New York Real Estate Salesperson ExaminationBrokerage and Salesperson ResponsibilitiesMedium
A real estate broker receives a cash earnest money deposit of $5,000 from a buyer. According to New York law, how must the broker handle this cash deposit?
- ADeposit the cash directly into a segregated escrow account within 24 hours of receipt.
- BDeposit the cash into the broker's personal checking account, then transfer an equivalent amount from personal funds to the escrow account within three business days.
- CDeposit the cash directly into the broker's business operating account, documenting it as an earnest money deposit.
- DConvert the cash into a cashier's check or money order and then deposit it into the escrow account within 24 hours of receipt.
Show answer & explanationAnswer & explanation
Correct answer: A. Deposit the cash directly into a segregated escrow account within 24 hours of receipt.
New York Real Property Law requires brokers to deposit all money belonging to others, including earnest money, into a segregated escrow account. For cash deposits, this must occur within 24 hours of receipt, not converted or mixed with personal or operating funds.
Why the other options are wrong
- B. Depositing into a personal account is co-mingling and strictly prohibited.
- C. Depositing into a business operating account is co-mingling and strictly prohibited.
- D. While converting to a cashier's check might seem safer, the immediate requirement is direct deposit into escrow, and delaying this for conversion is not the primary directive.
NY Cash Earnest Money Handling
In New York, any cash earnest money received by a real estate broker must be deposited directly into a segregated escrow account within 24 hours of receipt, without co-mingling or conversion.
- All client funds must go into escrow.
- Cash deposits have a 24-hour deposit deadline.
- Co-mingling (mixing with personal/operating funds) is illegal.
- Conversion (using client funds for broker's own use) is illegal.
Memory trick: Cash to Custody, Quickly and Cleanly.