California Real Estate Broker ExaminationReal Estate PracticeEasy
A licensed California real estate broker manages a trust account for client funds. The broker typically deposits earnest money, security deposits, and rents into this account. Which of the following items is the broker permitted to keep in the trust account without it being considered unlawful commingling?
- AClient funds that are awaiting transfer to the broker's operating account.
- BFunds for the broker's personal property maintenance.
- CA maximum of $200 of the broker's own funds to cover bank charges.
- DCommissions earned on completed transactions, held for future investments.
Show answer & explanationAnswer & explanation
Correct answer: C. A maximum of $200 of the broker's own funds to cover bank charges.
California law allows a broker to keep a limited amount of their personal funds in a trust account to prevent the account from being debited for bank service charges. This specific amount is designed to cover such charges without being considered commingling.
Why the other options are wrong
- A. Client funds awaiting transfer to an operating account are still client funds and must remain in the trust account until properly disbursed according to the transaction's terms, not for the broker's operating expenses.
- B. Using trust funds for personal property maintenance is a clear example of commingling and is illegal.
- D. Commissions, once earned, must be removed from the trust account; holding them there, even for investment, is commingling.
Commingling Exception
A specific exception to commingling rules allowing a real estate broker to keep a limited amount of personal funds in a client trust account to cover bank service charges.
- Permitted amount is typically $200 in California.
- Purpose is solely to cover bank fees, not for operational expenses.
- Prevents client funds from being used to cover bank charges.
Memory trick: Trust accounts are for client money, but a tiny 'buffer' is okay for bank fees.