Key Takeaways
- Trust accounts must be in an insured institution located in Montana with "trust account" in the name (ARM 24.210.426)
- Trust funds must be retained until the transaction is closed or terminated
- Earnest money deposits must be handled through a licensed broker's trust account unless otherwise agreed (MCA 37-51-313)
- Brokers must account for trust account funds at all times
- BRR has authority to audit trust accounts at any time
Montana Trust Account Requirements
Montana brokers must maintain trust accounts to hold client funds separate from their operating funds under Administrative Rules of Montana (ARM) 24.210.426.
Trust Account Basics (ARM 24.210.426)
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 |
Account Requirements
Under ARM 24.210.426, trust accounts must:
| Requirement | Details |
|---|---|
| Location | Insured institution located in Montana |
| Account name | Must include "trust account" in the name |
| Accessibility | Must be readily available for audit |
| Accounting | Broker must account for funds at all times |
Key Rule: The account name must clearly identify it as a trust account.
Deposit and Retention Requirements
Trust Fund Handling
| Requirement | Details |
|---|---|
| Deposit location | Broker's trust account only |
| Retention period | Until transaction is closed |
| Disbursement | Per contract terms or mutual agreement |
| Anticipatory disbursement | May disburse to closing agent upon written agreement of buyers and sellers |
Earnest Money (MCA 37-51-313)
Earnest money deposits must be handled through a licensed real estate broker's trust account unless otherwise agreed:
| Situation | Handling |
|---|---|
| Standard transaction | Broker trust account or title/escrow company |
| Contract specifies | As per purchase contract terms |
| Receipt required | Issued by the holder of funds |
Important: Salespersons cannot hold client funds. Only brokers with supervising broker endorsements maintain trust accounts.
Disbursement Rules
When Funds May Be Disbursed
Trust funds may be disbursed:
| Situation | Requirement |
|---|---|
| At closing | Upon successful closing of transaction |
| Before closing | Only with written agreement of buyers and sellers |
| Transaction terminated | Per contract terms or mutual agreement |
| Client request | At client's written instructions (when no active transaction) |
Negative Balance Protection
The broker will not be disciplined for a negative account balance that occurs only as a result of a deposit that was dishonored after the financial institution had indicated the funds were available.
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 amount to maintain account minimums | 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 Account
Record Keeping Requirements
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 transaction |
| Reconciliation records | Monthly account reconciliation |
Retention Period
| Requirement | Duration |
|---|---|
| Trust account records | 3 years minimum |
| Transaction files | 3 years minimum |
BRR Audits
The Board of Realty Regulation has authority to:
- Audit trust 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 |
| Missing "trust account" designation | Administrative violation |
Under ARM 24.210.426, where must Montana trust accounts be located?
When may trust funds be disbursed to a closing agent before closing?
How long must Montana brokers maintain trust account records?