"Trust"-the one word which perhaps best describes the relationship of the real estate broker (or salesman) to his clients and customers. The seller trusts the broker to promote his best interests in the sale of his property. The investor trusts the broker/property manager to manage his property and protect his investment. The buyer trusts the broker to provide complete and accurate information concerning the property which he is considering buying. But perhaps nowhere is the broker's position of trust more clearly illustrated than in his/her role as custodian of the funds of others; i.e., "trust funds".

The following information is being provided for the purpose of assisting North Carolina real estate brokers in understanding and carrying out their duties and responsibilities as trustees for the funds of others. It is suggested that both licensees and persons studying for real estate licenses carefully study this material, and that practicing brokers review and evaluate their current procedures in light of this information.

While it is recognized that no single treatment of this subject can possibly answer all questions or address all situations which the broker may encounter in this area, nevertheless, an attempt has been made to deal with those questions which most frequently arise and those situations most often encountered during the course of "typical" real estate transactions. In addition, the specialized area of property management has been given separate treatment where it was deemed necessary.

Brokers are reminded that any questions or problems involving the handling and/or accounting of trust funds should be directed to the Real Estate Licensing Board off ice in Raleigh.

II.
Legal Requirements

It is often said that a home represents the largest single investment (the most expensive purchase) that most people will ever make; likewise, rental payments and security deposits represent a substantial financial investment on the part of tenants. Consequently, during the course of real estate transactions, sizable sums of money change hands, a great deal of which passes through the hands of the real estate broker. Recognizing the very serious consequences of the broker's actions as a trustee for these funds, the North Carolina General Assembly included a number of provisions in the Real Estate License Law (C.S. 93A) specifically designed to govern the activities of real estate brokers acting in the capacity of trustee.

In general, these provisions require brokers to deposit trust monies in an escrow or trust account (separate from the broker's general or operating account); to maintain complete records of deposits and withdrawals; and to make a final accounting to the persons for whom he is holding the funds. Specifically, Section 93A-6(a) of the License Law empowers the Real Estate Licensing Board to suspend or revoke the license of any real estate broker or salesman where the licensee is deemed to be guilty of:

"(7) Failing, within a reasonable time, to account for or to remit any monies coming into his possession which belong to others, or

(12) Commingling the money or other property of his principals with his own or failure to maintain and In deposit in a trust or escrow account in an insured bank or savings and loan association in North Carolina all money received by a real estate broker acting in said capacity, or as escrow agent, or the temporary custodian of the funds of others, in a real estate transaction; provided, such accounts shall not bear interest unless the principals authorize in writing the deposit be made in an interest bearing account and also provide f o r the disbursement of the interest thereon.

(14) Failure by a real estate broker to deliver to the seller in every real estate transaction wherein he acts as a real estate broker, at the time such transaction is consummated, a complete detailed closing statement showing all of the receipts and disbursements handled by such broker for the seller; also failure to deliver to the buyer a complete statement showing all money received in the transaction from such buyer and how and for what the same were disbursed."

Also,

"(e) Each broker shall maintain complete records showing the deposit, maintenance, and withdrawal of money or other property owned by his principals or held in escrow or trust for his principals. The Board may inspect these records of each broker periodically without prior notice and i-nay also inspect the records whenever the Board determines that the records are pertinent to the conduct of the investigation of any specific complaint against a licensee."

In addition, the Real Estate Licensing Board has adopted rules and regulations to enable ~t to administer the statutes at the operating level. Specifically, these rules are as follows:

not later than three banking days following receipt of such monies except that earnest money deposits received on offers to purchase real estate and tenant security deposits received in connection with real estate leases shall be deposited in a trust or escrow account not later than three banking days following acceptance of such offer to purchase or lease; the date of acceptance of such offer to purchase or lease shall be set forth in the purchase or lease agreement. All monies received by a real estate salesman shall be delivered inimediately to the broker by whom he is employed.

(b) In the event monies received by a real estate broker while acting in a fiduciary capacity are deposited in a trust or escrow account which bears interest, such broker shall first secure from all parties having an interest in the monies written authorization for the deposit of such monies in an interestbearing account. Such authorization shall also specify how and to whom the interest will be disbursed, and if contained in an offer, contract, lease, or other transaction instrument, such authorization shall be set forth in a clear and conspicuous manner which shall distinguish it from other provisions of the instrument.

(c) Closing statements shall be furnished to the buyer and the seller in the transaction at the closing or not more than five days after closing.

(d) Trust or escrow accounts shall be so designated by the bank or savings and loan association in which the account is located, and all deposit tickets and checks drawn on said account shall bear the words "Trust Account" or "Escrow Account".

(e) Real estate brokers shall maintain records sufficient to verify the adequacy and proper use of their trust accounts, and shall retain bank statements, cancelled checks, deposit tickets, copies of contracts, closing statements and any other documents necessary and sufficient to verify and explain record entries. Minimum trust account records include the following information:

(1) The date the broker received trust monies,and

(2) The amount, nature and purpose of deposits and from whom received; and

(3) The date trust monies are deposited in the trust or escrow account,- and

(4) The amount, date and purpose of withdrawals and to whom paid; and

(5) A current running balance of trust monies held by the broker.

(f) All trust account records shall be made available for inspection by the Board or its authorized representatives without prior notice.

(g) In the event of a dispute over the return or forfeiture of any deposit held by a broker, the broker shall retain said deposit in his trust or escrow account until he has obtained a written release from the parties consenting to its disposition or until disbursement is ordered by a court of competent jurisdiction.

The Licensing Board considers violations of these laws and rules to be a particularly serious matter; in fact, more brokers and salesmen are disciplined for trust funds violations than for any other single type of offense.

(To Be Continued In Next Issue of Bulletin)