Earnest Money in the Drawer: Trust Accounts, an Unlicensed Assistant, and a Provisional Broker
At Riverbend Realty, provisional broker Dale collects a $6,500 earnest money check at a Saturday showing; it is payable to 'Riverbend Realty.' Broker-in-charge Ms. Okoye is on vacation. On Monday Dale endorses the check and deposits it in the firm's general business account to 'keep it safe,' planning to move it to trust after closing. He also has the firm's unlicensed marketing assistant, Ben, hold a $2,000 cash deposit from a different buyer 'in the desk drawer' until that buyer decides. Ben, who answers the phones, tells a caller that the listing price is 'negotiable - the seller is desperate.' Meanwhile Dale signs a buyer agency agreement on the firm's behalf without Ms. Okoye seeing it.
1. Identify each violation in this sequence and state the correct handling for each item of money and each action.
Read the worked answer
The $6,500 check. These are trust funds from the moment of receipt. Depositing them into the firm's general business account is commingling; using them for firm expenses would be conversion. Intent is irrelevant - 'keeping it safe' in the operating account is the violation. Correct handling: deposit promptly into the firm's designated trust account, maintain a ledger showing the payer, payee, property, and the buyer's name, and notify the broker-in-charge.
The $2,000 cash. Cash must not sit in a desk drawer for anyone. It belongs in the trust account with a receipt, and holding it while a buyer 'decides' is exactly the practice a trust account exists to prevent. Confirm with Ms. Okoye whose funds these are and whether they should be accepted at all.
Ben's statement about price. Quoting or characterizing price and the seller's motivation is brokerage activity. An unlicensed assistant may do clerical, administrative, and ministerial tasks; he may not negotiate, advise, or discuss price and motivation with the public. Correct handling: limit him to scripts that give factual listing information and refer callers to a licensee.
Dale's signature on the buyer agency agreement. Dale is provisional and works only under the supervision of a broker-in-charge; agency agreements are firm-level documents that the BIC should review and authorize. Dale should stop, disclose what he signed, and have Ms. Okoye review and ratify or correct it on her return - with the clients told promptly.
2. What is Ms. Okoye's exposure when she returns, and what must she do?
Read the worked answer
Supervision is not delegable. The broker-in-charge is responsible for the firm's trust account and for the conduct of the affiliated brokers and unlicensed staff. Commission discipline in this scenario can reach the firm's license and Ms. Okoye's own broker-in-charge status, not just Dale and Ben, because the failures happened inside a system she was required to maintain. That the failures occurred while she was on vacation does not shift responsibility; a firm with a provisional broker and unlicensed staff needs a plan for her absence.
Immediate steps. (1) Inventory: identify every trust item received, where it is, who holds it, and what records exist. (2) Cure: move the $6,500 from the general account into the trust account immediately; deposit or return the $2,000 cash to its owner in exchange for written acknowledgement. (3) Review the buyer agency agreement and the two transaction files for other problems. (4) Document the corrections in writing, including dates and amounts. (5) Retain records for the required period and be prepared to produce them to the Commission on request. (6) Correct the process: written trust-account procedures, a named backup supervisor, and a clear written list of what unlicensed assistants may and may not do.
Dale's status. Because he is provisional, expect the Commission to look at what education and supervision he received; postlicensing requirements and the firm's supervision plan are part of that picture.
3. The transaction collapses and both the buyer and the seller demand the $6,500. What may the firm do with the funds?
Read the worked answer
Character of the funds does not change because the deal died. The $6,500 remains trust money owed to whoever is entitled to it - a failed contract does not convert it into firm revenue or into a general account balance.
Disbursement requires authority. The firm may release the funds only on (a) a written release signed by both buyer and seller identifying the payee and amount, or (b) a court order (including an interpleader or similar resolution), or (c) another basis the contract itself provides. Absent that, the funds stay in the trust account.
Practical steps. The broker-in-charge should send both parties a written notice that competing claims have been made, state that the firm will hold the funds pending written agreement or court order, and stop giving informal opinions about who is 'right.' That opinion is not the broker's to give, and voicing it is how a routine dispute becomes a complaint.
Reserve the trap: do not let the seller's agent or the buyer pressure the escrow holder into an early disbursement by pointing to a familiar-sounding rule. The dangerous move here is paying out on one party's demand and sorting it out later - the firm may be short the money and facing a Commission complaint at the same time.