California Real Estate Broker ExaminationReal Estate PracticeHard
A California real estate broker manages a trust account for client funds. One month, the broker receives a $5,000 earnest money deposit, collects $10,000 in rents, and pays a $1,500 repair bill for a managed property directly from the trust account. The broker also deposits $500 of their own money into the trust account to cover a bank service charge. Which of these actions constitutes impermissible commingling?
- AReceiving a $5,000 earnest money deposit.
- BCollecting $10,000 in rents.
- CPaying a $1,500 repair bill from the trust account.
- DDepositing $500 of the broker's own money into the trust account.
Show answer & explanationAnswer & explanation
Correct answer: D. Depositing $500 of the broker's own money into the trust account.
Commingling is generally mixing client funds with the broker's own funds. While a broker can place a minimal amount of their own funds (often up to $200) into a trust account solely to cover bank service charges or maintain a minimum balance, depositing $500 exceeds this permissible amount and would be considered commingling.
Why the other options are wrong
- A. Receiving earnest money deposits is a proper function of a trust account.
- B. Collecting rents for managed properties into a trust account is a proper function.
- C. Paying authorized repair bills for managed properties from the trust account is a proper disbursement of client funds.
Commingling (Trust Funds)
Commingling is the illegal practice of mixing a client's funds with a broker's personal or business funds in the same account, except for a small, statutorily defined amount to cover bank charges.
- Strictly prohibited to protect client funds.
- A small amount (e.g., up to $200 in CA) of broker's funds is allowed to cover bank charges.
- Any amount exceeding this threshold is considered commingling.
Memory trick: Broker's funds and client's funds are like oil and water; they don't mix, except for a tiny, permitted splash for bank fees.