Recordkeeping and Trust Accounts- 1
Hold the earnest money deposit in a secure place in the broker's real estate brokerage office until the offer is accepted Explanation 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.
A broker received an earnest money deposit from a buyer. Under Colorado law, the broker should Open a special, separate escrow account that will contain funds for this transaction only, separated from funds received in any other transaction Deposit the money in an existing, special non-interest-bearing escrow account in which all earnest money received from buyers may be held Immediately deposit the earnest money in the broker's personal checking or savings account Hold the earnest money deposit in a secure place in the broker's real estate brokerage office until the offer is accepted
Broker is commingling and could have his license revoked Explanation 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.
A broker writes checks from the trust account into his operating account. Broker is commingling and could have his license revoked Broker may be netting earned commission against earnest money deposits Broker is taking a negative ledger short cut, which is okay, but not advised Broker is commingling and will have his license revoked
3 Explanation Three - One for Earnest money, one for security deposits and one for rent receipts. More info: If a Broker is going to deposit rent or security deposits into the employing broker's trust account(s), the Broker is required to keep records relative to these monies. Rule E-1 requires that all money belonging to others that is accepted by Broker be deposited in one or more accounts separate from money belonging to the Broker, employing broker or brokerage entity. Separate trust accounts must be maintained in the name of the employing broker, or the employing broker and the licensed business entity, and the maintenance of the separate accounts is the responsibility of the employing broker (Rule E-1(a) and (c)). This includes rent checks. A Broker who manages fewer than seven residences may deposit rental receipts and security deposits, and disburse money for such purposes, in the "sales escrow" account (Rule E-1(i)), although this is not recommended. A better practice is to maintain separate accounts for property management. At a minimum, a Broker is recommended to have two trust accounts for property management; one for security deposits and one for operating trust monies. As an alternative to trust accounts, a Broker may deposit rent monies or security deposits directly into an account owned and controlled by the landlord. Reference Colorado Real Estate Manual Chap 2 - Rule E-1 (h)
A brokerage firm holding 4 earnest money deposits, and 15 security deposits for managed single-family residences must have a minimum of how many trust accounts? 19 1 2 3
Held by the title company or listing broker, whichever is designated in the Contract to Buy & Sell Explanation The earnest money is held as designated in the contract.
A note accepted by the seller as earnest money must be: Made payable to buyer Made payable to seller Made payable to broker Held by the title company or listing broker, whichever is designated in the Contract to Buy & Sell
All of the above Explanation These are rules required by RESPA and the CREC.
A trust account must: Have the words "trust" or "escrow" after the type of account Be an FDIC account that is state or federally chartered Be reconciled monthly by the broker All of the above
Interest may accrue to a nonprofit affordable housing fund Explanation 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.
According to the provisions in the Contract to Buy and Sell Real Estate, if a broker has an interest-bearing trust account, the: Interest may accrue to a nonprofit affordable housing fund Interest earned belongs to the broker Broker must transfer the interest to the seller Interest earned may be applied to closing
Within 3 business days after acceptance of contract Explanation Earnest money is to be deposited within three business days of acceptance of contract.
Earnest money is to be deposited: In the seller's trust account Within two days of contract acceptance In an interest-bearing account Within 3 business days after acceptance of contract
Cashier's checks, certified checks, or wire transfers Explanation 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.
Good funds would be: What the seller receives as net proceeds The buyer's loan amount for the closing Cashier's checks, certified checks, or wire transfers Money in an offshore account which is untraceable
Minimum of four years Explanation Independent brokers and employing brokers must retain transaction records from their brokerage activities for four years.
How long must transaction records be maintained by an independent broker? Minimum of four years Until the transaction is closed Independent brokers who work alone are not required to retain records Independent brokers submit records to the real estate commission for safekeeping
Deposit security deposit into escrow account Explanation 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 Deposits Pursuant 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.
In the absence of language to the contrary in the Property Managment Agreement a property manager must: Deliver security deposits to owner Deposit security deposit into escrow account Deposit security deposit into operating account Refuse to accept security deposit from tenant
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 Explanation The earnest money must be deposited within three business days after acceptance of the contract to buy and sell.
In the normal real estate transaction, which of the following is accurate regarding a broker's holding of other people's money? Licensee's commission may be held in his escrow account Interest must be paid to the seller Earnest money deposits may be kept in his general operating account until just before closing 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
Money a broker would keep in a trust or escrow account Explanation The definition of a trust or escrow account is that it is money belonging to others.
Money belonging to others best describes: Money a broker would keep in a trust or escrow account Future commissions to be earned Buyer's source of funds for down payment The profits to come from a real estate transaction
To prevent commingling with your own funds Explanation Commingling is illegal and occurs when other people's money is mixed with the broker's operating or personal account.
Money belonging to others is kept separate from other accounts: To prevent commingling with your own funds To make it easy for the IRS to audit your accounts To make it easier to withdraw the funds at any time So the money can be withdrawn by the buyer if they need the cash
5, 3 Explanation 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)
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. 3, 1 3, 3 5, 3 5, 1
3 business days after notice of acceptance Explanation 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."
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? 1 business day after notice of acceptance 2 business days after notice of acceptance 3 business days after notice of acceptance 4 business days after notice of acceptance
Monthly review and comparison of the bank statement with your records Explanation Reconciliation is required monthly to balance the escrow account against individual accounts.
Reconciliation refers to: Getting back together with your significant other Looking over account balances to be sure you are still operating at a positive cash flow Monthly review and comparison of the bank statement with your records What is turned over to the bookkeepers for safe keeping
A check on the broker's escrow account Explanation 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 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.
All of the following are "good funds" except: A wire transfer to the closing agent's bank A check on the broker's escrow account A cashier's check from a commercial bank A teller's check from a savings and loan
Be a signer on all trust accounts opened in the company name Explanation 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.
An employing broker (AKA sponsoring broker) is required to: Be a signer on all bank accounts opened in the company name Be a signer on all trust accounts opened in the company name Be a signer on all contracts negotiated in the company name All of the above
Must be done any month in which the account has had activity Explanation Bank reconciliation of a trust account is to be done every month there was activity as required by law.
Bank reconciliation of a trust account: Helps prevent bank errors Must be done annually by a CPA Must be done any month in which the account has had activity Is a good safeguard but is not required
Should have deposited the money in a bank escrow or trust account and should have discussed the interest with the parties Explanation 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.
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: Should have deposited the money in a special non-interest-bearing bank account Properly cashed the check but should have kept the interest Should have deposited the money in his personal bank account and would have been entitled to keep the interest as a service fee Should have deposited the money in a bank escrow or trust account and should have discussed the interest with the parties
Is a chronological record of all receipts and disbursements made by the broker from the escrow bank account Explanation The journal must be updated every time a withdrawal or deposit is made.
The journal: Is a chronological record of all receipts and disbursements made by the broker from the escrow bank account Tracks the transaction to make sure all dates are met on a timely basis Cannot be kept in a computer, in case the computer crashes Is a chronological record of the transaction from contract to closing, making sure that all agents act according to their proper agency roles
Name of the person who wrote the check out of the account Explanation Rule E-1 (p) Recordkeeping requirements A broker shall supervise and maintain, at the broker's licensed place of business, a record keeping system, subject to subsection (7) of this rule, consisting of at least the following elements for each required escrow or trust account: (1) A record called an "escrow or trust account journal" or an equivalent accounting system which records in chronological sequence all money belonging to others which is received or disbursed by the broker. For funds received, the records maintained in the system must include the date of receipt and deposit, the name of the person who is giving the money, the name of the person and property for which the money was received, the purpose of the receipt, the amount, and. a resulting cash balance for the account. For funds disbursed, the records maintained in the system must include the date of payment, the check number, the name of the payee, a reference to vendor documentation or other physical records verifying purpose for payment, the amount paid, and a resulting cash balance for the account. Reference Rule E-1 (p)
Trust Account journal and ledger documentation of disbursements from trust accounts need NOT include: Records verifying purpose of payment Amount paid and the resulting balance Date of payment and check number Name of the person who wrote the check out of the account
Company name and employing broker's name Explanation 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
What must appear in the title of a trust account? Company name Employing broker's name Company name and employing broker's name Responsible broker's name
Take the buyer to the bank to get a cashier's check Explanation Note of the other answers would be bringing "Good Funds" to the closing table.
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? Have the buyer sign a note to replace the check Cancel the closing for breach of contract Accept the check since it is on a local bank Take the buyer to the bank to get a cashier's check
Deposited into the broker's trust account Explanation Earnest money must be deposited into a trust account or turned over to a title company who will deposit it in its trust account.
When brokers receive earnest money, the money must be: Hold the money in the safe until the property closes Deposited into the broker's operating account Deposited into the broker's trust account All of the above
When accepting money belonging to others Explanation 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.
When must an employing broker keep a ledger? When paying salaries to brokers When putting money in an account to maintain it When accepting money belonging to others When receiving an earned commission
All of the above Explanation 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.
Which of the following forms of payment would be considered good funds? Savings and Loan teller's check Electronic transfer of funds Cashier's check All of the above
All checks, deposit slips and bank statements must include the word "escrow" or "trust" as part of the account name Explanation 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.
Which of the following is correct concerning a broker's establishment of an account to hold money belonging to others? An individual account is required for each transaction All checks, deposit slips and bank statements must include the word "escrow" or "trust" as part of the account name The names of all authorized signers must be on the checks The account cannot be in the same bank as the broker's personal checking account
Listing Broker Explanation The listing broker usually establishes the escrow account, but the parties can always agree on any other practice they specify.
Who holds the earnest money in a transaction with a listing broker and a buyer's agent? Buyer's Broker Listing Broker Must be in a neutral escrow company The brokers establish a joint escrow account