State Topic Tester- Escrow Accounts
A real estate transaction does not go to settlement. Under what circumstances can the escrow funds be released?
(escrow accounts) If the parties agree to disbursement, the broker may release the funds. In cases of dispute, a broker may release the funds to the courts by interpleader (court holds the funds until dispute is settled). Otherwise, a court could (but is not required to) order disbursement. Note that if there is an agreement, it's unnecessary to work through the court system (for example, if it was agreed upon in the original sales contract). The correct answer is: A broker may disburse the funds with written approval of all parties
A broker received an earnest money deposit to support a valid contract. If the contract is breached and does not close, the broker is required to hold the escrow funds until:
(escrow accounts) In the event of a breach, the broker must hold the escrow funds until the parties agree on how they should be disbursed, the funds are successfully interpleaded into court, or until a court orders disbursement. The broker can also disburse according to the specific terms of the sales contract (requires written notice and a minimum waiting period). The correct answer is: All principals to the contract agree to the intended distribution
If a broker holds an earnest money deposit in an interest-bearing escrow account, what is the disposition of any earned interest?
(escrow accounts) Interest earned from escrow account deposits can be kept by the broker, as long as there is written disclosure and agreement by all parties. The correct answer is: The broker may keep the interest
A broker could remove money from her escrow account under all of the following circumstances, EXCEPT:
(escrow accounts) Money can be removed from escrow with written permission of the principals to the contract (in the sales contract or otherwise), upon consummation of the transaction, interpleader, or by court order. Rescission (cancelling the contract) requires agreement from both the buyer and the seller. The correct answer is: Rescission by the buyer
When can a broker remove money from his escrow account?
(escrow accounts) Of the choices presented, the best choice is that funds may be removed from escrow when closing is complete. The correct answer is: When closing is completed
Which payment does NOT need to be held in an escrow account?
(escrow accounts) Rental security deposits must be held in an escrow account. Any earnest money deposit must also be placed in the escrow account (no matter how short a period it will be held). Meanwhile, a referral fee is earned commission that belongs to the broker, so it should be placed in his personal or operational account. The correct answer is: A referral fee received from an out-of-state broker
A party defaults during the executory period of a valid real estate contract. As a condition of the contract, the broker must hold any funds in his possession until:
(escrow accounts) If a transaction does not go to closing, the broker must hold any funds until all principals to the contract agree IN WRITING to the disposition of the funds, SUCCESSFUL interpleader allows the money to be held by the courts, OR a court orders dispersion. The broker can also disburse according to the specific terms of the sales contract. However, that requires written notice and a minimum waiting period. The correct answer is: A court of competent jurisdiction orders disbursement
How long must a broker keep copies of escrow records?
(escrow accounts) Escrow records must be kept for 3 year from the date of CONSUMMATION (closing) or ratification (if the contract does not go to closing). The correct answer is: 3 years from the date of consummation or ratification of the contract
Brenda the Salesperson is employed by Broker Bob. She receives a check from Alex as a "thank you" for the excellent job she did in finding a buyer. In this instance, Brenda should:
(disciplinary procedures & sanctions) A salesperson can ONLY receive compensation from her employing broker. Once earned, there is no requirement to place payment into escrow. The correct answer is: Endorse the check and give it to Bob
Which of the following actions is NOT a violation of Virginia License Law?
(disciplinary procedures & sanctions) The law does not specify that you must cooperate on listings; this is only customary. All other answers are violations of the law. The correct answer is: Refusing to cooperate on the sale of property listed exclusively
When a broker establishes an account to hold money belonging to others, which of the following statements is true?
(escrow accounts) All escrow accounts and all deposits into such accounts must be labeled as "escrow." The correct answer is: All checks, deposit slips, and bank statements must include the word "Escrow" as part of the account name
A broker manages three separate properties for the same owner. One property is in need of emergency repairs, but there is no money in the management account to cover the cost. The broker "borrows" money from another property's escrow account to make the needed repairs. Assuming he restores the borrowed funds on the next business day, which of the following statements is true?
(escrow accounts) Brokers cannot combine money from different escrow sources because it probably contains security deposits belonging to tenants of multiple properties. Even if he pays it back the next day, the broker is still in violation of the regulations. The correct answer is: The broker is in violation of License Law for improperly handling escrow funds
A broker receives an earnest money deposit from the buyer on Thursday. When is the latest day he can deposit into his escrow account without violating VREB rules?
(escrow accounts) Brokers must deposit any earnest money, down payments, rental payments, security deposits, and advances before the end of 5th banking day. The correct answer is: Within 5 banking days
An escrow account is required to:
(escrow accounts) By definition, an escrow account is an account that is used to hold money that belongs to another party. There is no requirement that escrow accounts be interest-bearing. The correct answer is: Be opened by a broker to hold money that belongs to another party
In which circumstance would a broker be guilty of commingling funds?
(escrow accounts) Commingling is the act of mixing or mingling entrusted client or customer funds with personal or business funds (deposit into the same account). Examples of commingling include depositing earnest money in the broker's business operating account, or depositing broker's personal funds in the trust account. Security deposits can be placed in the same account as earnest money deposits, but again, they must not be commingled with operating funds. The correct answer is: Placing rental security deposits in the same account as the property operating funds
Which of the following actions is an example of commingling?
(escrow accounts) Earned commissions belong to the broker. The broker must not place his own money (earned commissions) in with escrow funds. To do so is to commingle. The correct answer is: Placing earned commissions in the same account as earnest money deposits
Which funds would NOT need to be held in an escrow account?
(escrow accounts) Earned commissions need not be placed in escrow. The correct answer is: A commission received from an out-of-state broker
As a property manager, a broker should maintain a bank account for money that belongs to the owner. How is this account identified?
(escrow accounts) Escrow is defined as money that belongs to another person. Therefore, the account should be so identified. The correct answer is: Escrow account
A contract cannot be consummated due to a disagreement between buyer and seller. The broker still has the earnest money deposit in his escrow account. The seller demands that the deposit be given to him, but the buyer demands that the deposit be returned to her. What can the broker legally do?
(escrow accounts) The License Law and Regulations advise that if the sale is not consummated, the deposit should be disbursed as agreed upon by the parties (in the sales contract or otherwise). However, there is no agreement in this situation and no indication of the contract terms. Therefore, the only solutions are to let the courts hold the funds until the dispute is settled (interpleader), or to hold the money until a court orders the disposition of the funds. The correct answer is: Hold the funds until ordered by the court to disburse
If a contract of sale is not consummated, how are escrow funds disbursed?
(escrow accounts) The broker may disburse the escrow with written authority of all parties, or after 15 days notice of intended distribution if neither party objects. If all parties cannot agree, then the broker must file an interpleader or wait for court order. The correct answer is: By the broker, according to the terms of the contract if neither party files a written objection
A broker has the buyer's earnest money deposited in an escrow account. The amount of the deposit exceeds the amount of the broker's commission for the sale. The broker can ONLY remove his commission for the sale:
(escrow accounts) The broker may remove his commission from the escrow account after closing or when ALL parties to the transaction agree in writing, not when only the seller states it's okay to do so. The correct answer is: When the closing is completed
Which of the following would NOT be a violation of Board Regulations?
(escrow accounts) The earnest money deposit must be placed in an escrow account. This escrow account is separate from other accounts that the broker may have. If the terms of the contract require that the deposit earn interest pending consummation of the deal, the deposit could be placed in an escrow account of its own. The correct answer is: Placing an earnest money deposit into a separate escrow account
Chuck, lives in a rural area and sells real estate on a part-time basis. He only goes into his broker's office twice a month because it is not near his home. Chuck obtains a valid contract for one of his listed properties. What should he do with the earnest money deposit supporting this contract?
(escrow accounts) The earnest money deposit should be placed into an escrow account as soon as possible after contract ratification (no later than 5 banking days). As a salesperson or associate broker, Chuck does not have an escrow account. Therefore, he should get it to his broker as quickly as possible. The correct answer is: Mail it (special delivery) to his broker
If a broker receives a deposit for escrow, his handling of the deposit would be in violation of Virginia License Regulations if he:
(escrow accounts) The law does NOT require that escrow money earn interest. However, if the account does earn interest, all parties to the transaction must be advised and agree on exactly how the interest will be distributed. The correct answer is: Does not advise the principals of exactly how the earned interest on the deposit will be distributed
Earnest money deposits may be placed in interest-bearing accounts if the:
(escrow accounts) The law does not require that escrow accounts bear interest. However, if the account does bear interest, the broker must disclose exactly how that interest will be distributed. The correct answer is: Contract specifies the beneficiary of any earned interest
Money or trust instruments received, accepted, or held on behalf of another pending consummation or termination of a real estate transaction are:
(escrow accounts) The money could be intended as commissions or down payments. However, since it's held for others, the money must be placed in escrow. The correct answer is: Escrow funds
Broker Tom can remove money from his escrow account in all of the following circumstances, except:
(escrow accounts) The only listed situation where a broker CANNOT remove escrow funds is if there were a unilateral rescission--which means the contract was breached. The parties might have accounted for that in the original sales contract (if so, the broker can follow the terms of the contract). However, disputes usually require a successful interpleader or court order before the broker may release funds from escrow. The correct answer is: Rescission of the contract by the seller
A broker is NOT required to hold money in an escrow account if:
(escrow accounts) The only time that a broker can accept money and NOT put it into his escrow account is when all parties agree in writing. The correct answer is: All parties to the transaction have agreed, in writing
Which of the following contracts provides instructions for the distribution of escrow money?
(escrow accounts) The sales contract should state the parameters of the sale, including how escrow funds will be distributed. The correct answer is: Sales contract
A buyer gives her salesperson a note, payable at settlement, as an earnest money deposit for a home. The salesperson must do which of the following actions?
(escrow accounts) The salesperson should write into the offer that the deposit is a note due at settlement. When the offer is presented to the seller, the seller can then decide whether to accept this as a deposit. The correct answer is: Put this information into the written offer
A broker receives a deposit for escrow. In this situation, the broker would violate Board regulations if he:
(escrow accounts) There is no requirement that an escrow account bear interest. However, if the account does earn interest, the broker must disclose (to all parties) exactly how the interest will be distributed. The correct answer is: Does not advise the principals on how any earned interest will be distributed
A salesperson who receives an earnest money deposit is NOT required to place the money in an escrow account:
(escrow accounts) We have no way of knowing why the parties would agree to not use an escrow account. However, if all parties agree in writing, then it is OK. The correct answer is: With the written agreement of both parties
Mitch, the principal broker at ZYX Firm, has reasonable suspicion that one of his associate brokers is stealing escrow funds. As a principal broker, Mitch must report this violation within how many business days?
(financial records and escrow management) All licensees must report known escrow violations. Principal brokers must report escrow violations to the Board within three (3) business days of forming a reasonable belief that any violation occurred. The correct answer is: 3