Hi. I post on the BPO forum, but I'll give my background here real quick. I am primarily a rehabber. My husband and I have been renovating homes for resale for 10yrs now. I got my Broker's license a while back so that I could receive commissions when I buy property for this purpose.

Now I have a listing. The DRE says that as a Broker I need a Trust account for earnest money. They say that I cannot have more than $250 of my own money in the account - for fees and such.

Wamu says that in order to open a Trust account, I need a Trust agreement with the client. Huh? In order to open a small business account to use as a Trust account, they want a minimum of $1000, which exceeds my legal limit. My questions are:

1. What type of Trust account do I need? A small business or a Trust? If it's a Trust, what agreement is the bank talking about?

2. Can I just open escrow with a title/escrow company and hand the earnest money over to them, eliminating the whole Trust account altogether?


Any assistance at all is greatly appreciated. Thanks!

Don't think WAMU understands why you need a broker trust account. As a broker, I have a trust account with the same bank I have my regular business checking account with. It was opened with the $250.00 mandated by DRE and I use this account for the good faith deposit checks as well as rent checks from the properties I manage.

You may have to explain to WAMU that this is your broker trust account and it is not set up a third party.

Other than that, deposit checks on offers can be made payable to your brokerage, documented in your trust records and you then endorse the check over to the Escrow or title company handling the sale.

You can also have the buyers make their deposit check payable directly to the escrow company, copy and document this in your trust transaction records and forward on to the escrow company without delay.

Personal checks, cashier's checks or money orders are handled this way. We never accept cash in our office for good faith deposits.

Ack. I'm in CA & I do not, will not have a trust acct. Nothing but potential headaches since I don't do PM I see no sense in it.

Locally everyone just has buyers make their EM checks out to the escrow co.

Sooooo much less liability & bookkeeping.

I don't have a trust account either.

Everyone here also makes EM deposits out to the title companies.

On my REO listings I instruct them to write "_________ Title Company" and we fill it in later once we know who the bank is using.

Must be a California, and perhaps other states too, thing to have another company hold the earnest money deposit. In New York, at least upstate, the brokers have escrow accounts to hold earnest money. By law it must be a separate account so it is not comingled with operating funds. The broker is prohibited from claiming interest on the account therefore most, if not all, are non-interest bearing. Either listing or selling broker can hold it as long as it is documented how much and where.

A Broker in this area would flip out if an earnest money check was written out to the brokerage.

So funny how we all do the same job, but completely different.

Our state Ga is that way to with the brokers holding the earnest money in escrow.Nationally most earnest money is held by title companies.In Ga we are getting more title companies to hold earnest money and getting away from the escrow account held by a broker because of litigation reasons.

Our purchase and sale contracts stipulate what happens when there is an earnest money dispute.It says all interest earned from a brokers escrow account will go to the brokerage not the person putting the earnest money down.

It also says if there is a dispute the broker looks at the contract and makes a determination as to who was the breaching party and who is entitled to the earnest money.Letters are then sent out to the buyer and the seller with the decision and the seller or buyer has 15 days to respond and disagree with the decision.

If either party disagrees with the decisions the funds are interpleaded into a court of law where a judge will make the final ruling.The losing party will be responsible for all broker costs interpleading into court and attorneys fees.

While interpleading sounds good at first it is very costly and time consuming for the buyer and the seller.It is MUCH better for both to come to terms outside of court and move on.

Monitering earnest money deposits is a big pita for brokers and we are not paid enough to regulate these disputes.I do not have an escrow account and have my title company hold the earnest money.

The title company has a seperate addendum the buyer must sign along with the p&s where the title company has the final ruling and the earnest money cannot be interpleaded.If the buyer does not agree to this the title company WILL NOT hold funds.(smart on there part)

It just doesn't make sens for a broker to hold funds.

It's like a friend of mine that owned 6 auto shops.You constantly get hit with frivolous lawsuits where customers say after you did a repair you messed up there car but the problem has to do with anothe rpart of the vehicle and nothing you worked on.Needless to say you spend countless hours in court and the lawsuits are dropped but it can consume you.That's why he sold 4 auto shops off and kept the 2 highest income ones that net him 500k a year each.

Most agents put in there contracts xyz company to hold earnest money.The problem with this is every time you submit an offer for a buyer and it is rejected you have to go through a pits process to get there funds back.You have to wait for the funds to clear and reissue back to the buyer.

Instead of doing this we put in our contracts xyz company is to hold earnest money (upon acceptance) of the contract meaning once all the dust settles and we go under contract THEN that's when we get the earnest money check from the buyer and have the title company hold.This way if we put in 5 offers and the last one was accepted we wouldn't have to worry about the earnest money being held until then-it saves alot of time and headache.

When it's an offer on a short sale I put the stipulation that Upon Acceptance by the bank or banks if there are 2 or 3 mortgages than upon the short sale being accepted earnest money will be deposited into escrow.

there nothing unusual about a broker holding an earnest money deposit check uncashed until acceptance, then placed into escrow.

First, that is preposterous. There is no "agreement". This is a no brainer (with all due respect). A trust account is very simple; You open a free checking account. Thats it. On mine, I have my name followed by "Broker Trust Fund Account". My balance is $5.67.

2; I think this is not allowed since the trust account must be ongoing and not just while you have an escrow.

California requires a trust fund account also, but in CA, broker is allowed to hold the EM deposit uncashed until acceptance if agreed by both parties, then put in escrow, which is not allowed in some other states.

Of course, if the parties don't agree to allow the broker to hold the check, then it has to be deposited into the brokers trust account, which is why one should always be maintained.

Brokers here are allowed to collect the interest as long as the buyer agrees to it. All EM deposits here are held by either the listing or selling brokerage.

jgizzi,

Is your free checking account a business account? Also, does it recieve interest, and if so, who gets it?

Everyone - go you just have your clients sign something stating that they receive no interest on the EM?

Brokers in California are not allowed to earn interest on their trust account, after all it is other people's money. My trust account is non-interest bearing.

In my previous post, I also forgot to mention that checks we receive for the credit report fee on loan applications are also deposited in our trust account.

Should your bank allow an interest-bearing trust account, and I doubt they would do that, you would then have the task of prorating the interests earned back to each and every individual client for whom you are holding their money in trust.

Calif Dreaming:

Your last point is why most New York brokers use non-interest bearing escrow accounts. Since the broker can't claim the interest, if any, it must be apportioned among the clients' balances that are deposited there. With money going in and out of the account on any given business day the apportionment must be done on a a daily basis, hence the use of a non-interest bearing account to avoid a major bookkeeping task.

LND:

I'm not aware of anyone using a disclosure form to tell the buyers that it is non-interest bearing but it sounds like a good idea.

Here was an observation about holding earnest money from our RE commission:
1.) It is the Division of Real Estate's position that the best practice for brokers is to hold their earnest money deposits in their trust/escrow accounts because:

a. The broker is stiIl responsible for the earnest money even if it is transferred to a title company to hold.

b. The broker is able to maintain control over the earnest money and is able to return the deposit to the buyer/seller, as appropriate, if the contract fails according to the terms of the
contract and the return of the deposit is not in dispute. We are told by title companies that they will not release any earnest money deposit from a failed sales contract (even if the return of the deposit is not in dispute) until they have a signed lease from both the buyer and seller.

c. Brokers have to keep track of which title company is holding each individual deposit - some brokers of larger companies whose associates use different title companies have
told us that they have to maintain some sort of recordkeeping system even if the deposits are given to title companies.

……Then is goes into the procedures for RE offices which send checks to Title Companies….
and it states:

Requiring, title 'companies to hold, deposits in their escrow account.
Division of insurance Regulation 3-5-1 does not address the issue of title companies holding earnest money deposits.

p.s. the point is, our Title Co's come under the supervision of the Insurance Div. & NOT the RE Commission, giving the RE commission no jurisdiction over earnest money disputes. Also, brokers who hold EM, collect interest, which is collected for housing for the needy, and the Title Co's don't contribute to that effort.

I remember the 1st ouse I bought. I was asked if I wanted to receive interest on the EM. The title company made me sign a form stating my preference, and I received a small check at closing.