Trust Accounting, Escrow, and Financial Records
Trust Account Fundamentals
Arizona brokers who hold funds belonging to others must maintain a trust account and follow strict rules. Know the prohibition on commingling (mixing client funds with broker funds) and the limited exceptions permitted by rule. Understand the difference between a trust account and an operating account, and when earnest money must be deposited. Learn the recordkeeping requirements: individual ledgers, monthly reconciliations, and retention periods.
Handling and Disbursement
Understand how funds are disbursed, the requirement for written authorization, and how disputes over earnest money are handled. Know the rules on property management trust accounts and security deposits. Understand the broker's duty to reconcile and to produce records on demand for inspection.
Traps
Frequent traps: assuming a broker may use client funds temporarily; forgetting that even a small commingling is a violation; and overlooking the monthly three-way reconciliation requirement. Another trap is disbursing disputed funds to one party without proper authorization or legal process.
Worked Example
A broker receives earnest money and the transaction falls apart with both parties claiming the deposit. Rule of thumb: do not release disputed funds to either party without written agreement of the parties or a court/administrative order; hold the funds in trust and document the dispute.