Real Estate Principles Chapter 2

Questions and Answers

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?

$21,000 (correct)

$8,000

$25,000

$15,000

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?

Deposit all trust funds intact and timely Signup and view all the answers

What should be maintained as adequate documentation for any disbursements?

Supporting papers like invoices and agreements Signup and view all the answers

What happens to a broker if trust fund discrepancies are not corrected before a DRE audit?

License suspension or revocation may occur Signup and view all the answers

What is the maximum aggregate coverage for an individual's trust funds per institution?

$250,000 Signup and view all the answers

What is the total amount beneficiaries B, C, and D are owed by the broker?

$23,000 Signup and view all the answers

Which of the following is NOT a requirement for a trust account under the Business and Professions Code?

The account must be located outside the state of California. Signup and view all the answers

When is a broker allowed to place trust funds into an interest-bearing account?

At the request of the owner of the trust funds or the principals involved. Signup and view all the answers

What is required for funds in an interest-bearing trust account to be compliant?

They must be kept separate from other clients' funds. Signup and view all the answers

Which statement about interest earned on trust accounts is accurate?

Interest earned may not be for the benefit of the broker. Signup and view all the answers

Which of these is a requirement when opening an interest-bearing trust account?

All funds must be insured by a federal agency. Signup and view all the answers

Why is trust fund segregation important?

It prevents accidental commingling with other funds. Signup and view all the answers

What must a broker disclose when establishing an interest-bearing account?

How interest will be calculated and paid. Signup and view all the answers

What must occur if a check is held undeposited after acceptation of an offer?

Broker must get written authorization from the seller. Signup and view all the answers

What is a condition under which trust funds can be held uncashed?

The funds are part of an offer and instructions specify they should remain uncashed until acceptance. Signup and view all the answers

Which type of entity is NOT considered a neutral depository?

A close relative of the buyer. Signup and view all the answers

Within how many business days must trust funds be placed into a neutral depository?

Three business days. Signup and view all the answers

Who is entitled to the funds disposed of in a transaction?

The person authorized to receive them as per the agreement. Signup and view all the answers

Under what circumstance can the ownership of the trust funds change in a transaction?

Upon the occurrence of specific events outlined in the purchase contract. Signup and view all the answers

What is the initial status of a good faith deposit given by a buyer?

It is considered the buyer's funds. Signup and view all the answers

What action should be taken if a check is made payable to the broker?

The check should be returned to the buyer. Signup and view all the answers

What happens to a good faith deposit before the acceptance of the offer?

It belongs to the buyer and is handled according to the buyer's instructions. Signup and view all the answers

How should a deposit check be maintained if the buyer requests it to be held uncashed?

It can be held uncashed only if the seller is informed. Signup and view all the answers

After the acceptance of an offer, how should the deposit be managed?

It must be placed into a neutral escrow depository or trust fund account. Signup and view all the answers

What is required for a buyer’s check held uncashed before the acceptance of the offer to continue being held uncashed afterwards?

Written authorization from the seller is required. Signup and view all the answers

Under what condition can the buyer’s deposit be refunded to the buyer?

With express written consent of the seller. Signup and view all the answers

What is required of a broker maintaining a trust fund account?

They are required to maintain trust fund records upon contact with trust funds. Signup and view all the answers

What happens to the ownership of the good faith deposit after the acceptance of the offer?

It transfers to the seller based on specific conditions. Signup and view all the answers

What is one of the benefits of a trust fund account for clients?

It provides a neutral party to handle the funds. Signup and view all the answers

What is the broker or licensee's liability regarding trust funds?

They are liable for the funds until they are distributed to recognized parties. Signup and view all the answers

What potential legal action can be taken if conversion of trust funds occurs?

The rightful owner may sue to recover the funds. Signup and view all the answers

What happens if a broker is indicted for conversion?

The broker may serve time in criminal court. Signup and view all the answers

Why can trust funds not be used to offset a client’s debt to a broker?

Trust funds must be kept separate from personal obligations. Signup and view all the answers

What constitutes an advance fee according to the Business and Professions Code?

A fee received in advance of providing contracted services. Signup and view all the answers

Which party may act as a witness for the prosecution in a conversion case involving a broker?

The DRE commissioner if they believe conversion occurred. Signup and view all the answers

What is a potential outcome if a broker is found guilty of conversion?

They could face imprisonment and financial penalties. Signup and view all the answers

What remedy is available to a broker if a client does not repay a personal loan?

Sue the client as per civil procedures. Signup and view all the answers

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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Description

This quiz covers the essential terms regarding check negotiability in real estate transactions. It highlights the conditions under which a broker can handle an offer check, including instructions for cashing and communication with the seller. Test your understanding of these principles to navigate real estate offers effectively.