FACTS: A broker collected $2,000 in rent for a property they managed for a landlord-client. Instead of depositing the rent in a trust account, the broker deposited the check into their personal account and then wrote a check to the landlord-client from the personal account.
ISSUE: Did the broker fulfill their duties under License Law and Commission rules?
ANALYSIS: No, the broker did not fulfill their duties. N.C.G.S. § 93A-6(a)(12) states that the Commission has power to suspend or revoke at any time a license issued under the provisions of this Chapter, or to reprimand or censure any licensee, if, following a hearing, the Commission adjudges the licensee to be guilty of:
(12) Commingling the money or other property of his or her principals with his or her own or failure to maintain and deposit in a trust or escrow account in a bank as provided by subsection (g) of this section all money received by him or her as a real estate licensee acting in that capacity, or an escrow agent, or the custodian or manager of the funds of another person or entity which relate to or concern that person’s or entity’s interest or investment in real property, provided, these accounts shall not bear interest unless the principals authorize in writing the deposit be made in an interest bearing account and also provide for the disbursement of the interest accrued.
Commingling is defined as the illegal practice by a real estate broker of maintaining personal or business funds in the same account with trust funds held for others. The $2,000 rent check received by the broker was deposited in the broker’s personal account. Therefore, the broker commingled their personal funds with money belonging to another person (in this case, the landlord-client) in violation of N.C.G.S. § 93A-6(a)(12).
The broker has also violated Commission Rule 58A. 0116 which states:
All monies received by a broker acting in his or her fiduciary capacity (hereinafter “trust money”) shall be deposited in a trust or escrow account as defined in Rule .0117(b) of this Section no later than three banking days following the broker’s receipt of such monies.
The broker deposited the rent check in their personal account and not a trust or escrow account as required by the Rule.
To avoid these violations, brokers must deposit all monies received from others into a trust or escrow account. In a sales transaction, trust monies include earnest money deposits, money for maintenance, repairs, or inspections, buyer funds for closing, seller proceeds from closing, and a security deposit or rent for early/late possession of the property.
In a rental transaction, trust monies include tenant security deposits, rent, and application fees, as well as funds held by the broker to pay for repairs to the owner’s property. In addition, for vacation rentals, trust monies include administration fees, travel insurance, and sales tax.
Once trust monies are deposited into a trust or escrow account, an ACH transfer can be initiated from the account to the appropriate party.
Brokers-in-charge should ensure that all affiliated brokers are familiar with Commission Rule 58A. 0116, including the 3-day requirements for deposits.
RESOURCES:
Articles: “Avoid These 10 Common Mistakes to Make Trust Account Management Trouble Free”