California Real Estate SalespersonPractice of Real Estate and DisclosuresMedium
A broker wants to place trust fund deposits into an interest-bearing account. Under California law, which condition must be met before doing so?
- AThe broker must obtain written authorization from all parties with an interest in the funds
- BThe broker may do so at any time without client consent
- CThe broker must first notify the DRE and receive written approval
- DInterest-bearing trust accounts are prohibited under all circumstances
Show answer & explanationAnswer & explanation
Correct answer: A. The broker must obtain written authorization from all parties with an interest in the funds
A broker may place trust funds in an interest-bearing account only with the prior written consent of all parties who have an interest in the funds, and the account must clearly disclose how interest will be handled (typically credited to the principal, not the broker, unless otherwise agreed). DRE pre-approval is not required for this specific arrangement.
Why the other options are wrong
- B. Client consent is mandatory before using an interest-bearing trust account.
- C. DRE approval is not a prerequisite for establishing an interest-bearing trust account.
- D. Interest-bearing trust accounts are permitted with proper consent, not prohibited outright.
Interest-Bearing Trust Accounts
A broker may only place client trust funds in an interest-bearing account with prior written consent from all parties who have an interest in the funds.
- Written consent from all interested parties required
- Broker generally may not personally benefit from interest earned
- Account must be clearly identified as a trust account
Memory trick: 'No signature, no interest.'