New York Real Estate Salesperson ExaminationBrokerage and Salesperson ResponsibilitiesEasy
A real estate broker receives an earnest money deposit check from a buyer. According to New York law, what is the broker's primary responsibility regarding this deposit?
- AHold it in a locked safe at their brokerage office until the offer is accepted.
- BDeposit it into their personal checking account for safekeeping until closing.
- CDeposit it into a separate, non-interest-bearing escrow account.
- DImmediately endorse it to the seller or seller's attorney.
Show answer & explanationAnswer & explanation
Correct answer: C. Deposit it into a separate, non-interest-bearing escrow account.
New York law mandates that brokers deposit all earnest money and other client funds into a segregated, non-interest-bearing escrow or trust account immediately upon receipt. This protects client funds from co-mingling and ensures they are not used for operating expenses.
Why the other options are wrong
- A. Holding physical checks in an office safe is not a permitted method for handling client funds; they must be deposited into an escrow account.
- B. Depositing client funds into a personal account is illegal co-mingling and a serious ethical and legal violation.
- D. The broker must hold the funds in escrow until the conditions of the contract are met or violated, not immediately transfer them to the seller.
Escrow Account for Client Funds
A special bank account used by a broker to hold funds on behalf of clients, separate from the broker's own business or personal funds.
- Mandatory for earnest money deposits.
- Must be non-interest-bearing in New York.
- Protects client funds from co-mingling.
Memory trick: Keep Client Cash in a Clean, Clear Account