Trust monies are a critical component of our responsibilities as property managers. These are funds entrusted to us by our clients, property owners, and tenants that must be managed with the utmost care, integrity, and adherence to legal and ethical guidelines. These funds include security deposits, rental payments, maintenance reserves, and other monetary transactions related to the properties we manage. Key Responsibilities: Safekeeping: Trust monies must be kept separate from the company's operational funds in designated trust accounts. This separation is crucial to prevent commingling and ensure accurate accounting. Accurate Accounting: Detailed records must be maintained for each transaction involving trust monies. Proper documentation, receipts, and ledgers are essential to demonstrate transparency and accountability. Timely Disbursements: Trust monies should be disbursed according to legal requirements and lease agreements. For instance, security deposits need to be returned within the stipulated timeframe and in compliance with local laws. Interest: In some jurisdictions, interest earned on security deposits might need to be remitted to the tenant. Understanding and adhering to these regulations is essential.  Any mismanagement or breach of trust can lead to legal consequences, damage our reputation, and harm relationships. It is crucial to stay informed about any changes in legislation or industry standards that affect the handling of trust monies. Regular updates and refresher training sessions will be provided to keep our team well-informed and compliant. When a company holds trust monies, it is typically required to establish separate trust accounts to ensure the proper segregation and management of these funds. The number of accounts required can vary based on factors such as the jurisdiction's regulations and the types of trust monies being managed. In general, two main types of trust accounts are commonly used: Client Trust Account and Interest-Bearing Trust Account.These accounts ensure transparency, accountability, and legal compliance in the handling of funds entrusted to the company's care. Significance of proper account designation and the insurance coverage it provides: Insured Deposits: Properly designating an account as a trust or escrow account ensures that all deposits within the account are fully insured by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). This insurance covers up to $250,000 per individual for whom the funds are held. Account Holder vs. Beneficiary: Even though the account is registered under the broker or company's name, the FDIC/NCUA recognizes the trust or escrow designation. This means that all funds in the account are considered as belonging to beneficiaries and are fully insured, provided that no individual's interest in the account surpasses the $250,000 cap. When Must Trust Monies be Deposited in the Trust Account: Deposit Timeframe: As per the opening paragraph of Rule A.0116, monies that belong to others must be deposited into a trust account "no later than three banking days following the broker's receipt of such monies," unless exceptions apply. Exceptions (Rule A.0116(b)): For provisional brokers, all monies received must be promptly delivered to their BIC (Broker-in-Charge) upon receipt. Non-resident commercial brokers must deliver received monies to the North Carolina affiliated/supervising broker, who will deposit them in the resident broker's trust account. Checks or negotiable instruments for earnest money and tenant security deposits, payable to the broker/company, can be safeguarded by a broker during contract/lease negotiations. Deposit Trigger for Negotiable Instruments: If the deposit is in the form of a check or negotiable instrument, it can be held during contract/lease negotiations. However, it must be deposited into a trust account within three banking days after the offer to purchase or lease agreement is accepted. If the deposit is in cash, it must be deposited within three banking days after receipt, even if no contract has been signed. Acceptance and Handling of Checks in Real Estate Transactions: Acceptance of Checks: Generally, brokers should not accept checks payable to someone other than the broker/company. Two exceptions are allowed under Rule A.0116(b)(4): Checks payable to an owner for due diligence fee or option fee. Checks payable to a third-party escrow agent in a sales transaction. Handling of Accepted Checks: Due diligence fee checks and checks to third-party escrow agents can be held and safeguarded by brokers during negotiations. These checks must be delivered to the named payees or returned to the buyer, as directed, within three business days of contract formation. Earnest Money Deposit Handling: Non-cash tenant security deposits and earnest money deposits can be held and safeguarded until contract formation. Earnest money deposits must be deposited into a brokerage trust account within three banking days of contract formation. Examples Clarifying Procedures: If a buyer provides two checks (one to the owner and one to the listing company) for due diligence fee and earnest money deposit, the buyer's agent can accept and hold them. The broker must safeguard these checks for eventual delivery to the payees upon contract formation. Cash deposits should be converted into money orders for handling. Checks should be returned to the buyer if requested while in possession. For a listing company that receives an offer with due diligence fee and earnest money deposit checks, the earnest money check can be deposited immediately unless instructed otherwise. The three-day deposit clock starts ticking from the contract formation date. Even if the contract states a later earnest money payment date, the clock is not affected because the check is already in possession. When to Disburse Monies from the Trust Account A broker, holding an earnest money deposit in the trust account, can only transfer it to the settlement agent within ten (10) days prior to the settlement date. This rule ensures that the funds are appropriately timed for the transaction's final stages. Disbursement Restrictions: The broker is strictly prohibited from disbursing the earnest money deposit before settlement, except for the purpose of transferring it to the settlement agent. No other disbursements can be made from the earnest money deposit account without the written consent of all parties involved. How to Handle Disputed Funds If parties disagree about who is entitled to the earnest money deposit, the broker cannot use their own judgment to release the deposit. Historically, brokers had two options in such disputes: Holding the money in the trust account until the parties reach a written agreement. Waiting for a court order from a competent jurisdiction to release the money. Alternative Option (Since 2005): Rule A.0116(d) introduced another alternative. Brokers can deposit disputed funds with the appropriate Clerk of Superior Court as per G.S. 93A-12. This statute allows brokers to pay disputed funds, except disputed residential tenant security deposits, to the Clerk of Superior Court of the property's county. Brokers must provide the parties with a written notice at least ninety days before paying the funds to the Clerk of Court. If neither party initiates legal proceedings within one year, the Clerk of Court will escheat the funds to the State Treasurer. The notice letter must be personally delivered or sent via first-class mail to each party. Abandonment of Dispute: Rule A.0116(d) also acknowledges that a party can "abandon" the dispute. If one party appears to have abandoned their claim, the broker may disburse the money according to the written agreement, but efforts must be made to notify the absent party before disbursement. Rule A.0116(d) and Contract Agreements: The term "according to the written agreement" in the rule refers to the parties' contract. In residential sale transactions, the standard Offer to Purchase and Contract form often dictates that the earnest money deposit should go to the party specified in the contract, such as the buyer if they timely deliver notice of termination. Residential Tenant Security Deposits: The disputed funds rule and procedure do not apply to residential tenant security deposits. State law requires landlords to provide an interim accounting and disburse tenant security deposits within 30 days after the termination of the tenancy (45 days for vacation rentals). Residential tenant security deposits are governed by state law and must be disbursed according to these regulations within the specified time frame. Commercial Tenant Security Deposits: The disputed funds rule and procedure apply to commercial tenant security deposits. Unlike residential deposits, there are no state laws governing commercial tenant security deposits. Disposition depends on lease terms, and in case of disputes between a commercial lessor and tenant, brokers holding the deposit must follow the disputed funds rule or the G.S. 93A-12/Clerk of Court procedure. Broker's Role in Tenant Security Deposit Disputes: If a landlord and residential tenant dispute the allocation of a tenant security deposit, the broker should follow the lawful instructions of the landlord. The tenant would need to pursue the matter in small claims court. Deficit Spending: A broker must never disburse more money from their trust account than what they are holding for a client. This is known as deficit spending. Deficit spending involves using funds belonging to others to pay expenses for someone else. This situation may be more common in property management than in sales transactions. Safeguarding Client Monies: Rule A.0116's final paragraph mandates that all licensees protect and safeguard the monies and property of others in their possession. Brokers are strictly prohibited from: Converting client money or property for personal use. Using such money or property for purposes other than their intended use. Assisting others in converting or misusing client money or property. These guidelines ensure brokers uphold the integrity of client monies and act in accordance with ethical and legal responsibilities.