Handling Accounting of Trust Money Now Explained in Three New Rules

To facilitate understanding and application of Commission rule A. 0107, Handling and Accounting of Funds, the Commission has divided it into three new rules effective April 1, 2013 as follows:

A. 0116

Handling of Trust Money

A. 0117

Accounting for Trust Money

A. 0118

Trust Money Belonging to Property Owners’ Associations


Rule A. 0107 has been repealed effective April 1, 2013.

Division of the rule into three shorter rules separates the two essential functions of trust account management: (1) the handling of funds being held in trust for others and (2) the accounting of funds from receipt to distribution. Addressed separately are the specialized requirements arising when trust money belongs to property owners’ associations.

The processes and procedures for the handling of trust money (now A. 0116) have not been revised.

The methods of accounting for trust money (now A. 0117) have been expanded to include guidance and definitions about the use of personal funds, requirements concerning monthly bank reconciliations, and extension of the time for a broker to respond to a client’s request for records from five to 10 days.

Rules relating to trust money belonging to property owners’ associations (now A. 0118) include a new provision limiting the responsibilities of broker/property owners who receive trust money belonging to an association in their capacity as an association officer for which they receive no compensation.


Handling of Trust Money

The fiduciary responsibilities of brokers in the handling of funds belonging to others are defined in Rule A. 0116. In general:

□ All monies received by a broker must be deposited within three banking days in a trust or escrow account (with certain exceptions including receipt by a provisional broker or non-resident commercial broker, funds in a form other than currency, and custody of checks or other negotiable instruments payable to a seller for an option or due diligence fee).

□ If the account bears interest, written authorization is required from all parties having an interest in the money.

□ In the event of a dispute over the disposition of any deposit (excepting residential tenant security deposits held by a broker), a broker must retain the deposit in a trust or escrow account until receiving written release from the disputing parties or a court order or transfer the funds to the Clerk of Superior Court.

□ Transfers of earnest money deposits for closings are prohibited more than 10 days prior to the anticipated settlement date.

□ Disbursements from a trust or escrow account must not exceed the account’s balance.

□ A broker must comply with the Real Estate License Law and Commission rules in managing trust money and may not convert trust money for personal use, apply trust money to purposes other than that for which intended, or assist others in their conversion or misapplication of the funds.

Accounting for Trust Money

Of the three rules, the one describing accounting requirements is the longest and most complex (A. 0117). It lists the records a broker must create and maintain when managing trust money and describes the specific information those records must contain.

In general, the rule prescribes the following:

□ Brokers must maintain records showing ownership of trust money from deposit into a trust or escrow account through final disbursement. These records must be sufficient to verify the records’ accuracy and proper use of the account.

□ All records must be designated a “Trust Account” or “Escrow Account”.

□ Trust account records consist of:

• Bank statements

• Memoranda (e.g., checks, journals, ledgers, and other evidence) of payments from a trust or escrow account.

• Deposit tickets for sales and rental transactions.

• Separate ledgers for each transaction, property or property owner, and company funds held in a trust account.

• General journal, check register or check stubs with entries in chronological order.

• Payment records for each property or interest.

• Copies of checks (front and back), receipts for cash payments, contracts and closing statements.

• Copies of leases, security deposit checks, property management agreements and statements and receipts for cash payments.

• Copies of covenants, bylaws, minutes, management agreements and periodic statements relating to the management of property owner associations.

• Copies of invoices, bills and contracts paid from a trust account.

□ Records are to be maintained so as to create a clear audit trail.

□ Records are to include worksheets showing reconciliations of trust or escrow accounts monthly.

□ Specific records acquired when a broker acts as agent for the landlord of a residential property used for vacation rentals must be maintained.

□ A broker must respond to a client’s request for copies of any records within 10 days (changed from five days under the old rule, A. 0107) following receipt of the request.

□ All trust or escrow account records must be made available for inspection by the Commission.

The Commission provides education in accounting procedures when handling trust money through its Basic Trust Account Procecures course which is given alone or in conjunction with the Broker-in-Charge Course.

Further information is provided from a three-part tutorial in handling rental deposits and disbursements on the Law/Rules page of the Commission Web site and in the Trust Account Guidelines section of the Commission booklet, North Carolina Real Estate License Law and Commission Rules. The Guidelines are also available on the Law/Rules page of the Web site.

Trust Money Belonging to Property Owners’ Association

The third rule, A. 0118, requires that the funds of a property owners’ association (POA) are deposited into and maintained in a trust or escrow account dedicated exclusively for trust money belonging to a single POA and may not be commingled with funds belonging to other associations or persons or parties. An exemption is granted for brokers receiving trust money from POA’s when they are officers of the associations in which they are property owners.



Trust Account Records


Transactions (copies)

POA Records

Bank statements, checks, journals, ledgers, other account evidence Deposit tickets for sales and rentals Property management agreements
Separate transaction ledgers for each entity and any company funds Checks, receipts, contracts, closing statements Statements, receipts for cash payments
General journal, check register, or check stubs with chronological entries Leases, security deposit checks, management agreements and statements Copies of covenants, bylaws, and minutes
Payment records for each property or interest Paid invoices, bills and contracts Periodic statements relating to POA management



This article came from the May 2013-Vol44-1 edition of the bulletin.