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30 Cards in this Set
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Broker B received a buyer’s earnest money check for $5,000 and immediately cashed it. At closing, the broker handed the seller a personal check drawn on the broker’s own bank account for $5300, representing the original earnest money plus six percent interest. The broker should have deposited the money in a special non-interest-bearing bank account. properly cashed the check but should have kept the interest. should have deposited the money in his personal bank account and would have been entitled to keep the interest as a service fee. should have deposited the money in a bank escrow or trust account and should have discussed the interest with the parties. |
A: should have deposited the money in a bank escrow or trust account and should have discussed the interest with the parties The broker is in violation of Colorado Real Estate Rules he should have deposited the money in a bank escrow or trust account and should have discussed the interest with the parties. |
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How much personal funds can you keep in the escrow account?
none $100 $500 Only enough to maintain the account |
A: Only enough to maintain the account Generally, mixing personal funds with escrow funds is considered a bad thing and even has a name attached to it called "commingling". However, the Commission does recognize that as a practical matter, banks sometimes have require a minimum balance in the account. Under these circumstances ONLY it is permitted to maintain an amount of personal funds in the escrow account to meet minimum balance requirements. |
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If a broker has an interest-bearing trust account, the: interest may accrue to a nonprofit affordable housing fund interest earned belongs to the broker broker must transfer the interest to the seller interest earned may be applied to closing |
A: interest may accrue to a nonprofit affordable housing fund Interest may go to the benefit of a charity or one of the principals. |
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A note accepted by the seller as earnest money must be: Must be made payable to buyer Must be made payable to seller Must be made payable to broker Held by the title company or listing broker whichever is designated in Contract to Buy & Sell |
A: Held by the title company or listing broker whichever is designated in Contract to Buy & Sell The earnest money is held as designated in the contract. |
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Earnest money is to be deposited: in the seller’s trust account within two days of contract acceptance in an interest-bearing account within 3 business days after acceptance of contract |
A: within 3 business days after acceptance of contract Earnest money is to be deposited within three business days of acceptance of contract. |
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An escrow trust account: It's the account where the payroll taxes for withholding is placed Is a separate account established to hold money belonging to others Should have the words "Operating Account" in its account identification |
A: Is a separate account established to hold money belonging to others A trust account is established to hold earnest money or security deposits |
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Which of the following forms of payment would be considered good funds? savings and loan teller's check Electronic transfer of funds Cashier’s check All of the above |
A: All of the above From the Contract to Buy and Sell (Purchase Contract)Good Funds. All amounts payable by the parties at Closing, including any loan proceeds, Cash at Closing and closing costs, shall be in funds that comply with all applicable Colorado laws, including electronic transfer funds, certified check, savings and loan teller’s check and cashier’s check (Good Funds).This is also covered in Real Estate Commission Rule E-36:E-36. Good funds at closingPursuant to 38-35-125, a real estate licensee who provides closing services shall not disburse funds or instruct an agent to disburse funds until those funds have been received and are either: (1) available for immediate withdrawal as a matter of right from the financial institution in which the funds have been deposited or (2) available for immediate withdrawal as a consequence of an agreement of a financial institution in which the funds are to be deposited or a financial institution upon which the funds are to be drawn. Such agreement with a financial institution must be for the benefit of the licensee providing the closing service. If the agreement contains contingencies or reservations no disbursements can be made until these are satisfied. |
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What shows all deposits and payments to and from a broker's escrow account in chronological order? Account Journal Bank Statement Ledger Cards Bank Reconciliation |
A: Account Journal The account journal lists the movement of all funds in and out of the escrow fund in chronological order |
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In the normal real estate transaction, which of the following is accurate regarding a broker’s holding of other people’s money? licensee’s commission may be held in his escrow account interest must be paid to the seller earnest money deposits may be kept in his general operating account until just before closing earnest money deposits must be place in a recognized depository not later than three business days following the day on which the broker receives notice of acceptance |
A: earnest money deposits must be place in a recognized depository not later than three business days following the day on which the broker receives notice of acceptance The earnest money must be deposited within three business days after acceptance of the contract to buy and sell. |
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Money belonging to others best describes: money a broker would keep in a trust or escrow account future commissions to be earned buyer’s source of funds for down payment the profits to come from a real estate transaction |
A: money a broker would keep in a trust or escrow account The definition of a trust or escrow account is that it is money belonging to others. |
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In the absence of language to the contrary in the Property Managment Agreement a property manager must: Deliver security deposits to owner Deposit security deposit into escrow account Deposit security deposit into operating account Refuse to accept security deposit from tenant |
A: Deposit security deposit into escrow account Put it into the escrow account first even if you are going to immediately transfer it to the owner. However, before the owner transfer you need to provide appropriate written notification to the tenant as to who is holding the deposit and the holder's contact info. CP-5 Commission Position on Advance Rentals and Security DepositsPursuant to C.R.S. 12-61-113 (l)(g.5) and Commission Rule E-l and E-16, all money belonging to others which is received by a broker must be placed in an escrow or trust account. This applies to tenant security deposits and advance rental deposits, including credit card receipts, held by a broker.A broker may not deliver a security deposit to an owner unless notice is given to the tenant in the lease, rental agreement, or in a separate written notice that the security deposit will be held by the owner. Such notice must be given in a manner so that the tenant will know who is holding the security deposit, and shall include either the true’ name and current mailing address of the owner or the true name and current mailing address of a person authorized to receive legal notices on behalf of such owner, along with specific requirements for how the tenant is to request return of the deposit.If, after receipt by the broker, the security deposit is to be transferred to the owner or used for the owner’s benefit, the broker, in addition to properly notifying the tenant, must secure the consent of the owner to assume full financial responsibility for the return of any deposit which may be refundable to the tenant. The broker shall not withhold the identity of the owner from the tenant if demand for the return of the deposit is properly |
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A trust account must: have the words “trust” or “escrow” after the type of account be an FDIC account that is state or federally chartered be reconciled monthly by the broker all of the above |
A: all of the above These are rules required by RESPA and the CREC. |
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What must appear in the title of a trust account? Company name Employing broker's name Company name and employing broker's name Responsible broker's name |
A: Company name and employing broker's name How to Open Escrow Bank Accounts 1. Select a Colorado depository that offers FDIC insurance coverage or as authorized for the specific engagement. 2. Include the following “fiduciary elements” in the account title. These must identify the true owner of the account,specify the type or purpose of account being established (sales, management, homeowner association, etc.), include one of the fiduciary words “escrow” or “trust,” state the employing broker’s personal name, and show his or her fiduciary capacity as “broker.” The employing broker must be able to independently control and operate all escrow bank accounts, but others may be designated as signatories as well. These elements may be abbreviated to facilitate printing the broker’s monthly bank statement heading, checks, and deposit stock. The general account title format follows: Licensed brokerage name and/or d.b.a. (brokerage TIN/SSN) Type of escrow, broker’s name, broker Statement mailing address |
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The journal: is a chronological record of all receipts and disbursements made by the broker from the escrow bank account tracks the transaction to make sure all dates are met on a timely basis cannot be kept in a computer, in case the computer crashes is a chronological record of the transaction from contract to closing, making sure that all agents act according to their proper agency roles |
A: is a chronological record of all receipts and disbursements made by the broker from the escrow bank account The journal must be updated every time a withdrawal or deposit is made. |
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How long must transaction records be maintained by an independent broker? minimum of four years until the transaction is closed Independent brokers who work alone are not required to retain records. Independent brokers submit records to the real estate commission for safekeeping. |
A: minimum of four years Independent brokers and employing brokers must retain transaction records from their brokerage activities for four years. |
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An employing broker is required to: be a signer on all bank accounts opened in the company name be a signer on all trust accounts opened in the company name be a signer on all contracts negotiated in the company name all of the above |
A: be a signer on all trust accounts opened in the company name An employing broker must be able to write checks drawn on his trust account with just his signature, and must be a signer on all trust accounts opened in the company name. |
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If a broker establishes an account to hold money belonging to others, which of the following is correct? All checks, deposit slips, and bank statements must include the word “escrow” or “trust” as part of the account name. The names of all authorized signers must be on the checks. The account cannot be in the same bank as the broker’s personal checking account. An individual account is required for each transaction. |
A: All checks, deposit slips, and bank statements must include the word “escrow” or “trust” as part of the account name. All checks, deposit slips, and bank statements must include the word “escrow” or “trust” as part of the account name. |
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Which of the following is correct concerning a broker's establishment of an account to hold money belonging to others? An individual account is required for each transaction All checks, deposit slips and bank statements must include the word "escrow" or "trust" as part of the account name The names of all authorized signers must be on the checks The account cannot be in the same bank as the broker's personal checking account |
A: All checks, deposit slips and bank statements must include the word "escrow" or "trust" as part of the account name The escrow account must be identified as such and the checks, deposit slips, and statements must have the name of the account and the name of the brokerage entity. |
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Trust Account journal and ledger documentation of disbursements from trust accounts need NOT include: Records verifying purpose of payment Amount paid and the resulting balance Date of payment and check number Name of the person who wrote the check out of the account |
A: Name of the person who wrote the check out of the account Rule E-1 (p) Recordkeeping requirements A broker shall supervise and maintain, at the broker’s licensed place of business, a record keeping system, subject to subsection (7) of this rule, consisting of at least the following elements for each required escrow or trust account:(1) A record called an “escrow or trust account journal” or an equivalent accounting system which records in chronological sequence all money belonging to others which is received or disbursed by the broker. For funds received, the records maintained in the system must include the date of receipt and deposit, the name of the person who is giving the money, the name of the person and property for which the money was received, the purpose of the receipt, the amount, and. a resulting cash balance for the account. For funds disbursed, the records maintained in the system must include the date of payment, the check number, the name of the payee, a reference to vendor documentation or other physical records verifying purpose for payment, the amount paid, and a resulting cash balance for the account. |
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What should you do if a buyer shows up at your office at 1:00 PM with a personal check for the closing funds for a closing scheduled at 2:0 PM? Have the buyer sign a note to replace the check Cancel the closing for breach of contract Accept the check since it is on a local bank Take the buyer to the bank to get a cashier's check |
A: Take the buyer to the bank to get a cashier's check Note of the other answers would be bringing "good Funds" to the closing table |
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What must appear in the title of a trust account? Company name Employing broker's name Company name and employing broker's name Responsible broker's name |
A: Company name and employing broker's name How to Open Escrow Bank Accounts 1. Select a Colorado depository that offers FDIC insurance coverage or as authorized for the specific engagement. 2. Include the following “fiduciary elements” in the account title. These must identify the true owner of the account,specify the type or purpose of account being established (sales, management, homeowner association, etc.), include one of the fiduciary words “escrow” or “trust,” state the employing broker’s personal name, and show his or her fiduciary capacity as “broker.” The employing broker must be able to independently control and operate all escrow bank accounts, but others may be designated as signatories as well. These elements may be abbreviated to facilitate printing the broker’s monthly bank statement heading, checks, and deposit stock. The general account title format follows: Licensed brokerage name and/or d.b.a. (brokerage TIN/SSN) Type of escrow, broker’s name, broker Statement mailing address |
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A brokerage firm holding 4 earnest money deposits, and 15 security deposits for managed single-family residences must have a minimum of how many trust accounts? 19 1 2 3 |
A: 3 Rule E-1 (h) A broker who manages less than 7 single-family residences may deposit rental receipts and security deposits and disburse money collected for such purposes in the "sales escrow" account" Elsewise, you need one escrow account for earnest money, one for rental receipts and one for rental deposits. |
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Money received by a property manager must be deposited within __________ days and money received as earnest money in a real estate transaction must be deposited within __________ days after contracted has been accepted. 3, 1 3, 3 5, 3 5, 1 |
A: 5, 3 Money received for property management and short-term rentals shall be deposited within five (5) business days after receipt unless the parties agree otherwise. All other types of money belonging to others shall be deposited not later than the third business day after receipt or as provided in the agreement with those concerned Rule E-1 (n) |
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The illegal act of a real estate broker who places his client's or customer's funds with his own funds is known as: panic selling redlining commingling blockbusting |
A: commingling Commingling, or mixing funds, is ILLEGAL and brokers who commingle funds can be prosecuted. Each of the other terms listed here fall under the realm of Fair Housing violations. |
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All of the following are "good funds" except:
A wire transfer to the closing agent's bank A check on the broker's escrow account A cashier's check from a commercial bank A teller's check from a savings and loan |
A: A check on the broker's escrow account This would be considered third party funds which are not considered good funds.From the Contract to Buy and Sell (Purchase Contract)Good Funds. All amounts payable by the parties at Closing, including any loan proceeds, Cash at Closing and closing costs, shall be in funds that comply with all applicable Colorado laws, including electronic transfer funds, certified check, savings and loan teller’s check and cashier’s check (Good Funds).This is also covered in Real Estate Commission Rule E-36:E-36. Good funds at closingPursuant to 38-35-125, a real estate licensee who provides closing services shall not disburse funds or instruct an agent to disburse funds until those funds have been received and are either: (1) available for immediate withdrawal as a matter of right from the financial institution in which the funds have been deposited or (2) available for immediate withdrawal as a consequence of an agreement of a financial institution in which the funds are to be deposited or a financial institution upon which the funds are to be drawn. Such agreement with a financial institution must be for the benefit of the licensee providing the closing service. If the agreement contains contingencies or reservations no disbursements can be made until these are satisfied. |
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Once a contract to purchase has been accepted by the seller, when does the earnest money tendered with the contract need to be deposited into the appropriate escrow account? 1 business day after notice of acceptance 2 business days after notice of acceptance 3 business days after notice of acceptance 4 business days after notice of acceptance |
A: 3 business days after notice of acceptance A check for the earnest money should either accompany the offer until accepted or be delivered prior to expiration of the Alternative Earnest Money Deadline. Most often, a buyer's agent holding the deposit forwards a copy of the earnest money check with the offer and then specifies a date in the Alternative Earnest Money Deadline when the actual check will be delivered after contract acceptance. If the deposit was tendered with the contract; it must be deposited no later than 3 business days after notice of acceptance of the contract.From the real estate manual:"Unless otherwise agreed, earnest money deposits held by the specified broker must be deposited not later than the third business day after notice of acceptance of the contract. The broker should keep a copy of the validated escrow deposit slip and earnest money check in the office transaction file for later inspection." |
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You receive an offer with an earnest money check. The seller counters the offer. you hold on to the earnest money to see if the buyer accepts the counter proposal you give the earnest money check to your broker for deposit in the escrow account you send the earnest money check back to the buyer’s broker with the counter offer you deposit the money in the broker’s trust account to make sure it is safe |
A: you send the earnest money check back to the buyer’s broker with the counter offer This is a case of what you are supposed to do versus what really happens. It is not a statute item, but more of a best practice from the Real Estate Commission. Unfortunately, the Commission tests on what is official rather than what really happens. Officially - when a Seller counters an offer, the original offer is void and you as a listing broker have no legal right to retain the earnest money check therefore it should be returned with the counter. Practically - both agents consider this to be a period of negotiation and nobody wants to schlep a check back and forth, so the listing broker will not deposit or return the earnest money check until we have an accepted or dead deal, nor will the buyers agent expect anything else. Going even further into reality versus the Test - most deals these days are done electronically with contracts and copies of checks faxed, or signed electronically, or emailed back and forth. Few deals are being performed via physical paper copies. For the Test - assume everything is performed via paper. |
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When must an employing broker keep a ledger? When paying salaries to brokers When putting money in an account to maintain it When accepting money belonging to others When receiving an earned commission |
A: When accepting money belonging to others What is a "Ledger"? A record collectively called a “ledger” or an equivalent component of an accounting system which records in chronological sequence all money which is received or disbursed by the broker on behalf of each particular beneficiary of a trust account. This record must show the monetary transactions affecting each individual beneficiary and must segregate such transactions from those pertaining to other beneficiaries of the trust account.The Real Estate Commision does not require a ledger when an Employing Broker is only managing company money. However, if s/he accepts money belonging to others both an escrow account and a ledger for that account is required.If an employing broker does not take physical possession of earnest money (buyers write checks directly to the title company), rents (written directly to owners), security deposits (written directly to owners) and such; then the emplying broker does not need an escrow account. If s/he does not need an escrow account; s/he does not need a ledger. |
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How many single-family residences can a broker manage without having to open a trust account only for rents and deposits (separate from his sales trust accounts)? Up to seven Anytime he manages property he must open a separate trust account 10 or more Unlimited |
A: Up to seven Money belonging to others must always be placed in a trust account. If a broker manages less than 7 properties, he may use his sales escrow account to deposit property management funds. He does not have to open a special property management trust account until he manages more than 6 properties. |
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A broker received an earnest money deposit from a buyer. Under Colorado law, the broker should open a special, separate escrow account that will contain funds for this transaction only, separated from funds received in any other transaction deposit the money in a existing, special non-interest-bearing escrow account in which all earnest money received from buyers may be held immediately deposit the earnest money in the broker’s personal bearing-bearing checking or savings account. hold the earnest money deposit in a secure place in the broker’s real estate brokerage office until the offer is accepted. |
A: hold the earnest money deposit in a secure place in the broker’s real estate brokerage office until the offer is accepted. The broker should hold the earnest money deposit in a secure place in the broker’s real estate brokerage office until the offer is accepted. |
