National Real Estate Exam (PSI)Practice of Real EstateMedium
A broker uses funds from the trust account to pay for a personal vacation, intending to replace the money before the client notices. This act is best classified as:
- ACommingling
- BConversion
- CSteering
- DPuffing
Show answer & explanationAnswer & explanation
Correct answer: B. Conversion
Conversion is the unauthorized use of client trust funds for personal purposes, which is a serious violation often resulting in license revocation and criminal charges, regardless of intent to repay.
Why the other options are wrong
- A. Commingling is merely mixing funds in an account, not using them for personal purchases.
- C. Steering relates to fair housing and directing buyers, unrelated to trust funds.
- D. Puffing is exaggerated sales talk, unrelated to financial misconduct.
Conversion
The illegal act of using client trust funds for personal or unauthorized purposes.
- More severe than commingling
- Intent to repay does not excuse the violation
- Can lead to criminal prosecution and license revocation
Memory trick: Conversion = 'converting' someone else's money into your own use