California Real Estate Broker ExaminationReal Estate PracticeMedium
A real estate broker operating in California receives a $10,000 earnest money deposit from a buyer. The broker places this money into their general business operating account, intending to transfer it to the client trust account within a few days when they have time. What specific California Real Estate Law violation has occurred?
- AFailure to supervise
- BCommingling
- CMisrepresentation
- DConversion
Show answer & explanationAnswer & explanation
Correct answer: B. Commingling
Commingling is the illegal practice of mixing client funds (like an earnest money deposit) with the broker's personal or business funds. This is a serious violation of California Real Estate Law, even if the intent is to transfer it later.
Why the other options are wrong
- A. Failure to supervise applies to salespersons' actions, not directly to the broker's handling of their own client funds.
- C. Misrepresentation involves false statements or omissions, which is not the primary issue in this scenario.
- D. Conversion is the misappropriation of client funds for personal use, which is a more severe offense but not explicitly stated here as the intent.
Commingling (Trust Funds)
Commingling is the illegal act of mixing a client's funds (e.g., earnest money, rents) with a real estate broker's personal or business operating funds, which is prohibited in California.
- Strictly prohibited to protect client funds.
- Requires separate, non-interest-bearing trust accounts.
- Even temporary mixing is a violation.
- Different from conversion, which is using client funds for personal gain.
Memory trick: Trust funds: separate accounts, separate lives, no mixing pies!