Commingling
Commingling is the illegal practice of mixing client funds with personal or business funds, violating fiduciary duties and real estate licensing laws that require separate trust/escrow accounts.
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Exam Tip
Commingling = mixing client and personal funds. ILLEGAL. Must use separate trust/escrow account.
What is Commingling?
Commingling occurs when a real estate broker, agent, or other fiduciary illegally mixes client funds with their own personal or business funds. This is a serious violation of licensing laws that require strict separation of trust funds.
What Constitutes Commingling
| Commingling | NOT Commingling |
|---|---|
| Depositing earnest money in personal account | Depositing in trust/escrow account |
| Mixing client funds with operating funds | Maintaining separate accounts |
| Using client funds for business expenses | Proper accounting of trust funds |
| Failing to deposit checks promptly | Timely deposits per regulations |
Why Commingling is Prohibited
| Reason | Explanation |
|---|---|
| Protect client funds | Funds safe from broker's creditors |
| Fiduciary duty | Agent must act in client's best interest |
| Accountability | Clear audit trail for all funds |
| Trust | Maintains public confidence |
| Prevent theft | Reduces opportunity for misappropriation |
Trust Account Requirements
| Requirement | Description |
|---|---|
| Separate account | Must be distinct from personal/business |
| Proper title | "Trust" or "Escrow" in account name |
| Authorized bank | Must be in approved institution |
| Records | Detailed accounting required |
| Audits | Subject to regulatory review |
Study This Term In
Related Terms
Escrow
Escrow is a neutral third-party arrangement where documents and funds are held until all conditions of a transaction are satisfied.
Fiduciary
A fiduciary is a person or organization legally obligated to act in the best interest of another party, putting the client's interests ahead of their own.
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