Trust Fund Management
In my real estate classes I ask a question and many licensees do not know the correct answer. Ready? What is a worse crime in Trust Fund Management? Commingling or Conversion. They answer commingling because licensees are taught from their first class, never mix your personal funds with trust funds. Conversion according to the DRE Glossary (available on DuaneGomer.com) is “the unlawful appropriation of another’s property” or in simpler terms stealing.
True/False question: Is it illegal to put any of your personal funds in your trust fund? Answer, No. Why? You can put up to $200.00 of your personal funds in the trust fund to handle any bank expenses, etc.
Any other tricky things with a trust fund? Yes, if you put funds in a trust fund of which you are due a percentage (rents when you are property managing), your portion must be removed within 25 days. Someone doing property managing cannot keep funds in the account until the end of the month and distribute them early the next month.
Trust Fund Audits
What are the biggest problems in trust fund audits by the Department of Real Estate? Obviously, #1 is money missing. Also, the Broker Agent does not keep bank data up-to-date as to who can sign checks, etc. Any licensee can sign checks if authorized, and a non-licensee can sign checks but the Broker must purchase a bond for them. Bank reconciliations are not completed regularly, and many Brokers do not do the second reconciliation, which is comparing the amount of the money in the fund to the amount owed to each client with funds in the account.
Trust Fund or No Trust Fund
Can you operate a real estate business without a trust fund? Yes, but I believe that many transactions would be difficult to accomplish. In PM work the owners normally want you to collect the money. Also, when you collect deposits or offer money, you have to have some place to conveniently put them. Good luck out there.