Texas Real Estate Sales Agent ExamReal Estate PracticeMedium
A Texas real estate broker maintains several trust accounts for client funds. According to TREC rules, which of the following is NOT an acceptable practice for handling interest earned on these trust accounts?
- ARetaining earned interest in a separate, interest-bearing trust account for the broker's personal use.
- BUsing earned interest to cover reasonable bank service charges for the trust account, if authorized by agreement.
- CTransferring earned interest to a non-profit organization designated by the clients, if permitted by law.
- DDisbursing earned interest to the respective clients as specified in the escrow agreement.
Show answer & explanationAnswer & explanation
Correct answer: A. Retaining earned interest in a separate, interest-bearing trust account for the broker's personal use.
Trust accounts are for client funds. A broker cannot retain interest earned on client funds for their personal use. This would constitute commingling or conversion, both serious violations.
Why the other options are wrong
- B. This is permissible if explicitly authorized by the parties and the agreement, covering legitimate trust account expenses.
- C. This is permissible if all parties agree and it complies with IOLTA (Interest on Lawyers Trust Accounts) or similar programs.
- D. This is acceptable and often required if the agreement specifies interest goes to the client.
Trust Account Interest (Texas)
Interest earned on client funds held in a real estate trust account in Texas generally belongs to the client or must be handled according to specific written agreements, not for the broker's personal benefit.
- Broker cannot personally profit from interest on client funds.
- Interest may go to client, non-profit (IOLTA), or cover bank fees if agreed.
- Failure to comply can lead to charges of commingling or conversion.
Memory trick: Interest on client money? Not the broker's honey!