Record Keeping and Trust Accounts

Question 1

What are the two primary ways you can go wrong with earnest money?

Answer 1

Commingling and conversion.

Commingling means mixing trust funds with your own. Avoid commingling by depositing earnest money where it belongs—in an escrow or trust fund account designed specifically for that purpose.

Conversion means spending trust funds that belong to someone else. It’s pretty hard to be guilty of unintentional conversion, but it can happen—usually after commingling occurs.

Question 2

It’s illegal for licensees/escrow agents to engage in which two of the following activities with regard to escrow funds?

Answer 2

Commingling and conversion

Question 3

How often must Colorado escrow accounts must be reconciled?

Answer 3

Once per month

Question 4

How long must a Colorado escrow account journal be retained in brokerage records?

Answer 4

4 Years

Question 5

Transactional records must be retained for __ years.

Answer 5

Transactional records must be retained for four years.

Question 6

What two dates passively terminate a brokerage relationship in Colorado?

Answer 6

Either the date specified in the brokerage agreement, or one year from the execution of the brokerage agreement, whichever comes first

Question 7

How are brokerage relationships in Colorado formed?

Answer 7

By express, written agreement

Question 8

Which two duties survive termination of a brokerage relationship?

Answer 8

Accountability and confidentiality

Question 9

Which duty of a broker to a client never ends?

Answer 9

Confidentiality

Question 10

Who’s responsible for the accuracy of a closing statement on behalf of a buyer?

Answer 10

The licensee representing the buyer

Question 11

Who’s responsible for the accuracy of a closing statement on behalf of a seller?

Answer 11

The licensee representing the seller

Question 12

At what point, after closing, must a licensee provide the employing broker with a copy of the closing statement?

Answer 12

Immediately

Question 13

Used to record every deposit and disbursement for each trust account

Answer 13

Journal

Question 14

The __ is used to track non-transaction related funds in the escrow account, such as those deposited to cover checking supplies, and bank fees for maintaining the account.

Answer 14

The broker’s ledger is used to track non-transaction related funds in the escrow account, such as those deposited to cover checking supplies, and bank fees for maintaining the account.

Question 15

Used to record all activity affecting the beneficiary of trust funds (one ledger per beneficiary)

Answer 15

Beneficiary ledger

Question 16

Used to ensure that all activity adds up to what’s reflected in the account

Answer 16

Bank reconciliation worksheet

Question 17

Ensures all activity recorded in ledgers matches up with bank records; must be performed by an employing broker, broker owner, another officer of the firm, or an authorized outside audit company

Answer 17

Reconciliation

Question 18

Funds that are immediately available when they’re deposited

Answer 18

Good funds

Question 19

If a dispute arises over earnest money, __ is required to provide an opportunity for the parties to settle their differences out of court.

Answer 19

If a dispute arises over earnest money, mediation is required to provide an opportunity for the parties to settle their differences out of court.