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30 Cards in this Set
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Money belonging to others is kept separate from other accounts: to prevent commingling with your own funds to make it easy for the IRS to audit your accounts to make it easier to withdraw the funds at any time so the money can be withdrawn by the buyer if they need the cash |
A: to prevent commingling with your own funds Commingling is illegal and occurs when other people’s money is mixed with the broker’s operating or personal account. |
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To account for money belonging to others, the broker must maintain: “arms length” to all ledgers, journals, accounts, and bookkeeping all personal records in the same filing cabinets as the transaction files the escrow bank account, the cash journal, the transaction ledgers, the broker’s ledger card, monthly bank reconciliation, and proper transaction files all accounts at the same FDIC-insured banking institution |
A: the escrow bank account, the cash journal, the transaction ledgers, the broker’s ledger card, monthly bank reconciliation, and proper transaction files Broker must maintain accurate accounts and reconcile them monthly. |
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When must a broker deposit earnest money funds to the trust account? Immediately upon receiving them Prior to closing Within 10 days Within 3 days of acceptance of the contract |
A: Within 3 days of acceptance of the contract 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 to prove s/he has it, 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: Except as provided in Rule E-l (o), all money belonging to others which is received by a broker as a property manager shall be deposited in such broker’s escrow or trust account not later than five business days following receipt. All other money belonging to others which is received by a broker shall be deposited in such broker’s escrow or trust account not later than the third business day following receipt. |
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If a friend asks you to help manage a property for a fee, would you put the deposits into your escrow account or your employing brokers escrow account? Deposit them into your escrow account Deposit them into your employing brokers escrow account |
A: Deposit them into your employing brokers escrow account Only employing broker or independent brokers can have escrow accounts. Licenses working for a brokerage cannot have one. . |
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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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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. |
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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 closing Pursuant 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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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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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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An interest bearing trust account The seller gets the interest The interest may be donated to a qualified affordable housing program The buyer gets the interest The broker gets the interest |
A: The interest may be donated to a qualified affordable housing program In Colorado most earnest money interest is donated to CARHOF |
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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. |
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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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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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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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Reconciliation refers to: getting back together with your significant other looking over account balances to be sure you are still operating at a positive cash flow monthly review and comparison of the bank statement with your records what is turned over to the bookkeepers for safe keeping |
A: monthly review and comparison of the bank statement with your records Reconciliation is required monthly to balance the escrow account against individual accounts. |
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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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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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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 broker writes checks from the trust account into his operating account. broker is commingling and could have his license revoked broker may be netting earned commission against earnest money deposits broker is taking a negative ledger short cut, which is okay, but not advised broker is commingling and will have his license revoked |
A: broker is commingling and could have his license revoked Commingling is mixing money from the trust account and the operating account; conversion is using some of the trust account money for your own use. |
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What form may earnest money be? Cash or cashiers check only personal or cashiers check only Cash or good funds only Any form the seller will accept |
A: Any form the seller will accept The seller can accept any form the seller desires. The amount and form is specified in the listing agreement. Most often sellers accept personal checks as there is plenty of time before the closing for the check to clear. |
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When brokers receive earnest money, the money must be: Hold the money in the safe until the property closes Deposited into the broker's operating account Deposited into the broker's trust account All of the above |
A: Deposited into the broker's trust account Earnest money must be deposited into a trust account or turned over to a title company who will deposit it in there trust account |
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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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On what time basis must trust accounts be reconciled: daily weekly monthly annually |
A: monthly At least Monthly. From the real estate manual: The purpose of reconciliation is to verify that the records for the account are in balance per the escrow accounting equation.Rule E-1(p)(3) requires the ending bank statement cash balance to be reconciled with the office journal and ledger account cards during any month when there has been escrow account activity |
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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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Who holds the earnest money in a transaction with a listing broker and a buyer's agent? Buyer's Broker Listing Broker Must be in a neutral escrow company The brokers establish a joint escrow account |
A: Listing Broker The listing broker usually establishes the escrow account, but the parties can always agree on any other practice they specify |
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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. |
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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 there is a dispute regarding earnest money: The broker has a choice to interplead the money or await written instructions from the parties The broker must turn the money over to the court while awaiting resolution of the dispute Seller and Buyer must sue the broker to resolve the impasse The broker may move the money to an operating account |
A: The broker has a choice to interplead the money or await written instructions from the parties The broker has two options - to interplead the money or await written instructions from the parties. If the money is in dispute, the only thing an agent cannot do is make a decision as to who gets the money. An agent is not a judge or arbiter.Interplead means the agent turns the money over to a court to determine the ownership rights of the rival claimants tothe earnest money.More on the process of returning Earnest Money:The Colorado Contract to Buy and Sell Real Estate (AKA Purchase Contract) says the agent holding earnest money has5 days to return earnest money to whomever is supposed to get it after receipt of written instructions to do do. This is covered in the Broker Acknowledgements sections of the purchase contact.The actual language reads like this - "Broker agrees that if Brokerage Firm is the Earnest Money Holder and, except as provided in § .., if the Earnest Money has not already been returned following receipt of a Notice to Terminate or other written notice of termination, Earnest Money Holder will release the Earnest Money as directed by the written mutual instructions. Such release of Earnest Money will be made within five days of Earnest Money Holder’s receipt of the executed written mutual instructions, provided the Earnest Money check has cleared."BUT!!!!!! to make it even more fun for you, the Real Estate has issued Commission Position 6, whereby they say that if there is no controversy over who gets the earnest money, they want the money returned as quickly as possible and the agent does NOT have to get writen permission from all parties to do so.Most companies as a prudent measure have both parties sign that they agree who gets the earnest money, before they release it. This just makes sense, woe to the agent who releases the earnest money and one of the parties throws a fit over it. Safer to get the parties to agree in writing first.However, sometimes the party that is giving up the earnest money and their agent makes this a pretty low priority on their things-to-do-list. Keep in mind, they are grumpy the deal is dead and even if they know they need to release the earnest money, they are not happy about it. In the meantime, the other party wants their money. Buyers in particular are anxious as they are back on the market looking for a property and can’t make an offer until they get their earnest money returned. Therefore, the Commission has made is very clear, that they do not want slow paperwork to hold things up when there is no controversy.Does this occasionally put us in an awkward position? Yup. Smart agents who do not like to even get within sniffing distance of having to write out a personal check to cover a perceived, if not actual screw up (that be me, except my wife would probably dispute the "smart" assertion) will move heaven and earth to get quickly signed releases by both parties before releasing earnest money.If you find that one of your parties due to the stress of the failed deal ran instantly to consult with the yogi on the mountaintop and are not returning messages. You need to have a talk with your managing broker before doing something you may regret. It is always cooler to share the love and say "my managing broker said to do it and will make it good" then "how do I spell your name on my check". |
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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. |
