Are trust funds deposited in a timely manner?

Correct Procedure:

Unless otherwise specified in writing by the beneficiary of the funds, a broker is required to do one of the following three things with trust funds no later than three business days following receipt of the funds by the broker or the broker's salesperson:

1. Deposit the funds into a neutral escrow depository.

2. Place funds accepted on behalf of the owner into the hands of the owner of the funds.

3. Deposit the funds into a trust fund bank account maintained by the broker.

When broker is handling escrow funds:

A real estate broker who is not licensed under the Escrow Law (Section 17000 et seq. of the Financial Code), when acting in the capacity of an escrow holder in a real estate transaction in which the broker is performing acts for which a real estate license is required, shall place all funds accepted on behalf of another into one of the three places listed above not later than the next business day following receipt of the funds by the broker or the broker's salesperson.

Are the separate transaction records complete and accurate?

Correct Procedure:

Brokers must maintain a Separate Record for Each Beneficiary or Transaction (for example, DRE Form RE 4523). This record accounts for the funds received from, or for the account of, each beneficiary or each transaction and deposited to the trust fund bank account. These records are necessary for the broker to ascertain the total owed to each of the beneficiaries. The record should show in chronological sequence the following:

1. Date of deposit.

2. Amount of deposit.

3. Date of each related disbursement.

4. Check number of each related disbursement.

5. Amount of each related disbursement.

6. If applicable, dates and amounts of interest earned and credited to the account.

7. Balance after posting transactions on any date.

Is the bank account used for trust fund handling an interest-bearing account?

Correct Procedure:

Trust funds may, at the request of the owner of the funds, be placed into an interest-bearing account at a bank or savings and loan association if the following requirements are met:

1. The account is in the name of the broker as trustee for the specified beneficiary or principal of a transaction or series of transactions.

2. All of the funds in the account are covered by insurance provided by an agency of the federal government.

3. The funds in the account are kept separate, distinct, and apart from funds belonging to the broker or to any other person for whom the broker holds funds in trust.

4. The broker discloses to the beneficiary of the funds the nature of the account, how interest will be calculated and paid under various circumstances, whether service charges will be paid to the depository and by whom, and the possible penalty for withdrawals.

5. No interest earned on the funds shall inure directly or indirectly to the benefit of the broker nor to any person licensed to the broker.

6. In an executor sale, lease, or loan transaction in which the broker accepts funds in trust to be applied to the purchase, lease, or loan, the parties to the contract shall have specified in the contract or by collateral written agreement the person to whom interest earned on the funds is to be paid or credited.

It should be noted that this would require the broker to maintain a separate bank account for each beneficiary who wishes to earn interest.

Trust Fund Handling

Trust Fund Handling Questionnaire

1. Is the bank account used for trust fund handling in the name of the broker as trustee?

2. Is the bank account used for trust fund handling an interest-bearing account?

3. Are control records complete and accurate?

4. Are the separate transaction records complete and accurate?

5. Is monthly reconciliation of the control records and separate records performed and documented?

6. Are trust funds deposited in a timely manner?

7. Are authorized signatories either employed by the broker and licensed or unlicensed but bonded?

8. Are broker's funds commingled with trust funds?

Is the broker maintaining pest control documentation?

Correct Procedure:

In a real estate transaction subject to the provisions of Section 1099 of the Civil Code, the real estate broker acting as agent for the seller in the transaction shall effect delivery of the inspection report, certification and the notice of work completed, if any, to the transferee in accordance with said section.

If more than one real estate broker licensee is acting as an agent of the transferor in the transaction, the broker who has obtained the offer made by the transferee shall effect delivery of the required documents to the transferee unless the transferor has given written directions to another real estate broker licensee acting as agent of the transferor in the transaction to effect delivery.

If the agent cannot obtain the required documents to deliver to the transferee and does not have written assurance from the transferee that all of said documents have been received, the agent shall advise the transferee in writing of the transferee's rights under Section 1099.

The broker shall maintain a record of the action taken to effect compliance with this regulation in accordance with Section 10148 of the Business and Professions Code.

Section 1099 of the Civil Code sets forth the requirements for delivery of a Structural Pest Control Inspection Report and any Notice of Work Completed, if certification or preparation of a report is a condition of the contract effecting transfer, or is a requirement imposed as a condition of financing.

Does the broker have a license for each business location?

Correct Procedure:

A broker is authorized to conduct business only at the address listed on his/her license. If the broker maintains more than one place of business within the State, he/she shall apply for and procure an additional license for each branch office so maintained. The application for a branch office license must state the name of the person and the location of the place or places of business for which the license is desired.

Does the broker retain copies of all documents?

Correct Procedure:

A licensed broker must retain for 3 years copies of all listings, deposit receipts, canceled checks, trust account records, and other documents executed by him or her or obtained by him or her in connection with any transaction for which a broker's license is required. The retention period shall run from the date of the closing of the transaction or from the date of the listing if the transaction is not consummated. After reasonable notice, the books, accounts and records shall be made available for audit, examination, inspection and copying by a Department representative during regular business hours.