Key Takeaways
- Brokers must maintain a trust account (escrow account) at an Alabama-chartered bank or credit union
- All client funds (earnest money, security deposits, rent) must be deposited into the trust account
- Commingling broker funds with client funds is prohibited (except for small amount to maintain account)
- Trust account records must be maintained for at least 3 years
- AREC has authority to audit trust accounts at any time
Alabama Trust Account Requirements
Alabama brokers must maintain trust accounts to hold client funds separate from their operating funds.
Trust Account Basics
What is a Trust Account?
A trust account (also called an escrow account) is a bank account where brokers hold funds belonging to others:
| Fund Type | Examples |
|---|---|
| Earnest money deposits | Buyer's good faith deposit |
| Security deposits | Tenant deposits on rentals |
| Rent collections | Collected on behalf of landlords |
| Other client funds | Closing proceeds pending disbursement |
Where to Open
Trust accounts must be at:
- An Alabama-chartered bank
- An Alabama credit union
- A federally-insured institution with Alabama offices
Key Requirement: The account must be interest-bearing if required by the parties, with interest paid as agreed.
Deposit Requirements
Timeline
| Situation | Deposit Deadline |
|---|---|
| Earnest money | Per contract terms (typically within 3 business days of acceptance) |
| Security deposits | Per lease agreement |
| Rent | Per management agreement |
Proper Deposits
All client funds must be deposited into the broker's trust account—not:
- Salesperson's personal account
- Broker's operating account
- Any other non-trust account
Critical Rule: Salespersons cannot hold client funds. Only brokers maintain trust accounts.
Prohibited Practices
Commingling
Commingling is mixing client funds with broker's personal or business funds. It is strictly prohibited.
| Allowed | NOT Allowed |
|---|---|
| Client funds in trust account | Client funds in operating account |
| Small broker deposit to maintain account | Large broker funds in trust account |
| Interest earned (per agreement) | Using client funds for business expenses |
Conversion
Conversion is using client funds for unauthorized purposes. It is a serious violation that can result in:
- License revocation
- Criminal charges
- Civil liability
- Payment from Recovery Fund
Record Keeping
Required Records
Brokers must maintain:
| Record | Description |
|---|---|
| Bank statements | Monthly statements from financial institution |
| Deposit receipts | Documentation of each deposit |
| Check records | Documentation of each disbursement |
| Client ledgers | Individual records for each client |
| Transaction records | All transaction documentation |
Retention Period
| Requirement | Duration |
|---|---|
| Trust account records | 3 years minimum |
| Transaction files | 3 years minimum |
AREC Audits
AREC has authority to:
- Audit trust accounts at any time without notice
- Review records during investigations
- Take disciplinary action for violations
Common Audit Findings
| Issue | Consequence |
|---|---|
| Shortage of funds | Serious violation—potential revocation |
| Poor record keeping | Warning to suspension |
| Late deposits | Warning to fine |
| Commingling | Fine to revocation |
Who is authorized to maintain a trust account for client funds in Alabama?
How long must Alabama brokers maintain trust account records?