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January 14, 2019

Commingling


Word of the day

Commingling

To mingle or mix; for example, to deposit client funds in the broker’s personal or general account. Licensees found guilty of commingling funds may generally have their license suspended or revoked by the state licensing agency. Some commingling situations are rather obvious; others are more involved, such as a broker acting as property manager who takes a fee out of the tenant’s security deposit.

Commingling may occur when a broker fails to deposit trust funds into escrow, a client trust, or earnest money account at a bank or recognized depository within the time frame mandated by rule or regulation. 

Commingling does not occur when the broker keeps a minimum amount of the broker’s own money in the client trust account in order to keep the account open. The amount is often regulated by rule or regulation. In many states (but not all), it is permissible to hold an uncashed check until acceptance of an offer when directed to do so by the buyer (offeror); however, before the seller accepts the offer, the broker must specifically disclose the fact that the check is being held in an uncashed form.

As a matter of policy, not cashing checks until an offer is accepted may prevent problems for the broker. Often a buyer submits an offer with a personal check as an earnest money deposit. If the broker deposits the check in the client’s trust account and the offer is rejected, then the broker may be in a position of having to refund the earnest money deposit before the broker knows whether the buyer’s check has cleared. If the broker delays in returning the earnest money deposit, the buyer will be irritated and their business relationship ruined. Yet, if the broker returns the deposit and the check bounces, the broker is out the money. 

A more serious offense than commingling is conversion, which is the actual misappropriation of client monies.
 

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