National Real Estate Exam (PSI)Practice of Real EstateEasy
A broker deposits client earnest money into the same account used for daily office operating expenses. This violation is called:
- ANovation
- BCommingling
- CConversion
- DEscheat
Show answer & explanationAnswer & explanation
Correct answer: B. Commingling
Commingling occurs when a broker mixes client trust funds with personal or business operating funds. Trust funds must be kept in a separate, dedicated escrow/trust account.
Why the other options are wrong
- A. Novation is substituting a new contract or party for an original one, unrelated to trust funds.
- C. Conversion is actually using client funds for the broker's own purposes, a more severe violation.
- D. Escheat is property reverting to the state when there's no heir, unrelated here.
Commingling
Improperly mixing client trust funds with a broker's personal or business funds in the same account.
- Violates real estate license law
- Trust funds require a separate account
- Can lead to license suspension or revocation
Memory trick: Commingling = funds 'coming together' when they shouldn't