Closing, Trust Accounting and Deposit Handling
What this domain tests
This domain tests the mechanics of closing and the strict rules for handling other people's money. Expect questions on trust account requirements, deposit timing, reconciliations, and the closing steps that transfer title and funds.
Core rules and concepts
- Trust accounts: deposits and other client funds must be held in a designated trust account at a financial institution, separate from the brokerage's operating account.
- Deposit timing: a deposit must be deposited promptly as the agreement and regulator require; some jurisdictions require deposit within a set number of business days of acceptance.
- No commingling: trust funds may not be mixed with brokerage funds or used for brokerage expenses. Commission is withdrawn only when earned and as permitted.
- Records and reconciliation: maintain individual client ledgers, receipts, and monthly reconciliations; shortages must be reported.
- Interest on trust funds is handled per statute (often paid to a designated fund).
- Closing steps: satisfaction of conditions, final walk-through, title search and registration, statement of adjustments, and disbursement of funds. The lawyer or notary typically handles registration and disbursement; the salesperson coordinates.
- Deposit disputes on default are resolved per the APS and, if necessary, by the regulator or a court - not by the salesperson.
Worked example
A buyer gives the salesperson a $25,000 deposit cheque on Friday. The salesperson deposits it into the brokerage's operating account on Monday to "hold it" until conditions are waived.
Reasoning: this is commingling. The deposit is client money and must go into the trust account promptly, not into operating funds. Even a short hold in the wrong account is a breach. The correct step is deposit to trust, issue a receipt, record it in the client ledger, and reconcile. The mark is lost by answering only "deposit it quickly" without naming the trust account and the commingling prohibition.
Traps that cost marks
- Depositing client funds into the operating account, even briefly.
- Missing the jurisdiction's deposit deadline after acceptance.
- Failing to reconcile trust accounts monthly and keep client ledgers.
- Treating commission as withdrawable before it is earned.
- Advising on who keeps a deposit on default instead of referring to the APS, the regulator, and counsel.