Key Takeaways
- Brokers must maintain a trust account at an Iowa-insured financial institution
- All client funds (earnest money, security deposits, rent) must be deposited into the trust account promptly
- Commingling broker funds with client funds is strictly prohibited
- Trust account records must be maintained for at least 5 years
- IREC has authority to audit trust accounts at any time without notice
Iowa Trust Account Requirements
Iowa 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 Iowa-insured financial institution
- A federally-insured bank or credit union
- Institution with Iowa offices
Key Requirement: The account must be clearly designated as a "trust" or "escrow" account.
Deposit Requirements
Timeline
| Situation | Deposit Deadline |
|---|---|
| Earnest money | Promptly upon acceptance (typically within 3 business days) |
| Security deposits | Per lease agreement requirements |
| Rent | Per property 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.
Broker's Own Funds in Trust
A broker may keep a limited amount of personal funds in the trust account:
| Purpose | Details |
|---|---|
| Maintain minimum balance | To cover bank fees |
| Amount | Only enough for account maintenance |
| Not for business | Cannot use trust for operating expenses |
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 for fees | Large broker funds in trust account |
| Interest earned (per agreement) | Using client funds for business |
Conversion
Conversion is using client funds for unauthorized purposes. It is a serious violation that can result in:
- License revocation
- Criminal charges
- Civil liability
- Civil penalties up to $10,000 per violation
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 |
| Reconciliation | Monthly trust account reconciliation |
Retention Period
| Requirement | Duration |
|---|---|
| Trust account records | 5 years minimum |
| Transaction files | 5 years minimum |
Important: Iowa requires 5 years of record retention—longer than some states.
IREC Audits
IREC 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 |
| Missing reconciliations | Warning to fine |
How long must Iowa brokers maintain trust account records?
Who is authorized to maintain a trust account for client funds in Iowa?
What is the maximum civil penalty IREC can impose per violation?