Coastline Realty: A Check in a Drawer and a $3,000 'Loan'
On Tuesday, March 4, your agent takes a $10,000 good-faith deposit check payable to 'Coastline Realty Trust Account' from a buyer whose offer has not yet been accepted. The check sits in your desk drawer because you plan to deposit it 'when the deal firms up.' That same week office rent of $3,200 is due and your commission check is delayed, so you transfer $3,000 from the trust account to the operating account, intending to repay it Friday. Your bookkeeper reconciles the trust account quarterly. On Friday the seller accepts, but a competing buyer then claims the deposit and the seller wants you to release it. You opened the trust account two years ago with $150 of your own money.
1. When and where must the $10,000 be deposited, and what is the problem with the $3,000 transfer and the $150?
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The deposit. Trust funds must be placed into a trust or escrow account within three business days of receipt. A Tuesday receipt means deposit by Friday. Leaving the check in a desk drawer past that window is itself a violation, and the fact that the offer was not yet accepted does not extend the clock - the money is not yours to hold loosely. The check is payable to the trust account, so depositing it into the operating account would be worse.
The $3,000. Using trust funds for office rent is misappropriation, not a loan. Intent to repay is irrelevant; the funds belong to the buyer or seller, not the brokerage. Consequences include license discipline and criminal exposure, and the transfer also creates a shortfall that any reconciliation would expose. There is no 'borrowing' from a trust account.
The $150. A broker may keep a small amount of their own money in the trust account - up to $200 - to open or maintain it and cover bank charges. $150 is permissible and should be documented as such.
Reconciliation. Quarterly is not enough. The trust account must be reconciled monthly, and records retained for at least three years. Immediate fix: repay the $3,000 from operating funds, document it, and have the bookkeeper do a full reconciliation now.
2. The competing buyer claims the $10,000 and the seller demands release. What do you do?
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You do not release anything on the seller's say-so. The deposit is disputed, and the broker's role is custodian, not judge.
- Freeze the funds in the trust account. No disbursement to either the seller or the buyer.
- Notify all interested parties in writing - the seller, the buyer who wrote the check, and the competing buyer if they are asserting a claim - stating that the funds are being held and why.
- Establish who actually tendered the $10,000. If the check came from the buyer whose offer was never accepted, their claim to return of their own funds is strong and the seller likely has no claim to it at all. Verify whose money it is before debating entitlement.
- Release only on a written agreement signed by the competing claimants, a court order, or an arbitrator's award. If the parties will not agree, interplead the funds and let a court decide.
- Document everything - receipt date, deposit date, the transfer, the repayment, and every communication.
Separately, self-report the misappropriation to your managing broker and counsel. If the DRE audits, the $3,000 transfer and the late deposit will be the first things found, and cooperation and prompt correction are the only mitigating facts you control.
3. What written procedures would have prevented this, and what records must the brokerage keep?
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The failures here were procedural, not analytical.
Prevention.
- A dated trust fund log at the point of receipt, with a rule that every check goes into the trust or escrow account within three business days and a calendar reminder for the deadline.
- No commingling policy with an explicit statement that brokerage operating expenses are never paid from trust funds, plus a small operating reserve so a delayed commission check does not create pressure.
- Monthly three-way reconciliation: trust bank balance against the trust ledger and against the individual client ledgers.
- Dual control - the person who writes trust checks is not the person who reconciles the account.
- A written disbursement policy: release only on signatures of all parties or an order, with an escalation path to interpleader.
Records. Keep trust account records, client ledgers, receipts, deposit slips, cancelled checks, bank statements, reconciliations, and disbursement authorizations for at least three years. Keep the $150 of broker funds documented so it is not mistaken for commingling. Retain the agency disclosures and consents as well. During an audit the broker must be able to show, transaction by transaction, whose money it held, when it was deposited, and why it was released.