Escrow and Trust Accounting
Escrow questions test whether the broker safeguards other people's money: separate accounts, good funds, deposit timing, disbursement, reconciliation, shortages, interest, and record retention.
Core rules
- Trust funds must be held in a separate escrow account at a Florida insured bank or savings association. The broker may not commingle escrow funds with operating money.
- Deposit escrow funds promptly; under FREC rules, sales escrow is generally deposited by the end of the third business day after receipt, with property-management funds subject to similar prompt-deposit rules.
- Accept good funds: cash, wire transfer, cashier's check, certified check, money order, or other cleared funds. A personal check must clear before disbursement.
- Reconcile the escrow account monthly, including a three-way reconciliation of the checkbook, bank statement, and individual ledger balances.
- If a shortage occurs, the broker must not use other escrow funds to cover it; the broker must correct the shortage and notify FREC as required. Keep escrow records for at least three years.
Worked example
A broker receives a $10,000 personal check as an escrow deposit on Monday and deposits it Tuesday. On Wednesday the buyer's check is returned NSF. The broker cannot pay a commission from other escrow money and cannot treat the deposit as collected. The broker must notify the parties and follow the contract's escrow provisions. The reasoning: only good funds may be disbursed, and one escrow file cannot subsidize another.
Traps
Do not use the escrow account as an operating account. Do not disburse before a personal check clears. Do not skip the monthly three-way reconciliation. Do not treat a shortage as a bookkeeping entry only.