Trust funds: handling deposits, trust accounts, and commingling

Whose money is it?

Trust funds are money belonging to others that a broker receives in a real estate transaction, such as a buyer's deposit or rents collected for an owner. Custody does not make the money brokerage income. Commingling mixes trust money with the broker's own money; conversion means using another person's money without authority.

Receipt and placement

In California, a salesperson accepting trust funds on behalf of the responsible broker must immediately deliver them to the broker or, as the broker directs, to the broker's principal, neutral escrow, or the broker's trust account. The salesperson has no personal holding period.

Under California regulation section 2832, the broker generally must place funds with their owner, neutral escrow, or a properly titled broker trust account not later than three business days following receipt by the broker or salesperson. A later handoff does not restart that clock. A broker not licensed under the Escrow Law who acts as escrow holder in a transaction in which the broker performs licensed acts has a next-business-day placement deadline.

Holding an offer check

A broker may hold an offeror's check uncashed until acceptance if the check is not negotiable by the broker or the offeror gives written instructions to hold it, and the offeree is informed before or when the offer is presented. After acceptance, placement into neutral escrow or the trust account is due within three business days following acceptance unless the offeree authorizes continued holding in writing. Delivery to the offeree instead requires express written agreement of both offeror and offeree.

Separate, record, and disburse

California requires trust funds to remain in trust until disbursed according to instructions from the person entitled to them. Record receipts chronologically, including qualifying uncashed checks, deposits, disbursements, funds forwarded elsewhere, and daily account balances. Tracking each beneficiary separately and reconciling records helps reveal shortages; one client's money is not a reserve for another client's transaction.

Written withdrawal authority may be given to a salesperson licensed to the broker. Delegation does not remove the broker's responsibility. Interest-bearing arrangements require statutory conditions, including disclosures and separation; interest cannot benefit the broker or a person licensed to that broker.

Narrow commingling exceptions

California regulation section 2835 permits reasonably sufficient broker funds, not exceeding $200, for bank service charges or fees. It does not permit a general operating cushion. If a payment cannot reasonably be separated and belongs partly to the principal and partly to the broker, the undisputed broker portion must be disbursed no later than twenty-five days after deposit into a compliant trust account. A disputed broker portion stays until the dispute is finally settled. These exceptions do not authorize paying office expenses with client deposits.