4.1 Maryland Trust Account Requirements
Key Takeaways
- Maryland brokers must deposit trust money promptly, and earnest money held by the broker within 7 business days of contract ratification unless the parties agree in writing otherwise
- Trust accounts must sit in a federally insured Maryland financial institution and be clearly designated as escrow/trust, separate from operating funds
- Trust funds belong to the parties, not the broker — they are shielded from the broker's personal creditors and cannot be touched until settlement or a signed release
- Commingling personal funds is prohibited except a nominal balance to keep the account open; conversion (spending client money) can be a criminal theft offense
- On a disputed deposit the broker is a neutral stakeholder: hold the funds, disburse only on written agreement, or file an interpleader and let a court decide
Handling Other People's Money
When a Maryland broker receives earnest money (the good-faith deposit a buyer puts down), security deposits, or collected rents, that money never becomes the broker's property. It is held in a trust account (also called an escrow account) on behalf of the parties. The governing law is the Maryland Real Estate Brokers Act (Title 17, Business Occupations & Professions) and the Real Estate Commission (MREC) regulations in COMAR 09.11. Trust-account errors are the leading source of MREC discipline, so the rules are heavily tested.
Account Setup
| Requirement | Specification |
|---|---|
| Institution | Federally insured (FDIC/NCUA) Maryland financial institution |
| Designation | Account titled as trust or escrow account |
| Ownership | Funds belong to the parties; shielded from the broker's creditors |
| Separation | Must be separate from the broker's operating/personal accounts |
| Custody | Held by the broker of record, not an individual salesperson |
The broker is the fiduciary and bears personal responsibility even when a salesperson physically takes the check. A salesperson who receives a deposit must promptly turn it over to the broker.
The 7-Business-Day Deposit Rule
Maryland's signature timing rule: when the broker holds the earnest money, it must be deposited into the trust account within 7 business days of contract ratification (the moment both buyer and seller have signed and accepted all terms). The parties may agree in writing to a different date or to have an attorney/title company hold the funds instead.
| Event | What happens |
|---|---|
| Both parties ratify | The 7-business-day clock starts |
| Day 1–7 (business days) | Broker must deposit the check |
| Written agreement says otherwise | Follow the contract instead |
| Check bounces | Notify all parties immediately and document |
Worked example: A contract ratifies on Friday. Counting business days (excluding weekends and the next Monday holiday), the broker still has roughly a week and a half of calendar time before the deadline — but the safe practice is to deposit the next business day. "Business days" excludes weekends and legal holidays, so do not count calendar days on the exam.
Common trap: The question asks when the broker must deposit. If the buyer's attorney or the title company holds the deposit, the broker's 7-business-day rule does not control — the agreement governs.
Who May Hold the Deposit
The earnest money does not have to sit with the listing broker. In Maryland the contract commonly names the holder, which may be the listing brokerage, the selling brokerage, a title/settlement company, or an attorney. Whoever holds it owes the same fiduciary duty. A salesperson must never deposit a client's check into a personal account, a brokerage operating account, or hold it overnight beyond what is needed to hand it to the broker; the duty is to deliver funds to the responsible broker promptly so the broker can meet the deposit deadline.
Prohibited Practices
Commingling
Commingling means mixing trust money with the broker's personal or operating funds. It is prohibited. The only allowed exception is keeping a nominal amount of the broker's own money in the account to cover service charges and keep it open — that amount must be small and documented. Letting trust funds sit in the broker's general business account, even briefly, is commingling.
Conversion
Conversion is using trust money for the broker's own purposes — paying office rent from escrow, "borrowing" a deposit, or covering payroll. Conversion is far more serious than commingling: it is grounds for revocation and can be prosecuted as criminal theft. There is no "I meant to pay it back" defense.
Premature Disbursement
A broker may release trust funds only when:
- The transaction closes (settles), or
- The transaction terminates and the parties give written direction on who gets the money.
Releasing earnest money to a seller the moment a buyer misses a deadline — without a signed release — is premature disbursement and a violation, even if the seller is ultimately entitled to it.
Recordkeeping and Reconciliation
| Task | Frequency / Standard |
|---|---|
| Reconcile bank statement to ledger | Monthly |
| Maintain a running ledger per transaction | Continuously |
| Retain trust-account records | Per Commission rule (keep them available for MREC audit) |
| MREC examination | Random, on complaint, or during investigation |
Reconciliation means proving three numbers agree: the bank balance, the broker's ledger total, and the sum of all individual transaction balances. Any shortage is a red flag the Commission treats as a probable violation. Sloppy or missing records are themselves an independent ground for discipline — "I never lost any money" does not excuse a broker who cannot produce a clean audit trail.
Disputed Deposits — Be a Neutral Stakeholder
When buyer and seller both claim the earnest money:
- Hold the funds — do not pay either side.
- Disburse only on written agreement signed by both parties (often a release of deposit form).
- Document every communication.
- If they cannot agree, file an interpleader action: the broker deposits the money with the court and asks a judge to decide.
- The court determines the rightful owner; the broker is discharged.
Key point: The broker has no authority to decide who "deserves" the deposit. Picking a side and paying it out is one of the fastest ways to draw a complaint.
Why These Rules Carry Such Weight
Trust-account discipline is severe because the money is not the broker's to risk. A single late deposit, an unreconciled shortage, or one improper disbursement can trigger an MREC audit that uncovers a pattern. Brokers should keep a separate ledger card for each transaction, never co-mingle even temporarily while "waiting for a check to clear," and obtain a signed release before disbursing on any terminated deal. When in doubt, the safest moves are: deposit immediately, document everything in writing, and hold disputed funds rather than guess at who is entitled to them.
A contract ratifies and the broker is holding the buyer's earnest money check. Within how many business days must the broker deposit it, absent a written agreement to the contrary?
A broker uses $2,000 from the trust account to cover the office's electric bill, intending to replace it next week. This is best described as:
Buyer and seller each demand the earnest money after a deal falls through and refuse to sign a release. What is the broker's correct course of action?