4.1 Delaware Trust Account Requirements
Key Takeaways
- Brokers must deposit escrow money within 72 hours of full execution, excluding weekends and federal holidays (24 Del. Admin. Code 2900, Rule 6.0).
- Escrow accounts must be non-interest-bearing in a federally insured Delaware institution unless all parties agree in writing to interest and who receives it.
- Commingling (mixing client funds with broker funds) and conversion (spending client funds) are separate violations; conversion is the more serious, often criminal.
- Complete escrow records must be kept and retained for at least 3 years and made available for Commission inspection.
- Disputed deposits stay in escrow until written authorization from all parties, a court order, or interpleader; the broker cannot unilaterally release them.
Why Escrow Is the #1 Discipline Trigger
Handling other people's money is the single most regulated duty a Delaware broker has. Under 24 Del. C. Chapter 29 and the Commission's rules (24 Del. Admin. Code 2900), the broker — not the salesperson — is legally responsible for every dollar received. Salespersons who take an earnest-money deposit must hand it to their broker, who then controls the escrow account. On the exam, the broker is almost always the correct "who is responsible" answer.
The 72-Hour Deposit Rule (memorize the number)
Delaware does not use a vague "promptly." Rule 6.0 requires the broker to deposit escrow moneys into the broker's escrow account within 72 hours of the signing of the written agreement by all parties (full execution), or by the dates defined in the contract, excluding weekends and federal holidays.
| Trigger | Deadline |
|---|---|
| Agreement signed by all parties | Deposit within 72 hours |
| Weekend / federal holiday | Excluded from the 72-hour count |
| Contract names a specific date | Follow the contract date |
Worked example: A contract is fully executed Thursday at 5 PM. Saturday and Sunday are excluded. The 72 hours run through Friday, then resume Monday and Tuesday — so the broker has until roughly end of business Tuesday to deposit. A licensee who waits until the following Friday "because the buyer is reliable" has violated the rule even if no money is lost.
Acceptable Funds
Unless all parties agree in writing otherwise, a licensee may not accept a photocopy, fax, or other copy of a personal check, and may not accept a postdated check or draft as a good-faith deposit. A common exam trap: a buyer offers a check dated two weeks out; the licensee must refuse it or get written consent from all parties.
Commingling vs. Conversion (high-yield distinction)
These two terms are tested as a pair, and confusing them costs points.
- Commingling = mixing trust funds with the broker's personal or business funds (or leaving client money in the operating account). It is a violation even if no client ever loses a penny.
- Conversion = actually using trust funds for the broker's own purposes (paying rent, covering payroll). This is theft, frequently prosecuted criminally, and grounds for revocation.
| Scenario | Classification |
|---|---|
| Earnest money sits in the broker's operating checking account | Commingling |
| Broker dips into escrow to make payroll, intending to "replace it Friday" | Conversion |
| Broker keeps a small personal balance to cover bank service fees | Permitted (must be minimal and documented) |
| Broker pays the firm's electric bill from the escrow account | Conversion |
The only money of the broker's own that may sit in escrow is a minimal amount to cover bank service charges. Everything else is the clients' money.
Interest-Bearing Accounts
Delaware escrow accounts are non-interest-bearing by default. To place funds in an interest-bearing account, the broker needs a written agreement from all parties specifying who is entitled to the interest. Without that written agreement, earning interest on client money is itself improper.
Disputes and Disbursement
A broker may release escrow only when one of these occurs:
- The transaction closes (disburse per the settlement statement).
- All parties sign a written release directing where the money goes.
- A court order (including interpleader, where the broker deposits the disputed funds with the court).
Trap: When a deal collapses and buyer and seller each demand the earnest money, the broker must hold the funds and remain neutral. Picking a side, or returning the money to whoever asks loudest, is a violation. The safe answer is always "hold until written agreement or court order."
Records and Audits
The broker must maintain a complete record of all moneys received or escrowed — including source, date of receipt, depository, and date of deposit — at the office (paper or electronic) and retain records for at least 3 years. The Commission may audit and inspect these records at any time. Best practice is monthly reconciliation of the bank statement against the trust ledger, with discrepancies resolved immediately.
Reconciliation, Ledgers, and the Three-Way Tie-Out
Good escrow practice is not just keeping a checkbook. Delaware brokers should perform a three-way reconciliation every month, tying together three numbers that must agree to the penny:
- The bank statement balance (adjusted for outstanding items).
- The checkbook/control balance of the escrow account.
- The sum of all individual client ledgers — each transaction's running balance.
If these three do not match, money is either missing, misposted, or commingled. A single client ledger should never go negative: a negative client balance means that client's money was spent on someone else's transaction, which is conversion. Examiners love the rule that the total of the client ledgers must equal the account balance.
Why the Broker, Not the Salesperson, Owns the Risk
Affiliated salespersons and associate brokers act under the employing broker's license. When a salesperson collects a deposit, the law treats it as received by the broker, who must get it into escrow within the 72-hour window. If a salesperson sits on a check in a desk drawer for a week, the broker is the one disciplined for the late deposit and for failure to supervise. This is why brokers set firm internal policies: deposits delivered same day, escrow logs maintained, and no salesperson signature authority on the trust account unless the broker authorizes it.
Property-Management Trust Funds
The trust rules are not limited to sales. Brokers who manage rentals hold security deposits and collected rent in trust. Delaware's Landlord-Tenant Code separately limits residential security deposits (generally one month's rent for leases of one year or longer) and requires deposits to be held in a federally insured account, with the institution identified to the tenant. Mixing tenant security deposits with sales escrow or with operating funds is the same commingling violation. A property manager who uses one tenant's deposit to refund another tenant has converted funds.
Common exam scenarios to recognize: (1) Broker deposits earnest money into the firm's operating account = commingling. (2) Broker releases earnest money to the seller on the broker's own judgment after a dispute = improper disbursement. (3) Broker keeps interest on client funds with no written agreement = violation. (4) Records discarded after two years = recordkeeping violation (must keep three). Each maps to a distinct disciplinable act, and the safest broker response to any dispute is to hold the funds and seek written authorization or a court order.
A Delaware purchase agreement is signed by all parties. Within what timeframe must the broker deposit the earnest money into escrow?
A broker temporarily uses earnest money from the escrow account to cover the firm's payroll, planning to replace it next week. How is this best classified?