A real estate broker is negotiating a complex commercial lease. The broker decides to place a portion of their earned commission into the client's trust account to cover potential future repair costs for the property as agreed upon by both parties in writing. This action is considered:
- ACommingling, and is a serious violation of trust fund handling regulations.
- BA prohibited act, as commissions can never be placed into a trust account.
- CAn acceptable practice, provided the broker has written consent and a clear accounting.
- DConversion, and is a criminal offense.
Show answer & explanationAnswer & explanation
Correct answer: C. An acceptable practice, provided the broker has written consent and a clear accounting.
While generally commingling (mixing personal funds with client funds) is prohibited, California DRE Regulations (2832) allow a broker to deposit up to $200 of their own funds into a trust account for the sole purpose of covering bank charges or to keep the account open. More importantly, a broker's *earned* commission can be placed into a trust account if there is a written agreement by all parties to hold it for a specific purpose related to the transaction, such as covering future expenses. This is an exception to the general commingling rule.
Why the other options are wrong
- A. While it involves broker's funds in a trust account, it's not strictly 'commingling' in the prohibited sense if done with written agreement for a specific transaction-related purpose, as it's earned commission.
- B. This statement is too absolute. While generally true for unearned commissions or personal funds, there are specific exceptions, such as earned commissions held per written agreement for transaction-related purposes.
- D. Conversion is the misappropriation of funds; here, the funds are being placed with client agreement for a client purpose, not misappropriated.
CA Trust Account Commingling Exceptions
Specific instances where a broker's own funds or earned commissions may be deposited into a client trust account without constituting illegal commingling.
- Up to $200 of broker's funds allowed to cover bank charges or keep account open.
- Earned commissions can be placed if all principals agree in writing for a specific, transaction-related purpose (e.g., future repairs).
- Strict accounting is always required.
Memory trick: Trust Funds: Keep 'Em Clean, Unless Written Consent's Seen!