Handling Client Funds (Section 20-20)
Licensees should immediately provide any earnest money checks to their sponsoring broker for proper deposit in a special account.
The Act states that the sponsoring broker’s escrow account is to be noninterest bearing, “unless the character of the deposit is such that payment of interest thereon is otherwise required by law or unless the principals to the transaction specifically require, in writing, that the deposit be placed in an interest-bearing account and who the recipient of the interest is.”
The sponsoring broker must “maintain and deposit in a special account, separate and apart from personal and other business accounts, all escrow monies belonging to others entrusted to a licensee while acting as a real estate agent, escrow agent, or temporary custodian of the funds of others.”
Receipts must be made, and a duplicate kept by the sponsoring broker for any escrow monies received
Earnest money and security deposits must be deposited within one business day of contract or lease acceptance or, if a holiday, the next available business day. The escrow must be in a federally insured depository.
The Act does not limit the number of escrow accounts one sponsoring broker may maintain.
Commingling of personal and business funds is prohibited. Conversion, or use of the escrow funds for personal or business purposes, is also prohibited.
Dispute over Disbursement of Escrow Funds
If there should be disputes between the parties regarding escrow money, the sponsoring broker “shall continue to hold the deposit. The Sponsoring Broker must wait:
- for all parties to signal agreement on the escrow disposition by signing a definite agreement; otherwise she should not disburse funds
- until such an agreement is reached
- or a court decision is reached
- or deemed abandoned and transferred to the Office of the State Treasurer to be handled as unclaimed pursuant to the Uniform Disposition of Unclaimed Property Act.
Escrow Account Records
Each sponsoring broker who accepts earnest money shall maintain, in her office or place of business, a bookkeeping system in accordance with sound accounting principles, and such system shall consist of at least the following escrow records.
Journal.
A journal must be maintained for each escrow account. The journal shall show the chronological sequence in which funds are received and disbursed.
For funds received, the journal shall include:
- the date the funds were received,
- the name of the person on whose behalf the funds are delivered to that sponsoring broker,
- the amount of the funds delivered.
For fund disbursement, the journal shall include:
- the date,
- the payee,
- the check number,
- the amount disbursed.
A running balance shall be shown after each entry (receipt or disbursement).
Ledger.
A ledger shall be maintained for each transaction. The ledger shall show the receipt and the disbursement of funds affecting a single particular transaction such as between buyer and seller, or landlord and tenant, or the respective parties to any other relationship.
For Funds received, the ledger shall include:
- the names of all parties to a transaction,
- the amount of such funds received by the sponsoring broker,
- the date of such receipt.
For fund disbursement, the ledger shall show :
- the date,
- the payee,
- the check number,
- the amount disbursed.
The ledger shall segregate one transaction from another transaction. There shall be a separate ledger or separate section of each ledger, as the sponsoring broker shall elect, for each of the various kinds of real estate transactions.
If the ledger is computer generated, the sponsoring broker must maintain hard copies:
- of the bank deposit slips,
- bank disbursement slips,
- other bank receipts
These hard copies are to be retained to account for the data on the ledger.
Monthly Reconciliation Statement.
Each sponsoring broker shall reconcile, within ten days after receipt of the monthly bank statement, each escrow account maintained by the sponsoring broker except where there has been no transactional activity during the previous month. Such reconciliation shall include a written work sheet comparing the balances as shown on the bank statement, the journal, and the ledger, respectively, in order to insure agreement between the escrow account and the journal and the ledger entries with respect to such escrow account. Each reconciliation shall be kept for at least five years from the last day of the month covered by the reconciliation.
Master Escrow Account Log.
Each sponsoring broker shall maintain a master escrow account log identifying all escrow bank account numbers and the name and address of the bank where the escrow accounts are located. The master escrow account log must specifically include all bank account numbers opened for the individual transactions, even if such account numbers fall under another umbrella account number.
If the Department requests to view or audit escrow records, they must be supplied within 24 hours of the request to the Department personnel. Escrow records must be maintained for five years. The escrow records for the immediate prior two years shall be maintained in the office location, and the balance of the records can be maintained at another location.
The License Act and Personal Assistants
Unlicensed assistants
These employees can legally perform only limited tasks (typing, filing, answering phones).
Licensed assistants
The actual employment agreement for a licensed assistant is made with the sponsoring broker of the firm.
Licensed Personal Assistant Compensation
This same pattern applies to compensation. “Any person who is a licensed personal assistant for another licensee may only be compensated in her capacity as a personal assistant by the sponsoring broker for that licensed personal assistant” (Section 10-5c).
