4.1 Iowa Trust Account Requirements
Key Takeaways
- Only a broker (not a salesperson) maintains the trust account; salespersons must turn over all funds to their broker for deposit.
- Trust funds must be deposited no later than 5 banking days after the date of the last signature of acceptance, unless the contract says otherwise.
- The account may be interest-bearing only with written disclosure to and consent of all parties; interest is then remitted quarterly to the State Treasurer, less service charges.
- Brokers may keep only personal funds needed to cover service charges; any deficiency must be corrected within 15 calendar days of the bank statement closing date.
- Brokers must keep a chronological journal, individual property/transaction ledgers, and a monthly written reconciliation worksheet.
What a Trust Account Is and Who Holds It
A trust account (also called an escrow account) is a separate bank account where a broker holds money that belongs to other people. Under Iowa Administrative Code (IAC) 193E Chapter 13 and Iowa Code section 543B.46, every active real estate broker who receives trust funds must maintain one. The single most-tested Iowa rule: only the broker holds trust money. A salesperson who receives an earnest-money check must deliver it to the supervising broker promptly so the broker can deposit it. A salesperson who deposits a buyer's check into their own account has already committed a violation.
Funds That Belong in the Trust Account
| Fund type | Typical source |
|---|---|
| Earnest-money deposits | Buyer's good-faith deposit with an offer |
| Security deposits | Tenant deposits on managed rentals |
| Rent collections | Rent received on behalf of landlords |
| Down payments / closing proceeds | Held pending disbursement at closing |
Where the Account May Be Held
The account must be in a bank, savings association, or credit union whose deposits are federally insured. Iowa does not require an in-state institution by name, but the account must be reachable for audit and the funds must be available on demand to the parties. The account title must clearly identify it as a "trust" or "escrow" account so it is not mistaken for an operating account.
Iowa quirk — interest: The trust account does not have to be interest-bearing. A broker may make it interest-bearing only with written disclosure to and the written agreement of all parties. When interest is earned, it is remitted quarterly to the Iowa State Treasurer, minus service charges directly attributable to the account. The broker never keeps trust-account interest as personal income.
Deposit Timing, Personal Funds, and Records
The 5-Banking-Day Deposit Rule
This is the number examiners love. Under IAC 193E-13.1, all trust funds must be deposited no later than five (5) banking days after the date of the last signature of acceptance shown on the document, unless the contract specifies otherwise. Do not confuse this with the "3 business days" rule some other states use. Worked example: an offer is signed by the buyer Monday and accepted (last signature) by the seller on Thursday, June 4. Banking days are Friday (1), Monday (2), Tuesday (3), Wednesday (4), Thursday (5). The deposit must clear into the trust account by Thursday, June 11 at the latest.
| Situation | Deposit deadline |
|---|---|
| Earnest money | Within 5 banking days of last signature of acceptance |
| Funds where contract sets a different date | Per the contract's terms |
| Funds returned (offer withdrawn / acceptance revoked) | Promptly returned to buyer; seller's consent not required |
Broker's Own Funds in the Account
A broker may place personal funds only to cover bank service charges — never to do business out of the account. If service charges above normal maintenance exceed the personal funds on hand, the broker must deposit enough personal money to correct the shortage within 15 calendar days of the closing date of that bank statement. Trust money may never be used to pay any charge.
Required Records and Reconciliation
| Record | What it must show |
|---|---|
| Chronological journal | Every deposit and disbursement in date order |
| Individual ledgers | A running balance per property or per transaction |
| Bank statements | Monthly statements from the institution |
| Monthly reconciliation worksheet | Written comparison of journal balance, bank balance, and ledger totals — all three must agree |
No funds may be disbursed before closing, or other than as the escrow agreement provides, without the informed written consent of all parties. The Iowa Real Estate Commission (IREC) may inspect these records, and a shortage discovered on reconciliation is treated as a serious violation.
Prohibited Practices: Commingling and Conversion
Two terms are tested almost every exam, and candidates routinely mix them up.
Commingling
Commingling is mixing client trust funds with the broker's personal or business funds. It is prohibited the moment the funds are mixed — even if no client ever loses a dollar. Leaving a closing commission in the trust account too long, depositing a buyer's earnest money into the operating account, or running personal funds beyond what service charges require all count as commingling.
Conversion
Conversion is the more serious sibling: actually using client trust funds for an unauthorized purpose — paying office rent from the trust account, "borrowing" a deposit, or covering payroll. Conversion is theft of client money and can support criminal charges in addition to license revocation.
| Allowed | NOT allowed |
|---|---|
| Client funds held in the trust account | Client funds left in the operating account |
| Small personal deposit to cover service fees | Routine business funds parked in trust |
| Interest earned, remitted to the State Treasurer | Broker keeping trust-account interest |
| Disbursement on written consent of all parties | Disbursing on one party's say-so before closing |
Common Audit Findings
| Finding | Typical consequence |
|---|---|
| Shortage of funds | Serious violation — suspension to revocation |
| Commingling | Fine to revocation |
| Late deposit (past 5 banking days) | Warning to fine |
| Missing monthly reconciliations | Warning to fine |
| Poor or missing ledgers | Warning to suspension |
Memory hook: Commingle = mix; Convert = spend. Mixing is a paperwork/segregation violation; spending is theft. Both are disciplinable, but conversion carries the heavier exposure because the client is actually deprived of money.
Under Iowa Administrative Code 193E-13.1, by when must a broker deposit earnest money into the trust account if the contract is silent on timing?
An Iowa broker opens an interest-bearing trust account with all parties' written consent. What must happen to the interest earned?
Who is authorized to maintain a trust account for client funds in Iowa?
A broker pays the office electric bill directly out of the trust account using a client's earnest money. This is best described as: