New York Real Estate Salesperson ExaminationNew York State Specific Laws and RegulationsEasy
A real estate broker in New York is managing a property for a client. The tenant pays monthly rent directly to the broker. According to New York License Law, how must the broker handle these funds?
- AHold the cash in a secure safe at their office until the client requests it.
- BDeposit the funds into their general business operating account.
- CDeposit the funds into a separate, non-interest-bearing escrow account.
- DDeposit the funds into their personal checking account and transfer the client's share at the end of the month.
Show answer & explanationAnswer & explanation
Correct answer: C. Deposit the funds into a separate, non-interest-bearing escrow account.
New York License Law mandates that brokers handling client funds, such as rent payments, must deposit them into a separate escrow or trust account to keep them segregated from the broker's personal or business funds.
Why the other options are wrong
- A. Holding cash, especially significant amounts, is not a permissible or secure method for client funds.
- B. Commingling client funds with business operating funds is a serious violation of license law.
- D. Commingling client funds with personal funds is a serious violation of license law.
Escrow Account for Client Funds
A separate bank account maintained by a real estate broker for the deposit of funds belonging to others, such as earnest money deposits or rent payments, to prevent commingling.
- Must be non-interest-bearing unless agreed otherwise.
- Funds must be deposited promptly.
- Prevents commingling and conversion.
Memory trick: Client money goes to a special bank, not yours, not for play.