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Definition
| also known as trust account money, is a deposit, usually made in the form of a check, to show evidence of the buyer's intention to carry out the terms of the contract in good faith. |
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| true or false: Even though a check is most common, an earnest deposit can be taken in any form. Cash, check, personal property, a boat, or a diamond ring would be examples of possible earnest deposits that a purchaser might use. The key issue here is notification to the seller of the form of the deposit. The seller must agree and understand that the deposit was in the form of "a diamond bracelet." |
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Term
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Definition
| Many states define escrow moneys as all moneys, promissory notes or any other type or manner of legal tender or financial consideration deposited with any person for the benefit of the parties to the transaction. |
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| true or false: Sponsoring brokers responsible for earnest money must establish an escrow account, which is a special account, separate and apart from personal or other business accounts, that contains all escrow moneys entrusted to them while acting as the real estate brokers or escrow agents for others. |
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true or false:In most states, the rules regarding escrow accounts include the following:
An escrow account must be non-interest bearing, unless the parties to the transaction specifically require, in writing, that the deposit be placed in an interest-bearing account, OR if the deposit is required by law to accrue interest. |
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Definition
| true; if an interest-bearing account is required, the sponsoring broker must indicate in writing who will be receiving the interest from the account. |
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| true or false: A sponsoring broker may maintain more than one escrow account, but it IS NOT NECESSARY to open a special escrow account for EACH earnest money deposit received. |
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| true or false: ALL escrow accounts, whether interest-bearing or non-interest bearing, must be maintained at a federally-insured depository. |
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Term
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Definition
| is an ILLEGAL act in which a real estate licensee places client or customer funds with his or her own personal funds. Commingling of a licensee's business and personal funds is prohibited. |
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true or false: Escrow moneys must be disbursed according to the requirements stated below. However, in all cases, the moneys may NOT be disbursed until the funds have been honored by the payor's financial depository.
When a transaction has consummated or terminated; the sponsoring broker must disburse the funds according to the terms of the contract. He or she must make the disbursement
No earlier than the day the transaction is consummated or terminated and
Not later than the next business day after the transaction is consummated or terminated, unless the broker has received other written direction from all principals to the transaction or their duly authorized agents |
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Term
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Definition
| is one which is made on behalf of, and at the written direction of, all principals to the transaction or their duly authorized agents. |
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Term
| true or false:If prior to the consummation or termination of the transaction, the sponsoring broker receives written direction from all of the principals to the transaction (or their duly authorized agents) agreeing to a disbursement of the escrow moneys, that broker must disburse the escrow moneys according to those written directions. |
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Definition
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| true or false: Sometimes the earnest money check is from someone other than the party to the contract. In that instance, when earnest money is returned, it must be returned to the party in the contract. For example: The buyer's parents write the earnest money check. The earnest money would be returned to the buyers, not to the parents. |
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Definition
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Term
| escrow funds become "unclaimed" in either of these circumstances: |
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Definition
Five years have passed.
Six months have elapsed since the sponsoring broker has received a written demand from one of the principals or the principal's authorized agent. |
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Term
| What type of account must an escrow account be and where must it be maintained? |
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Definition
| An escrow account must be non-interest bearing and must be maintained at a federally-insured depository. |
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| In most cases, when must earnest money be deposited? |
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Definition
| By the next business day after contract acceptance. |
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Term
| When a transaction has consummated or terminated, when and how must the sponsoring broker disburse the funds? |
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Definition
| The sponsoring broker must disburse the funds according to the terms of the contract. He or she must make the disbursement no earlier than the day the transaction is consummated or terminated and not later than the next business day after the transaction is consummated or terminated, unless the broker has received other written direction from all principals to the transaction or their duly authorized agents |
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Term
| Each sponsoring broker who accepts earnest money must maintain a bookkeeping system that complies with sound accounting principles. In most cases, the system must consist of at least the following escrow records |
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Definition
Master escrow account log
Journal
Ledger
Monthly reconciliation statements |
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Term
| Master Escrow Account Log |
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Definition
| Each sponsoring broker must keep a master escrow account log identifying all escrow bank account numbers and the name and address of the bank where the escrow accounts are located. This log must specifically include all bank account numbers opened for individual transactions, even if those account numbers fall under another umbrella account number. |
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Term
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Definition
| The sponsoring broker must keep a journal for each escrow account. This journal must show the chronological sequence in which funds are received and disbursed by the sponsoring broker. |
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Definition
The sponsoring broker will maintain a ledger for each transaction. The ledger will
Show the receipt and the disbursement of funds affecting a single particular transaction such as between buyer and seller, or landlord and tenant, or the respective parties to any other relationship.
Include the names of all parties to a transaction, the amount of funds the sponsoring broker received, and the date the broker received the funds.
Show the date of disbursement, the payee, the check number, and the amount disbursed, when funds are disbursed.
Segregate one transaction from another transaction. |
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Term
| Monthly Reconciliation Statement |
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Definition
State law usually requires the sponsoring broker to reconcile each escrow account that he or she maintains within some specified number of days after he or she receives the monthly bank statement. This rule does not typically apply if there has been no transactional activity during the previous month.
The reconciliation should include a written work sheet which compares the balances shown on the bank statement, the journal, and the ledger respectively. The comparison is necessary to insure agreement between the actual escrow account and the broker's journal and ledger entries.
The sponsoring broker must keep the documentation of the reconciliation for a specified number of years (usually 3-5 years) from the last day of the month covered by that reconciliation. |
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| true or false: A sponsoring broker must keep all escrow records for 3-5 years. |
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Definition
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| true or false: If escrow records are lost, stolen, or destroyed due to fire, flood or any other circumstances, the sponsoring broker must report the loss to their state licensing agency within some specified period of time. |
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Definition
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Term
| Who holds the escrow money when a dispute occurs? |
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Definition
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| Who holds the escrow money when a dispute occurs? |
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