Handling Client Trust Funds

Business and Professions Code Section 10145(a)(1) states that “[a] real estate broker who accepts funds belonging to others in connection with a transaction subject to this part shall deposit all those funds that are not immediately placed into a neutral escrow depository or into the hands of the broker's principal, into a trust fund account maintained by the broker in a bank or recognized depository in this state. All funds deposited by the broker in a trust fund account shall be maintained there until disbursed by the broker in accordance with instructions from the person entitled to the funds.” In compliance with the B&P Code, Commissioner Regulation 2832 requires a real estate licensee to deposit the funds no later than three business days following receipt of the funds.

Trust Funds Handling

The laws governing trust fund handling apply to brokers and salespersons alike. Typically, an agent receives trust funds from the principal in the form of a purchase deposit. These trust funds are technically received in the name of the broker under whom the receiving agent is licensed. The rules require that the funds be immediately delivered into a neutral escrow depository or into the broker’s trust fund bank account.

An exception to the rule is when a prospective buyer delivers a check to an agent in the course of making a purchase offer. In that case, the check can be held uncashed by the broker until the offer has been accepted as long as the prospective buyer has given written instruction that check shall not be deposited until acceptance and the seller is informed before the offer is presented.

Commingling of Funds

The most serious offense in handling trust funds is the commingling of principal and broker funds. California real estate law strictly prohibits commingling of funds. It is grounds for the revocation or suspension of a real estate license pursuant to Business and Professions Code Section 10176(e).

According to the CalBRE, commingling occurs when:  

“1. Personal or company funds are deposited into the trust fund bank account. Except for what is provided in Section 2835 of the Commissioner’s Regulations as noted below, this is a violation of the law even if separate records are kept.

2. Trust funds are deposited into the licensee’s general or personal bank account rather than into the trust fund account. In this case the violation is not only commingling, but also handling trust funds contrary to Business and Professions Code Section 10145. It is also grounds for suspension or revocation of a license under Business and Professions Code Section 10177(d).

3. Commissions, fees, or other income earned by the broker and collectible from the trust account are left in the trust account for more than 25 days from the date they were earned.”

For more information, please visit the section of the CalBRE website regarding trust funds.