain an operating funds trust account and a security deposit trust? A: Two B: Four C: Six D: Seven
D: Seven A broker who manages less than seven (7) single-family residential units may deposit rental receipts and security deposits and disburse money collected for such purposes in the "sales escrow" account. The law requires that a broker managing seven or more properties must have a minimum of two escrow accounts, one for security deposits and one for operating funds. If the broker transacts seven or more sales transactions then the broker must have a third "sales escrow" account.
What should you do if a buyer shows up at your office at 1:00 PM with a personal check for the closing funds for a closing scheduled at 2:00 PM? A: Have the buyer sign a note to replace the check B: Cancel the closing for breach of contract C: Accept the check since it is on a local bank D: Take the buyer to the bank to get a cashier's check
D: Take the buyer to the bank to get a cashier's check Note of the other answers would be bringing "Good Funds" to the closing table.
In the normal real estate transaction, which of the following is accurate regarding a broker's holding of other people's money? A: licensee's commission may be held in his escrow account B: interest must be paid to the seller C: earnest money deposits may be kept in his general operating account until just before closing D: earnest money deposits must be place in a recognized depository not later than three business days following the day on which the broker receives notice of acceptance
D: earnest money deposits must be place in a recognized depository not later than three business days following the day on which the broker receives notice of acceptance The earnest money must be deposited within three business days after acceptance of the contract to buy and sell.
A broker received an earnest money deposit from a buyer. Under Colorado law, the broker should A: open a special, separate escrow account that will contain funds for this transaction only, separated from funds received in any other transaction B: deposit the money in an existing, special non-interest-bearing escrow account in which all earnest money received from buyers may be held C: immediately deposit the earnest money in the broker's personal checking or savings account D: hold the earnest money deposit in a secure place in the broker's real estate brokerage office until the offer is accepted
D: hold the earnest money deposit in a secure place in the broker's real estate brokerage office until the offer is accepted The broker should hold the earnest money deposit in a secure place in the broker's real estate brokerage office until the offer is accepted.
Broker B received a buyer's earnest money check for $5,000 and immediately cashed it. At closing, the broker handed the seller a personal check drawn on the broker's own bank account for $5300, representing the original earnest money plus six percent interest.The broker: A: should have deposited the money in a special non-interest-bearing bank account B: properly cashed the check but should have kept the interest C: should have deposited the money in his personal bank account and would have been entitled to keep the interest as a service fee D: should have deposited the money in a bank escrow or trust account and should have discussed the interest with the parties
D: should have deposited the money in a bank escrow or trust account and should have discussed the interest with the parties The broker is in violation of Colorado Real Estate Rules; he should have deposited the money in a bank escrow or trust account and should have discussed the interest with the parties.
You receive an offer with an earnest money check. The seller counters the offer. What do you do? A: you hold on to the earnest money to see if the buyer accepts the counter proposal B: you give the earnest money check to your broker for deposit in the escrow account C :you send the earnest money check back to the buyer's broker with the counter offer D: you deposit the money in the broker's trust account to make sure it is safe
C :you send the earnest money check back to the buyer's broker with the counter offer This is a case of what you are supposed to do versus what really happens. It is not a statute item, but more of a best practice from the Real Estate Commission. Unfortunately, the Commission tests on what is official rather than what really happens. Officially - when a Seller counters an offer, the original offer is void and, you, as a listing broker have no legal right to retain the earnest money check therefore it should be returned with the counter. Practically - both agents consider this to be a period of negotiation and nobody wants to schlep a check back and forth, so the listing broker will not deposit or return the earnest money check until we have an accepted or dead deal, nor will the buyer's agent expect anything else. Going even further into reality versus the Test - most deals these days are done electronically with contracts and copies of checks faxed, or signed electronically, or emailed back and forth. Few deals are being performed via physical paper copies. For the Test - assume everything is performed via paper.
Once a contract to purchase has been accepted by the seller, when does the earnest money tendered with the contract need to be deposited into the appropriate escrow account? A: 1 business day after notice of acceptance B: 2 business days after notice of acceptance C: 3 business days after notice of acceptance D: 4 business days after notice of acceptance
C: 3 business days after notice of acceptance A check for the earnest money should either accompany the offer until accepted or be delivered prior to expiration of the Alternative Earnest Money Deadline. Most often, a buyer's agent holding the deposit forwards a copy of the earnest money check with the offer and then specifies a date in the Alternative Earnest Money Deadline when the actual check will be delivered after contract acceptance. If the check was tendered with the contract; it must be deposited no later than 3 business days after notice of acceptance of the contract. From the real estate manual: "Unless otherwise agreed, earnest money deposits held by the specified broker must be deposited not later than the third business day after notice of acceptance of the contract. The broker should keep a copy of the validated escrow deposit slip and earnest money check in the office transaction file for later inspection."
Money received by a property manager must be deposited within __________ days and money received as earnest money in a real estate transaction must be deposited within __________ days after contracted has been accepted. A: 3, 1 B: 3, 3 C: 5, 3 D: 5, 1
C: 5, 3 Money received for property management and short-term rentals shall be deposited within five (5) business days after receipt unless the parties agree otherwise. All other types of money belonging to others shall be deposited not later than the third business day after receipt or as provided in the agreement with those concerned Rule E-1 (n)
What must appear in the title of a trust account? A: Company name B: Employing broker's name C: Company name and employing broker's name D: Responsible broker's name
C: Company name and employing broker's name How to Open Escrow Bank Accounts 1. Select a Colorado depository that offers FDIC insurance coverage or as authorized for the specific engagement. 2. Include the following "fiduciary elements" in the account title. These must identify the true owner of the account, specify the type or purpose of account being established (sales, management, homeowner association, etc.), include one of the fiduciary words "escrow" or "trust," state the employing broker's personal name, and show his or her fiduciary capacity as "broker." The employing broker must be able to independently control and operate all escrow bank accounts, but others may be designated as signatories as well. These elements may be abbreviated to facilitate printing the broker's monthly bank statement heading, checks, and deposit stock. The general account title format follows: Licensed brokerage name and/or d.b.a. (brokerage TIN/SSN) Type of escrow, broker's name, broker Statement mailing address
Bank reconciliation of a trust account: A: Helps prevent bank errors B: Must be done annually by a CPA C: Must be done any month in which the account has had activity D: Is a good safeguard but is not required
C: Must be done any month in which the account has had activity Bank reconciliation of a trust account is to be done every month there was activity as required by law.