Key Takeaways
- Brokers must maintain an escrow account at a Connecticut bank or credit union
- All client funds (earnest money, security deposits, rent) must be deposited into the escrow account
- Commingling broker funds with client funds is prohibited
- Escrow account records must be maintained for at least 7 years
- The Commission has authority to audit escrow accounts at any time
Connecticut Trust Account Requirements
Connecticut brokers must maintain escrow accounts to hold client funds separate from their operating funds.
Escrow Account Basics
What is an Escrow Account?
An escrow account (also called a trust 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
Escrow accounts must be at:
- A Connecticut-chartered bank
- A Connecticut credit union
- A federally-insured institution with Connecticut offices
Key Requirement: The account must be designated as an escrow or trust account.
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 escrow account—not:
- Salesperson's personal account
- Broker's operating account
- Any other non-escrow account
Critical Rule: Salespersons cannot hold client funds. Only brokers maintain escrow accounts.
Interest-Bearing Accounts
Connecticut allows interest-bearing escrow accounts:
| Requirement | Details |
|---|---|
| Interest designation | Per written agreement of parties |
| IOLTA | May use Interest on Lawyers Trust Accounts program |
| Disclosure | Must disclose interest arrangements |
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 escrow account | Client funds in operating account |
| Small broker deposit to maintain account | Large broker funds in escrow 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
- Fines and penalties
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 |
|---|---|
| Escrow account records | 7 years minimum |
| Transaction files | 7 years minimum |
Important: Connecticut requires a longer retention period (7 years) than many other states.
Commission Audits
The Connecticut Real Estate Commission has authority to:
- Audit escrow accounts at any time
- 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 |
How long must Connecticut brokers maintain escrow account records?
Who is authorized to maintain an escrow account for client funds in Connecticut?