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What forms can an earnest money deposit take?
Personal checks, cashier's checks, money orders, cash, or any other forms of legal tender
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What is an escrow transaction?
An escrow transaction is one where a person deposits with a closing agent funds that are to be held until a specified event occurs or until the performance of a prescribed condition in connection with the purchase, sale, or financing of an interest in real estate.
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Explain non-trust funds.
Non-trust funds include real estate commissions, general operating funds, and rents and deposits from broker-owned real estate. If they are not commingled with trust funds, they are not subject to the same real estate laws as trust funds.
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Explain escrow termination.
Escrows are either voluntarily completed by full performance and closing, or they are terminated by mutual consent and cancellation. They cannot be terminated by death but only by completion of escrow, mutual agreement to terminate, or court action.
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What type of account must an escrow account be and where must it be maintained?
An escrow account must be non-interest bearing and must be maintained at a federally-insured depository.
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In most cases, when must security deposits be deposited?
By the next business day after the lease is signed
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When a transaction has consummated or terminated, when and how must the sponsoring broker disburse the funds?
The sponsoring broker must disburse the funds according to the terms of the contract. He or she must make the disbursement no earlier than the day the transaction is consummated or terminated and not later than the next business day after the transaction is consummated or terminated, unless the broker has received other written direction from all principals to the transaction or their duly authorized agents.
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What is a master escrow account log?
A log identifying all escrow bank account numbers and the name and address of the bank where the escrow accounts are located.
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What does a journal show?
The chronological sequence in which funds are received and disbursed by the broker
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In most cases, for how long does the broker need to keep escrow records?
Three to five years
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What should a broker do if escrow records are stolen, lost, or destroyed?
Report the loss to their state licensing agency and then obtain copies of monthly bank statements, deposit and disbursement receipts, and any other available records, so he or she can reconstruct the lost escrow records.
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A____ account is identical to an escrow account when an owner deposits funds with a third party as a prepayment or deposit for a specific purpose, such as earnest money for the purchase of real property.
trust
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Most states regulate the management of escrow accounts by______. However, relevant escrow laws may depend on who the fiduciary is.
fiduciaries
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are money or other things of value that are received by the broker on the part of another person – cash and non-cash items
Trust funds
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_____funds include real estate commissions, general operating funds, and rents and deposits from broker-owned real estate.
Non-trust
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__________or trust account means a checking account established by a closing agent used exclusively for the deposit and disbursement of funds for an escrow transaction.
Escrow account
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_____is a deposit, usually made in the form of a check, to show evidence of the buyer's intention to carry out the terms of the contract in good faith.
Earnest money
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_____are voluntarily completed by full performance and closing OR they are terminated by mutual consent and cancellation.
Escrows
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Escrow funds and accounts are regulated by____ law and are covered by several rules and prohibitions.
state
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is an ILLEGAL act in which a real estate licensee places client or customer funds with his or her own personal funds.
Commingling
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Earnest money is usually required to be deposited into an escrow account within___ hours of receipt by a broker.
72
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Security deposits must be deposited in the escrow account by___________ after a lease is signed.
the next business day
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______ _______may maintain their own escrow accounts or transmit all escrow moneys it receives to the main office.
Branch offices
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Each sponsoring broker who accepts earnest money must maintain in his or her office a bookkeeping system that complies with sound accounting principles. The system should consist of at least the following escrow records: 4
- Master escrow account log
- Journal
- Ledger
- Monthly reconciliation statements
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The sponsoring broker must reconcile each escrow account that he or she maintains within a specified number of days after he or she receives the monthly bank statement. The broker must keep copies of all escrow money instruments received from a principal as part of a transaction. A sponsoring broker must keep all escrow records for___ to ___years (as designated by that particular state's laws
3-5
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Which of the following statements are TRUE regarding earnest money?
Must be in the form of cash or a check
Earnest money is required with all contract offers.
Personal property can be offered as an earnest deposit.
Earnest money is also known as evidence trust account money.
Personal property can be offered as an earnest deposit.
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Brokers who are responsible for earnest money deposits for property sales or security deposits for leases
must be bonded with the state Sponsoring Brokers Insurance Trust.
must maintain a separate business account in any type of financial institution for depositing these monies.
must open special trust (or escrow) accounts in which to deposit the funds they have been given.
must deposit these monies in a brokerage operations account with special accounting procedures to segregate brokerage monies from escrow monies.
must open special trust (or escrow) accounts in which to deposit the funds they have been given.
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James a property manager must maintain all security deposits in an escrow account for the duration of the lease, unless
the tenant indicates to James that he/she waives the requirement.
James the broker has less than five property management lease contracts.
the lease is for less than three years.
the tenant waives this requirement in writing. If such a waiver is included in the lease, it must be in bold print.
the tenant waives this requirement in writing. If such a waiver is included in the lease, it must be in bold print.
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Serena and Lucy want to make an offer on their dream home. The seller is requesting a very large earnest money deposit with serious offers on the home. Serena and Lucy have some cash set aside for this purpose but are short of the amount the sellers are requesting. Which of the following is FALSE regarding options they may have?
Cash is the only acceptable trust fund item accepted by brokers.
A check made payable to the broker or to an escrow or title company is an option.
A personal note made payable to the seller or a pink slip on an automobile given as a deposit is acceptable.
Lucy has a diamond ring worth several thousand dollars which could be used as all or part of the earnest money deposit
Cash is the only acceptable trust fund item accepted by brokers.
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What must appear in the listing agreement in letters larger than those generally used in the listing agreement?
The amount of earnest money required
The seller's name
The provision that the broker's commission will be paid out of the earnest money deposit if the buyer defaults.
The provision that only an attorney will be accepted as the fiduciary for the earnest moneys.
The provision that the broker's commission will be paid out of the earnest money deposit if the buyer defaults.
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A sponsoring broker may transfer escrow moneys needed for a particular closing to that transaction’s closing agent
up to 5 business days prior to the scheduled closing date.
up to 3 business days after the closing.
up to 2 business days prior to the scheduled closing date.
upon receipt of the escrow moneys from the buyer.
up to 2 business days prior to the scheduled closing date.
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Agent Tom works at the Cliffside branch office of ABC Realty. The sponsoring broker at the main office for ABC Realty maintains an escrow account for all offices of ABC Realty. Tom has been very busy writing offers and has little time to drive to the main office so he has decided to open an escrow account at the branch office. Tom's action is
Not allowed, no sponsored licensee may maintain his or her own escrow accounts.
Allowed as a sponsored licensee as long as the sponsoring broker approves the opening of Tom's escrow account.
Allowed, with the consent of all parties to the transaction and his sponsoring broker.
Allowed because the escrow rules do not cover this point.
Not allowed, no sponsored licensee may maintain his or her own escrow accounts.
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The __________ will segregate one transaction from another transaction.
ledger
journal
master escrow account log
monthly reconciliation statement
Ledger
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What is the log that identifies all escrow bank account numbers and the name and address of the bank where the escrow accounts are located?
Log of Accounts
Accounts Receivable Escrow Log
Earnest Money Log of Accounts
Master Escrow Account Log
Master Escrow Account Log
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A sponsoring broker must keep all escrow records for
1-2 years.
3-5 years.
5-7 years.
7-10 years.
3-5 years.
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Where would you find the names of all parties to a transaction, the amount of escrow funds the sponsoring broker received, and the date the broker received the funds?
Record of Transactions
Ledger
Summary Journal
Monthly Balance Sheet Report
Ledger
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A sponsoring broker must keep all escrow records for
2 years.
5 years.
7 years.
10 years.
5
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An entity acting as agent for the owner of the earnest money is
a fiduciary.
a power of attorney.
a banker.
a trustee.
a fiduciary.
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Real estate commissions, general operating funds, and rents and deposits from broker-owned real estate are
required to be deposited into an escrow account.
trust funds.
non-trust funds.
escrow funds.
Non trust funds
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Which of the following is not a typical fiduciary?
Lawyer
Seller
Real estate broker
Title company
Seller
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An illegal act in which a real estate licensee places client or customer funds with his or her own personal funds is called
a felony.
commingling.
combining funds.
stealing.
Commingling
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Which of the following statements is TRUE?
Earnest money must come from the party that signs the contract.
Earnest money must be at least 10% of the contract price.
Earnest money must be included with any contract to be valid.
Earnest money is not required for a contract to be valid.
Earnest money is not required for a contract to be valid.
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Where would you find every escrow entry showing the running balance after each receipt or disbursement?
Escrow Transactions
Summary of Account
Journal
Report of Escrow Transactions
Journal
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The process in which expenses, such as property taxes, interest, rent and/or assessments, are divided proportionately between the buyer and seller is
ledger recording.
journaling.
reconciliation.
proration.
Proration
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What are the potential consequences for a broker who does not properly handle trust funds?
Possible jail time, financial damages, and the revocation or suspension of the agent's real estate license
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What is the exception to the rule that money must be deposited into the appropriate trust account within the time frame dictated by state statute following the receipt of the funds by a broker?
If the money is in the form of a check that is to be held uncashed until the offer has been accepted.
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List three rules regarding escrow accounts in most states. (Other possible answers can be found on page # 4)
An escrow account must be non-interest bearing unless the involved parties require in writing that the deposit be placed in a interest-bearing account or unless the law requires the deposit accrue interest.
ALL escrow accounts, whether interest-bearing or non-interest bearing, must be maintained at a federally-insured depository.
The sponsoring broker must issue a receipt to the payor for any escrow monies and keep a copy with the transaction records.
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What does the escrow holder/agent typically do and what are the holder's obligations?
- Hold moneys related to the transaction (earnest money, loan money from bank)
- Hold the deed and arrange for it to be recorded
- Insure terms and conditions of purchase agreement are met prior to closing
- Assure a clear title
- Assure transaction will close properly and on time
- The only obligations are the instructions given in regard to the transaction.
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What is the escrow holder entitled to do in case of controversies between buyer and seller?
The holder is entitled to file an action of interpleader to require litigation of controversies.
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List the first five basic escrow procedures.
- Prepare escrow instructions
- Order preliminary title search and report
- Request lender's demand and pay-off statement
- Request new loan instructions and documents
- Accept structural reports
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When does the sponsoring broker disburse the funds from an escrow account?
No earlier than the day the transaction is consummated or terminated and no later than the next business day after the transaction is consummated or terminated.
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What are the exceptions to the rule for when the sponsoring broker may release or disburse escrow funds?
The broker may release the funds prior to the consummation or termination of the transaction if so instructed in a written contract signed by the principals to the transaction or if the broker receives an order from the courts providing for disbursement of the moneys.
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What should the sponsoring broker do in the event of disputes between the parties regarding the escrow money, and when can the sponsoring broker stop doing that?
The broker should hold the money until he/she receives a written release from both parties, until an interpleader action is filed, or until the funds are turned over to the State Treasurer due to inactivity of the account.
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An escrow holder is entitled to file an action of_______ (a court action) to require litigation of controversies.
interpleader
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The escrow holder must maintain records and files on a____ basis, provide excellent and efficient customer service, and ensure that the account is NEVER overdrawn, since an overdrawn account is strictly forbidden.
daily
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There are two forms of escrow instructions employed:
____, which binds both the buyer and the seller; and
_____ which are the separate instructions of buyer and seller.
Escrow instructions tell the escrow holder or agent how to hold and care for the items given to him or her. Once the escrow agent performs the duties he or she was instructed to do, escrow is considered "closed."
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If any disputes between parties arise regarding escrow money, the sponsoring broker should continue to “hold” the money until
3
- The sponsoring broker receives a written release from both parties
- An interpleader action is filed
- The funds are turned over to the State Treasurer and become unclaimed property due to inactivity of the account, inability to locate the parties, or inability of the parties to reach a resolution.
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A broker who has received a buyer's deposit and related instructions must NOT
hold onto the money.
give the money to the principal to the transaction.
put the money in a neutral escrow depository.
put the money in the broker's trust fund account.
Hold onto the money
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Which of the following statements best describes an authorized disbursement?
Any release of funds prior to a property inspection
One which is made on behalf of, and at the written direction of, all principals to the transaction or their duly authorized agents
The release of all funds by a civil appellate court
One which is made at the direction of a title company officer
One which is made on behalf of, and at the written direction of, all principals to the transaction or their duly authorized agents
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In regard to escrow rules, which of the following is TRUE?
An escrow account must be interest bearing.
A sponsoring broker may not maintain more than one escrow account.
A sponsoring broker who does not receive escrow moneys entrusted to him/her as a real estate broker needs to maintain an escrow account.
All escrow accounts must be maintained at a federally-insured depository.
All escrow accounts must be maintained at a federally-insured depository.
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The Van Horns (buyers) and the Simpsons (sellers) have closed escrow on their real estate transaction. Who handles the completion of the transaction and both parties' separate paperwork?
Both parties close the transaction with ABC Escrow, the dual agency, in which both parties are represented. ABC Escrow also handles each parties separate paperwork.
Although ABC Escrow served as the dual agency representing both parties until escrow closed, the Van Horns and Simpsons change to separate agencies for the handling of final paperwork.
ABC Escrow, the dual agency, closes escrow for both parties. The Van Horns and Simpsons then close their real estate transaction and complete final paperwork with the lender.
ABC Escrow closes escrow for the Van Horn family. The real estate listing agent closes escrow for the Simpson family. Both parties use an agreed upon title company, acting as a dual agency, to complete the transaction and final paperwork.
Although ABC Escrow served as the dual agency representing both parties until escrow closed, the Van Horns and Simpsons change to separate agencies for the handling of final paperwork.
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Sponsoring Broker Jones received an order from a court of competent jurisdiction directing the disbursement of the escrow moneys. What action should broker Jones take?
Broker Jones must seek agreement from the buyer prior to disbursement of the escrow moneys according to the terms of the order.
Broker Jones must seek agreement from the seller prior to disbursement of the escrow moneys according to the terms of the order.
Broker Jones must disburse the escrow moneys according to the terms of the order.
Broker Jones must direct the request to a State Revenue Tax Board for payment.
Broker Jones must disburse the escrow moneys according to the terms of the order.
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An escrow holder can be
the buyer.
an attorney.
the seller.
any individual who is party to the transaction.
An attorney
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What happens to escrow monies when the parties are unable to reach a resolution?
Funds are turned over to the Real Estate Board.
Funds remain in the brokers account for up to 1 years and then transferred to a operating fund.
Funds are held in a State escrow account for six months and then tuned over to the General Revenue Account.
Funds are turned over to the State Treasurer.
Funds are turned over to the State Treasurer.
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The escrow holder is not legally concerned with
any controversies between the buyer and seller.
filing an action of interpleader.
following instructions from anyone except the seller.
suggesting disagreeing parties consult an attorney.
any controversies between the buyer and seller.
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Which of the following is a form of escrow instructions?
Collateral
Confidential
Unolateral
Bilateral
Bilateral
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A broker who has received a buyer's money deposit and related instructions should not take which of the following actions?
Give the money to the principal to the transaction
Put it into an escrow account in the seller's name
Put it into the broker's trust fund account at a bank or other financial institution
Put it into a neutral escrow depository
Put it into an escrow account in the seller's name
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When must deposit money be put into the appropriate account?
Within 5 days of receipt
The same day as received
Within the time limit included in the instructions that accompanied the money
Within the time frame dictated by state statute
Within the time frame dictated by state statute
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XYZ Escrow has gone out of business. They committed one of THE violations of all violations of escrow holder regulations. What is the violation?
XYZ Escrow charged a fee for its services.
XYZ Escrow did not maintain the records and files of its clients. Due to poor record keeping, several escrow accounts at XYZ were overdrawn.
XYZ Escrow used forms at closing that were neither simple nor clear. In several instances, the closing of escrow was behind schedule and held up the completion of the real estate transaction.
XYZ Escrow Company submitted the required annual audit late to their CPA for an additional audit.
XYZ Escrow did not maintain the records and files of its clients. Due to poor record keeping, several escrow accounts at XYZ were overdrawn.
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Which of the following is not part of the procedures for escrow holders?
Request closing funds
Order structural inspection
Prepare the escrow instructions
Request lender's pay-off statement
Order structural inspection
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Which of the following is not a consequence of a broker improperly handling trust funds?
Jail time
Financial damages
Closing of all trust fund accounts in broker's name
Revocation of broker's real estate license
Closing of all trust fund accounts in broker's name
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When does the escrow become effective?
72 hours after earnest money has been deposited
Within 24 hours of instructions being written
Immediately
When mutual instructions have been signed by all parties
When mutual instructions have been signed by all parties
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