Key Takeaways
- Client funds must be deposited within 7 days into an FDIC/FSLIC insured account in DC (absent contrary written instructions)
- Escrow holders must maintain funds in a SEPARATE account from personal or business funds
- Commingling client funds with personal funds is strictly prohibited (except nominal amount to keep account active)
- The Commission must be notified within 14 days of opening an escrow/trust account
- Escrow/trust records must be maintained for 3 years
DC Escrow and Trust Account Requirements
DC licensees who handle client funds must follow strict regulations under D.C. Code § 42-1704 and D.C. Municipal Regulations.
Trust/Escrow Account Basics
What is a Trust/Escrow Account?
A trust account (or escrow account) is a bank account where licensees 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 |
| Closing proceeds | Funds pending disbursement |
Where to Open
Trust/escrow accounts must be at:
- A financial institution located within the District of Columbia
- Deposits insured by FDIC (Federal Deposit Insurance Corporation)
- Or FSLIC (Federal Savings and Loan Insurance Corporation) or successors
Deposit Requirements
Timeline
| Requirement | Deadline |
|---|---|
| Standard deposit | Within 7 days of receipt |
| If written instructions differ | Per those instructions |
| No instructions | 7 days applies |
Key Rule: Absent written instructions to the contrary signed by all parties, funds must be deposited within 7 days.
Separate Account Required
All client funds must be maintained in a separate account:
- NOT in the licensee's personal account
- NOT in the licensee's operating/business account
- Must be a dedicated escrow/trust account
Notification to Commission
Account Opening Notification
Each escrow holder or trustee must notify the Commission within 14 calendar days:
| Information Required |
|---|
| Name of financial institution |
| Post office address of institution |
| Name of the account |
| Account number |
Important: This notification must be made within 14 days of establishing any escrow or trust account.
Prohibited Practices
Commingling
Commingling is mixing client funds with personal or business funds. It is strictly prohibited in DC.
| Allowed | NOT Allowed |
|---|---|
| Client funds in trust account | Client funds in personal account |
| Nominal broker amount to keep account active | Large broker funds in trust account |
| Earned interest (per agreement) | Using client funds for business expenses |
Conversion
Conversion is using client funds for unauthorized purposes. It is a serious violation:
| Consequence | Details |
|---|---|
| License suspension/revocation | Immediate disciplinary action |
| Criminal charges | Possible prosecution |
| Civil liability | Must repay funds plus damages |
| Guaranty Fund claim | Consumer may file claim |
Early Access to Funds
An escrow holder or trustee shall NOT be entitled to any part of the earnest money or other funds until:
- The transaction has been consummated, OR
- The transaction has been terminated
Critical: Brokers cannot take their commission from escrow until the deal closes or is properly terminated.
Interest on Escrow Funds
When Interest is Required
If escrow or trust funds are held for 90 days or more:
| Requirement | Details |
|---|---|
| When interest begins | From the 91st day |
| When interest ends | Date transaction is consummated or terminated |
| Minimum rate | Highest of legal maximum, account rate, or CD rate |
Service Fee
| Fee | Details |
|---|---|
| Maximum | $15 |
| Deducted by | Financial institution |
| Deducted from | Interest earned |
Record Keeping
Required Records
Licensees must maintain:
| Record | Description |
|---|---|
| Bank statements | Monthly statements |
| Deposit records | Documentation of each deposit |
| Disbursement records | Documentation of each payment |
| Client ledgers | Individual records for each client |
| Transaction files | All related documentation |
Retention Period
| Requirement | Duration |
|---|---|
| Escrow/trust records | 3 years minimum |
| Transaction records | 3 years minimum |
Escrow Agent Licensing
Requirements for Acting as Escrow Agent
Real estate licensees who want to act as escrow agents must:
| Requirement | Details |
|---|---|
| Current license | Hold valid DC broker's or salesperson's license |
| Separate license | Obtain Escrow Agent Services License from DISB |
| Trust account | Maintain account at DC financial institution |
| Written agreement | Have written agreement with clients |
| Compliance | Follow all escrow laws and regulations |
DISB: Department of Insurance, Securities and Banking
Within how many days must client funds be deposited into a DC escrow account (absent contrary written instructions)?
Within how many days must a DC licensee notify the Commission after opening an escrow/trust account?
How long must DC licensees retain escrow/trust account records?
When must interest be paid on escrow funds held in DC?