by Miriam J. Baer, Assistant Legal Counsel
It has come to the attention of the Commission that some property managers never deposit rent receipts and security deposits into a trust or escrow account. Instead, they deposit these funds directly into an account of the property owner, a practice which may be agreeable to the owner, but is a violation of the law.
The Real Estate License Law requires licensees to deposit all money received by them in a brokerage capacity, or as the temporary custodian of the funds, into a trust or escrow account. This means that all rent checks from tenants, as well as security deposits, must first be placed in the broker's trust or escrow account before being disbursed to the property owner. Direct deposit into an owner's account is not permitted.
Likewise, licensees are not permitted to deposit rent proceeds into a joint account with the owner, whether or not it is designated as a trust account. Thus, a broker cannot use a so-called "trust account" if the property owner has access to it. If the owner is able to withdraw funds from the account, it is not a true trust account, and does not comply with the requirements of the law.
To avoid any violations of the law, you as a property manager should set up properly designated trust or escrow accounts in your own name or the name of your brokerage company. No property owners should be given access to the account, nor should their names appear on the signature cards. Every deposit and rent check you receive should be deposited into the trust or escrow account, and then, at the appropriate time, disbursed from that account to the owner and to anyone else entitled to a portion of the funds. Remember, however, that salesmen cannot independently handle trust funds in their own names. Rather, salesmen must immediately turn over all trust monies they receive to their brokers-in-charge.
Furthermore, as a property manager, you must be sure to keep adequate records regarding the properties you manage and the handling of trust funds related to that property. You must maintain deposit tickets for rent and security deposits showing that the monies were deposited in a timely manner into your trust or escrow account, and you must retain canceled checks showing disbursements to the property owners and others.
You should also maintain a ledger card for each property owner for whom you manage property, and a journal or check stubs for the trust or escrow accounts. The journal or checks stubs must identify each transaction and show a running balance for funds in the account. In addition, you should retain copies of contracts, leases and management statements, bank statements, and any other documents necessary to explain the handling of funds received on behalf of the owner.
Your diligence in following these procedures and having your bookkeeping records ready for an audit by the Real- Estate Commission may save you from disciplinary action, and will stand you in good stead as a competent property manager.