Podcast
Questions and Answers
What is the consequence of having a trust fund account shortage or overage?
What is the consequence of having a trust fund account shortage or overage?
- Serious violation of real estate law (correct)
- License renewal approval
- Increased commission for the broker
- No financial implications if corrected
What amount remains in the trust account balance as of June 10th?
What amount remains in the trust account balance as of June 10th?
- $21,000 (correct)
- $8,000
- $25,000
- $15,000
What is the total account aggregate liability mentioned in the account?
What is the total account aggregate liability mentioned in the account?
- $10,000
- $25,000
- $20,000
- $15,000 (correct)
Which action should brokers take to maintain trust account integrity?
Which action should brokers take to maintain trust account integrity?
What should be maintained as adequate documentation for any disbursements?
What should be maintained as adequate documentation for any disbursements?
What happens to a broker if trust fund discrepancies are not corrected before a DRE audit?
What happens to a broker if trust fund discrepancies are not corrected before a DRE audit?
What is the maximum aggregate coverage for an individual's trust funds per institution?
What is the maximum aggregate coverage for an individual's trust funds per institution?
What is the total amount beneficiaries B, C, and D are owed by the broker?
What is the total amount beneficiaries B, C, and D are owed by the broker?
Which of the following is NOT a requirement for a trust account under the Business and Professions Code?
Which of the following is NOT a requirement for a trust account under the Business and Professions Code?
When is a broker allowed to place trust funds into an interest-bearing account?
When is a broker allowed to place trust funds into an interest-bearing account?
What is required for funds in an interest-bearing trust account to be compliant?
What is required for funds in an interest-bearing trust account to be compliant?
Which statement about interest earned on trust accounts is accurate?
Which statement about interest earned on trust accounts is accurate?
Which of these is a requirement when opening an interest-bearing trust account?
Which of these is a requirement when opening an interest-bearing trust account?
Why is trust fund segregation important?
Why is trust fund segregation important?
What must a broker disclose when establishing an interest-bearing account?
What must a broker disclose when establishing an interest-bearing account?
What must occur if a check is held undeposited after acceptation of an offer?
What must occur if a check is held undeposited after acceptation of an offer?
What is a condition under which trust funds can be held uncashed?
What is a condition under which trust funds can be held uncashed?
Which type of entity is NOT considered a neutral depository?
Which type of entity is NOT considered a neutral depository?
Within how many business days must trust funds be placed into a neutral depository?
Within how many business days must trust funds be placed into a neutral depository?
Who is entitled to the funds disposed of in a transaction?
Who is entitled to the funds disposed of in a transaction?
Under what circumstance can the ownership of the trust funds change in a transaction?
Under what circumstance can the ownership of the trust funds change in a transaction?
What is the initial status of a good faith deposit given by a buyer?
What is the initial status of a good faith deposit given by a buyer?
What action should be taken if a check is made payable to the broker?
What action should be taken if a check is made payable to the broker?
What happens to a good faith deposit before the acceptance of the offer?
What happens to a good faith deposit before the acceptance of the offer?
How should a deposit check be maintained if the buyer requests it to be held uncashed?
How should a deposit check be maintained if the buyer requests it to be held uncashed?
After the acceptance of an offer, how should the deposit be managed?
After the acceptance of an offer, how should the deposit be managed?
What is required for a buyer’s check held uncashed before the acceptance of the offer to continue being held uncashed afterwards?
What is required for a buyer’s check held uncashed before the acceptance of the offer to continue being held uncashed afterwards?
Under what condition can the buyer’s deposit be refunded to the buyer?
Under what condition can the buyer’s deposit be refunded to the buyer?
What is required of a broker maintaining a trust fund account?
What is required of a broker maintaining a trust fund account?
What happens to the ownership of the good faith deposit after the acceptance of the offer?
What happens to the ownership of the good faith deposit after the acceptance of the offer?
What is one of the benefits of a trust fund account for clients?
What is one of the benefits of a trust fund account for clients?
What is the broker or licensee's liability regarding trust funds?
What is the broker or licensee's liability regarding trust funds?
What potential legal action can be taken if conversion of trust funds occurs?
What potential legal action can be taken if conversion of trust funds occurs?
What happens if a broker is indicted for conversion?
What happens if a broker is indicted for conversion?
Why can trust funds not be used to offset a client’s debt to a broker?
Why can trust funds not be used to offset a client’s debt to a broker?
What constitutes an advance fee according to the Business and Professions Code?
What constitutes an advance fee according to the Business and Professions Code?
Which party may act as a witness for the prosecution in a conversion case involving a broker?
Which party may act as a witness for the prosecution in a conversion case involving a broker?
What is a potential outcome if a broker is found guilty of conversion?
What is a potential outcome if a broker is found guilty of conversion?
What remedy is available to a broker if a client does not repay a personal loan?
What remedy is available to a broker if a client does not repay a personal loan?
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Study Notes
Handling of Checks in Real Estate Transactions
- Checks must not be payable to the broker or cashed until the offer is accepted, based on the buyer's written instructions.
- The seller must be informed if the check is held uncashed at the time of the offer presentation.
- If the offer is accepted, the broker requires written authorization from the seller to hold the check undeposited.
- Trust funds must be deposited into a neutral depository, such as a title company or escrow account, within three business days unless otherwise instructed.
- A neutral depository must be operated by a licensed individual according to the Financial Code.
Trust Fund Management
- Trust funds must be maintained in a separate account from the broker's personal funds to ensure integrity and avoid commingling.
- A broker must be able to identify the owner of trust funds and must follow instructions for the handling of these funds.
- A good faith deposit belongs to the buyer before the acceptance of an offer and must be handled according to the buyer's instructions.
- After acceptance, funds must be placed into a neutral escrow account or trust fund account no later than three business days.
Ownership and Transfer of Funds
- Ownership of the deposited funds can shift from the buyer to the seller depending on the agreement and circumstances of the transaction.
- Funds cannot be refunded to the buyer without express written consent from the seller.
- Trust fund discrepancies, such as shortages or overages, result in serious violations and can lead to license suspension or revocation.
Trust Account Requirements
- Trust accounts must be designated in the broker's name as trustee and should be maintained with a recognized bank or depository within California.
- Interest earned from trust accounts typically benefits clients unless a specific agreement indicates otherwise.
- Trust funds must be kept separate from the funds of the broker or any other person.
Handling of Trust Funds and Disbursements
- An individual’s total trust funds with a financial institution are insured up to $250,000 per institution.
- Brokers are responsible for maintaining supporting documents for any disbursements made from trust accounts.
- The use of trust funds to offset personal debts of the broker or licensee is prohibited.
Advance Fees
- An advance fee is defined as a prepayment to a licensee for services that require a license, particularly in the context of listings.
- Section 10,026 of the Business and Professions Code specifies that fees charged must relate to services that have not yet been fully provided.
- Advance fees must be handled in compliance with the regulations surrounding their collection and usage.
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