3.3 Trust Account Management
Key Takeaways
- Trust funds must be deposited in a federally insured account designated as a trust/escrow account and registered with GREC within one month of opening.
- Under GREC Rule 520-1-.08, a licensee must place client funds with the broker as soon as practicable, and the broker deposits within 3 banking days of receipt.
- Commingling broker funds with trust funds is prohibited, except a small documented amount to cover bank service charges; conversion (using client funds) can be a crime.
- A broker must reconcile the trust account at least monthly and keep transaction records for at least 3 years.
- In an earnest money dispute the broker holds the funds and may file an interpleader; GREC also recognizes a 30-day demand-letter procedure for releasing disputed earnest money.
Why Trust Accounts Dominate Discipline Cases
Handling other people's money is the highest-risk duty a Georgia broker has, and trust-account violations are a leading cause of license revocation. The rules live in GREC Rule 520-1-.08, Managing Trust Accounts and Trust Funds, and the exam expects exact numbers.
Account Setup and Registration
| Requirement | Specification |
|---|---|
| Account type | Designated trust or escrow account |
| Institution | Federally insured financial institution |
| Designation | Bank must designate the account as a trust account |
| GREC registration | Broker must notify GREC of the institution and account within one month of opening |
| Multiple accounts | A broker may keep more than one trust account, each registered |
| Interest | Any interest belongs to the party named in the agreement, not the broker by default |
Funds typically held in trust include earnest money, security deposits, collected rents, association fees managed by the broker, and advance fees. The qualifying broker is ultimately responsible for the account even when staff handle deposits.
The Flow of Client Funds
Rule 520-1-.08 sets a two-step custody chain:
- A licensee who receives funds in a brokerage capacity must deliver them to the broker as soon as practicable after receipt.
- The broker then promptly deposits the funds — within 3 banking days of receipt — into the registered trust account, unless the parties agree in writing to a different holder.
Banking days: Monday through Friday, excluding federal holidays. Saturday, Sunday, and holidays are not counted.
Worked example: A salesperson takes an earnest money check on Friday afternoon and gives it to the broker Monday. Counting from the broker's Monday receipt, the deposit must be made by Thursday (Tue, Wed, Thu = three banking days).
If the contract names a different holder (a closing attorney or the other broker), the licensee must deliver the funds to that holder within the same prompt timeframe rather than depositing them in the licensee's own account.
Property Management and Security Deposits
When a Georgia broker manages rental property, security deposits and collected rent are trust funds subject to the same rules. Georgia's Security Deposit Act (O.C.G.A. § 44-7-30 et seq.) requires deposits to be held in an escrow account or backed by a surety bond, and the landlord/agent must give the tenant the location of the account. A move-in/move-out inspection list must be provided, and the deposit (or an itemized statement of deductions) must be returned within 30 days of lease termination. A broker who manages property must keep these tenant funds segregated from sales earnest money in the trust account ledger.
Prohibited Practices
Commingling
Commingling means mixing trust funds with the broker's personal or operating funds. It is prohibited with one narrow exception: a broker may keep a small, documented amount of the broker's own money in the trust account to cover bank service charges. Depositing client earnest money into the brokerage operating account is commingling even if no money is missing.
Conversion
Conversion is using trust funds for any purpose other than the transaction — paying office rent from earnest money, for example. Conversion is a serious violation, can constitute theft by conversion under Georgia criminal law, and is grounds for revocation.
Premature Disbursement
The broker has no claim to trust funds until the transaction is consummated (closed) or terminated with written agreement on how funds are split. Paying oneself a commission out of earnest money before closing is premature disbursement.
| Violation | Definition | Typical consequence |
|---|---|---|
| Commingling | Mixing trust and broker funds | Fine, citation, possible suspension |
| Conversion | Using client funds personally | Revocation; possible criminal charge |
| Premature disbursement | Releasing funds before close/agreement | Discipline and restitution |
Reconciliation and Recordkeeping
| Task | Frequency / period |
|---|---|
| Reconcile bank statement to journal/ledger | At least monthly |
| Maintain a running balance and individual ledgers | Continuously |
| Retain trust-account records | At least 3 years |
The reconciliation compares the bank statement against the broker's check register and a trial balance of each beneficiary's funds, and discrepancies must be resolved promptly. GREC may audit any trust account randomly, on complaint, or during an investigation; failure to keep records is itself a violation.
Resolving Earnest Money Disputes
When buyer and seller both claim the earnest money, the broker is a neutral stakeholder and must not pick a side.
- Hold the funds in trust; do not disburse to either party without written agreement.
- Document the dispute and all communications.
- Demand-letter procedure: GREC rules allow the holder to send the parties written notice of intent to disburse; if no party files suit within a set period (commonly 30 days), the broker may disburse as proposed and is shielded from liability.
- Interpleader: Alternatively, the broker may file an interpleader action and deposit the funds with the court, which then decides the rightful owner.
Trap: "Return the earnest money to the buyer because the buyer asked first" is wrong. Until there is written agreement, a court order, or the demand-letter period runs, the broker keeps the funds in trust.
A broker deposits a buyer's earnest money check into the brokerage's general operating account, intending to move it to the trust account 'later.' No funds are missing. What violation is this?
A buyer and seller both demand the earnest money after a failed deal. The buyer calls the broker first and insists on a refund. What should the broker do?
How long must a Georgia broker retain trust-account records, and how often must the account be reconciled?