Key Takeaways
- Colorado employing brokers must maintain trust accounts for client funds
- Earnest money must be deposited within 3 business days of acceptance per Rule F
- Trust accounts must be reconciled monthly; records retained for 4 years
- Commingling personal and trust funds is strictly prohibited
- The Division of Real Estate can audit trust accounts at any time
Trust Account Management in Colorado
Proper handling of client funds is a critical responsibility for Colorado employing brokers. Trust account violations are a leading cause of license discipline.
Trust Account Requirements
Rule F - Record Keeping
Colorado's Rule F establishes trust account requirements:
| Requirement | Specification |
|---|---|
| Account Type | Designated trust or escrow account |
| Account Location | Colorado financial institution |
| Account Name | Must identify as trust or escrow |
| FDIC Insured | Yes - required |
| Interest-Bearing | Permitted with proper disclosure |
Who Maintains Trust Accounts
Only employing brokers maintain trust accounts:
- Individual brokers cannot have separate trust accounts
- All transactions flow through employing broker's account
- Employing broker is responsible for all trust funds
Deposit Requirements
Timing of Deposits
Per Rule F, trust funds must be deposited within 3 business days:
| Event | Deadline |
|---|---|
| Earnest money received | 3 business days after acceptance |
| Tenant security deposits | Per property management agreement |
| Other client funds | 3 business days of receipt |
Note: "Business days" excludes weekends and Colorado state holidays.
Forms of Payment
| Payment Type | Handling |
|---|---|
| Personal check | Deposit per normal timeline |
| Cashier's check | Same as personal check |
| Wire transfer | Deposit immediately upon receipt |
| Cash | Deposit immediately (avoid cash) |
Prohibited Practices
Commingling
Commingling is mixing trust funds with personal or business operating funds:
| Prohibited | Exception |
|---|---|
| Personal funds in trust account | Minimal amount for bank fees allowed |
| Trust funds in operating account | Never permitted |
| Using trust funds for business expenses | Never permitted |
Conversion
Conversion is using trust funds for unauthorized purposes:
- A serious violation
- Potential criminal offense
- Grounds for license revocation
- May require Recovery Fund payout
Premature Disbursement
Employing brokers cannot disburse trust funds until:
- Transaction closes, OR
- Transaction terminates with written agreement on disbursement
Record Keeping Requirements (Rule F)
Required Records
| Record | Requirement |
|---|---|
| Journal/Ledger | All deposits and disbursements |
| Individual ledgers | Each client/transaction account |
| Bank statements | Monthly reconciliation |
| Canceled checks | Or electronic images |
| Deposit records | Copies of deposit slips |
Reconciliation
| Task | Frequency |
|---|---|
| Bank reconciliation | Monthly |
| Trial balance | Monthly |
| Record retention | 4 years minimum |
Reconciliation Process
- Compare bank statement to broker records
- Prepare trial balance of all ledgers
- Verify balance equals sum of individual accounts
- Document and sign reconciliation
- Resolve any discrepancies immediately
Earnest Money Disputes
When parties dispute earnest money:
| Step | Action |
|---|---|
| 1 | Hold funds - do not disburse |
| 2 | Notify all parties of dispute |
| 3 | Follow contract dispute provisions |
| 4 | May interplead funds to court |
| 5 | Document all communications |
Colorado Earnest Money Dispute Provision
The Commission-approved contract includes:
- Dispute resolution procedures
- Mediation requirements
- Court action provisions
- Release of broker from liability
Within how many business days must a Colorado employing broker deposit earnest money?
How long must Colorado employing brokers retain trust account records?