24 Trust Funds (Practice of Real Estate & Disclosures (Includes Specialty Areas) 38 Questions) Flashcards
What is a Trust Fund?
Trust funds are money or other things of value received by the broker on the part of another person.
EX: Cash; Check used as purchase deposit; personal note made payable to seller; or the pink slip on a car, given as a deposit.
What is a Non-Trust Fund?
Non-trust funds are NOT subject to the California Real Estate Law or the CalBRE Commissioner’s Regulations.
EX: real estate commissions, general operating funds, rents and deposits
What are the 2 ways to handle Trust Funds and how many business days are allowed for deposit?
1) Give the money to the principal to the transaction;
2) Put it into a neutral escrow depositor/ broker’s trust fund account at a bank.
This money MUST BE DEPOSITED within 3 business days following receipt of the funds (except for checks).
If a broker accepts a check (or promissory note) as an earnest money deposit - 3 Acceptable Actions:
1) Broker must make full disclosure to the seller.
2) Buyer’s written instructions should be followed.
3) Broker must record a receipt of the check in the broker’s trust fund records and hold the check in a safe place.
CA Trust Fund Regulations - are Promissory notes universally accepted as equivalent to cash in California business transactions?
Promissory notes are NOT universally accepted as equivalent to cash in California business transactions.
Therefore, a broker must be careful not to misrepresent this fact in such a situation, because he will be violating the Real Estate Law if he directly or through implication misrepresents to the broker’s principal/seller that a purchaser has given cash or a check as an earnest money deposit, when in fact the broker has accepted a non-negotiable promissory note.
California law has held that a post-dated check may be considered the equivalent of a promissory note. Therefore, a broker should not accept a post-dated check from a buyer, since this may result in mischaracterization of the form of earnest money deposit without adequate disclosure to the seller.
CA Trust Fund Regulations -
A real estate salesperson is authorized to accept the trust funds on the behalf of and at the direction of the broker under whom he is licensed.
Under the California Business and Professions Code Section 10145, as well as the Commissioner’s Regulation 2832, a trust account must meet the following requirements:
1) A trust account must be designated as a trust account in the name of the broker as trustee;
2) A trust account must be maintained with a bank or recognized depository located in California;
3) A trust account must be a NON-interest-bearing account;
4) An out-of-state trust account is permitted only if the FDIC insures the account, and the account is used only to service specific first loans; and
5) A withdrawal may ONLY be made from a trust account upon the signature of specific parties:
What is Commingling and what is Conversion? Which is worse?
Commingling: mixing a client’s money with the agent’s personal funds is ILLEGAL.
Conversion: unlawful misappropriation and use of a client’s funds by a licensee. Conversion is worse and has heavy criminal penalties.
Commingling or conversion of trust funds in excess of $10,000.00- what are the 2 stipulations before licensee can practice again?
Commingling or conversion of trust funds in excess of $10,000.00- the licensee may not conduct business authorized under his real estate license, until he receives a further order of the court, and providing that the hearing is held within 5 days after the order is given.
Advance Fees for a Loan Secured by Lien on Real Property: it is illegal for anyone to claim for an advance fee for:
1) Soliciting lenders on behalf of borrowers in connection with any loan to be secured by a lien on real property, before the borrower becomes obligated to complete the loan;
2) Performing any other activities for which a license is required, unless the person is a licensed real estate broker and is acting in accordance with the law.
California Trust Account Violations: What is that nature of the offence? Penalties for person and Penalties for corporation?
A person who violates these regulations has committed a “public offense”
may be disciplined through a fine up to a maximum of $10,000.00, or with up to 6 months’ prison time, or a combination of the two,
while a corporation violation of this section is punishable by a fine up to a maximum of $50,000.00.
