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Recently, I wrote an email in an exam format and received some appreciated comments. So, I'll try it again with an exam concerning trust funds, as knowledge of trust fund regulations can prove valuable for brokers, associates, clients, etc.
Answer the questions, and then grade yourself using the answers at the end of the test.
#1. Can unlicensed people sign trust fund checks?
#2. How many years must a broker keep trust fund records?
#3. What will receive a stiffer penalty, commingling or conversion?
#4. Who decides where security deposits on an apartment go—the owner or the property manager?
#5. True or False: Checks can never be held uncashed.
#6. Which Business and Professions Code section discusses trust fund handling?
#7. Which type of DRE licensee has the most trust fund violations: Sales, Commercial, Escrow, Property Management, Loan Origination, Notary, or others?
#8. Can trust funds be placed in an interest-bearing account?
#9. True or False: A broker should never put any of the company's money into a trust fund account.
#10. True or False: Brokers have ten business days to make deposits of trust funds.
ANSWERS
According to a Duane Gomer Real Estate Renewal Course textbook:
1. Unlicensed persons can sign trust fund checks if a fiduciary bond is filed in the amount of the expected highest balance of the fund.
2. Three years. And yes, they check when auditing.
3. Commingling means placing some of your own money in the trust fund account and is bad, but Conversion is more serious because it is stealing money from the fund.
4. The owner. In my experience as a Syndicator and owner of a Property Management Company, the owners normally wanted the Security Deposits sent to them.
5. False. Checks can be held uncashed with written instructions from the client, such as "Hold until Acceptance."
6. Business & Professions Code Section 10145.
7. Property Management—approximately 75%. A recent AI-generated post said 89% today. A majority of the violations are accounting errors and similar issues, not fraud.
8. Yes, with explicit, clear instructions. Interest-bearing accounts are also used by IRS 1031 Account Intermediaries, also known as Accommodators or Facilitators.
9. False. A broker can keep their own funds in the account (up to $200) for bank expenses and other permitted purposes.
10. False. Deposits must be made no later than three business days, unless the broker is given different legal instructions.
Congratulations on your perfect score!
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