Florida Real Estate Brokers Guide Sixth Edition Linda
Florida Real Estate Broker’s Guide, Sixth Edition Linda L. Crawford Edward J. O’Donnell Copyright © 2017 Kaplan, Inc. All rights reserved.
Unit 4 Escrow Management
Establishing Escrow Accounts • Escrow (trust) account – an account for the deposit of money the broker holds in trust for others • Deposit – money delivered to a licensee in connection with a real estate transaction – Earnest money deposit can be cash or anything that can be converted into money • Commingle is illegal practice of mixing another’s funds with broker’s money 3 © 2017 Kaplan, Inc.
Types of Monies Placed in Escrow • Advisable to include the word escrow or trust in the account name • Types of monies held in trust include – Sales deposits (earnest money) – Property management (rent) – Security, pet, and maintenance deposits – Money paid by sellers for marketing expenses not covered by the broker 4 © 2017 Kaplan, Inc.
Monies Paid in Advance for Performing Real Estate Services • Placed in escrow (trust) account until services are completed • Upon completion of real estate service, and broker has earned the compensation, it may be transferred into broker’s operating account 5 © 2017 Kaplan, Inc.
Commingling of funds and conversion • Brokers may NOT commingle (mix) escrow deposits with other types of funds – Commingle – mixing a buyer’s, seller’s, tenant’s, or landlord’s funds with broker’s own money or mixing escrow money with the broker’s personal funds or brokerage funds – Conversion – the unauthorized control or use of another person’s personal property 6 © 2017 Kaplan, Inc.
Authorized Depositories • Interest-bearing or non-interest-bearing escrow accounts in a Florida – Commercial bank – Credit union, or – Savings association • Florida-based title company or Florida attorney (broker is not the escrow agent) 7 © 2017 Kaplan, Inc.
Signatory on Escrow Account • Broker must be a signatory on all brokerage escrow accounts • If there are multiple brokers, one broker may be designated as the signatory – Broker may designate bookkeeper to sign checks in ordinary course of business – Broker is held accountable for any violation 8 © 2017 Kaplan, Inc.
Timely Deposit of Funds • Timely deposit “immediately” – Sales and broker associates must deliver deposit to broker by end of next business day – Brokers must deposit escrow funds no later than end of third business day after sales associate received the deposit • First day of the three-business-day period coincides with the day that the sales associate received the escrow – Broker is accountable for trust funds received by associates or employees of brokerage firm 9 © 2017 Kaplan, Inc.
Timely Deposit Example • Sales associate received earnest money deposit on Wednesday • Sales associate must deliver deposit to broker no later than Thursday • Broker must deposit in escrow account no later than Monday (no holidays) 10 © 2017 Kaplan, Inc.
Postdated Checks and Insufficient Funds • Post-dated checks – Obtain seller’s approval before accepting – Should be noted on contract as post-dated – Broker must secure check until payable and then immediately deposit in escrow • Deposit checks returned for insufficient funds – Broker not liable if broker makes timely deposit 11 © 2017 Kaplan, Inc.
Interest-Bearing Escrow Accounts • Requires prior written consent of all parties – Must agree on who receives interest – Also when interest will be paid • Interest to go to one of the parties – Transfer principal and interest to noninterest-bearing escrow account – Then write separate checks for principal and interest – (alternative method) Separate interest-bearing account for each transaction • Interest to go to the broker – Withdraw interest from account each month 12 © 2017 Kaplan, Inc.
Title Companies and Attorney Escrow Accounts • Indicate title company (or attorney) name, address, and telephone number on contract • Within 10 business days after deposit is due, broker must make written request to title company (attorney) for verification of receipt of deposit • Within 10 business days after broker made written request, provide seller’s broker with a copy of written verification 13 © 2017 Kaplan, Inc.
Recordkeeping Requirements • Brokers must keep business records, books, and accounts in compliance with laws and rules and available for DBPR audit – From date of receipt of funds – From date of any executed agreement for brokerage services (even without receipt of funds) • Must preserve records for five years and two years beyond court proceeding 14 © 2017 Kaplan, Inc.
Broker’s Trust Liability • Total sum of deposits received and being held by broker – Sales escrow accounts trust liability includes all earnest money deposits – Property management escrow accounts, trust liability includes undisbursed rent, owner reserves, security deposits, and other funds collected that benefit the lessor or lessee 15 © 2017 Kaplan, Inc.
Calculating Trust Liability Sales Escrow • Record of all receipts and disbursements according to amount, date, buyer/seller information • Total deposits less total disbursements equal trust liability balance 16 © 2017 Kaplan, Inc.
Broker’s Money to Maintain Account • Brokers may place $1, 000 of personal brokerage funds in sales escrow account • Brokers may place $5, 000 of personal funds in property management escrow account • Brokers must account for personal funds in escrow account(s) on the monthly reconciliation 17 © 2017 Kaplan, Inc.
Property Management Escrow Account • Separate property management escrow is recommended – Rent and security deposits collected on behalf of the landlord, if check is payable to the brokerage, funds must be placed in escrow – After funds clear, broker may disburse rent to the landlord – If broker has permission to deduct commission from rent payment, broker must transfer commission to operating account 18 © 2017 Kaplan, Inc.
Monthly Reconciliation Statement • Minimum information to include – Date reconciliation was conducted – Date used to reconcile balances – Name of financial institution and account number – Account balance and date – Deposits in transit – Outstanding checks – Itemized list of broker’s trust liability 19 © 2017 Kaplan, Inc.
Monthly Reconciliation • Trust liability should equal reconciled bank balance – Overage or shortage • Include corrective action and an explanation • Negative balance indicates a shortage in the escrow account – Do NOT spend funds on behalf of an owner if the owner’s funds do not cover the expenditure – Broker could be charged with conversion 20 © 2017 Kaplan, Inc.
Disciplinary Guidelines for Failing to Reconcile Escrow Accounts • $500 citation for failure to reconcile each month – Only if account balances • Shortage results in formal complaint filed against the broker – Prosecuted through the FREC disciplinary process 21 © 2017 Kaplan, Inc.
Escrow Disputes • Brokers must not disburse trust funds until the transaction closes or as directed and agreed to by all parties • Conflicting demands occur when buyer and seller make demands regarding disbursing of escrow that are inconsistent with each other and cannot be resolved 22 © 2017 Kaplan, Inc.
Conflicting Demands • Notify FREC, in writing, within 15 business days of receiving conflicting demands • Begin settlement procedure within 30 business days of receiving conflicting demands 23 © 2017 Kaplan, Inc.
Settlement Procedures • Mediation – informal, nonbinding process, negotiated settlement • Arbitration – binding judgment by third party (prior consent of parties) • Litigation – Interpleader – broker has no financial claim – Declaratory judgment – judge declares each party’s rights to funds • Escrow disbursement order (EDO) © 2017 Kaplan, Inc. 24
Escrow Disbursement Dispute Process • Broker may request FREC issue EDO • If EDO is appropriate, questionnaires sent to broker and parties in dispute • Commission issues a determination of who is entitled to disputed funds • Must inform FREC within 10 business days if dispute is settled or it goes to court 25 © 2017 Kaplan, Inc.
Good-Faith Doubt • Broker doubts either party’s intention to act in good faith according to the contract • Notify the FREC in writing within 15 business days of having the doubt • Begin a settlement procedure within 30 days of having the doubt 26 © 2017 Kaplan, Inc.
Exceptions to Notice and Settlement Procedures • Property management deposits an advance rent • Timely notice to cancel a residential condominium contract • Sale of HUD-owned property • Failure to satisfy the financing clause in a contract 27 © 2017 Kaplan, Inc.
Property Management Deposits and Advance Rent • Florida Residential Landlord and Tenant Act – Brokers do not have to notify FREC for conflicting demands on security deposits – Brokers must follow procedures in the act • Landlord must make proper claim • Tenant must be given time to respond to claim • Broker must maintain proper records 28 © 2017 Kaplan, Inc.
Condominium Unit Purchase • Buyer cancellation rights under F. S. 718 – If buying from developer, right to cancel within 15 calendar days – If buying from resale seller, right to cancel within 3 business days – Cancellation time starts when buyer has signed the contract and received the condo documents • Broker can return deposit to buyer who cancels within established time limit 29 © 2017 Kaplan, Inc.
The End © 2017 Kaplan, Inc.
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