4.1 Trust Account Requirements

Who Holds the Money

In Minnesota, the trust account (also called an escrow or client-funds account) is the legal responsibility of the broker, not the agent. A salesperson who receives earnest money, a deposit, or rent must deliver those funds to the broker, who deposits them. A salesperson who pockets a check, runs it through a personal account, or holds it "until closing" has violated license law even if every dollar is later returned.

The account must be:

Deposit Timing — The Exam Favorite

Under Minnesota Statute 82.75, subd. 5, earnest money is deposited into the listing broker's trust account according to the written agreement between the parties. If that agreement is silent on timing, the listing broker must deposit it within three business days of receiving it or of final acceptance of the purchase agreement, whichever is later. If the offer is rejected, the earnest money goes back to the buyer no later than the next business day.

Worked scenario: A purchase agreement that says nothing about deposit timing is finally accepted on a Friday, and the listing broker already holds the $5,000 check. Counting three business days from acceptance (Monday, Tuesday, Wednesday), the deposit is due by Wednesday.

Interest-Bearing Accounts

Each broker must maintain a pooled interest-bearing trust account. The interest, less reasonable transaction costs, is paid at least quarterly to the Minnesota Housing Finance Agency for the housing trust fund unless the parties agree otherwise in writing (82.75, subd. 8). Trust funds can go into a separate interest-bearing special account or certificate of deposit only if the buyer and seller consent in writing to the account and to who receives the interest (subd. 9). The broker never keeps trust-account interest by default.

Why Trust Rules Matter

The underlying principle is that client money is never the broker's money, even for a single day. The broker holds it as a trustee, a heightened legal duty that demands exactness, separation, and prompt action. Whenever an exam scenario describes funds being handled, mentally ask three questions: Who received the money? Where did it go? Was it separated from the broker's own funds?

If a salesperson held it, if it touched an operating account, or if the broker missed the 82.75 deposit deadline, a violation has occurred.

A related distinction students miss: earnest money belongs to the parties to the transaction, not to the brokerage. Until closing or a written release, neither the buyer nor the seller has an automatic right to it, which is exactly why the broker stays neutral. The trust account is best pictured as a locked box the broker guards for others, opening it only on instructions everyone has agreed to in writing or that the contract spells out.

When in doubt about whether a disbursement is authorized, the safe and correct action is always to hold the funds and seek written direction or a court order rather than guess and risk a conversion charge.

Prohibited Practices

Commingling is mixing the broker's own money with client money in the trust account. It is prohibited at all times. The single narrow exception is an identified sum of the broker's own money used to pay service charges or meet the account's minimum balance requirement (82.75, subd. 4).

Conversion is the unauthorized use of client trust money for the broker's own purposes — paying office rent from escrow, "borrowing" a deposit, or applying one client's funds to another client's shortfall. It is misuse of client money, not a bookkeeping slip.

Disbursement and Disputed Funds

Under 82.75, subd. 5, trust money may be disbursed only at closing, by written agreement between the parties, under an affidavit required by section 559.217, or by court order. If the agreements are silent on timing, disbursement is due within ten business days after the transaction closes or terminates.

• At closing: disburse per the signed closing statement.
• On a clean cancellation: disburse per the parties' written agreement.
• On a dispute: the broker must hold the funds and may not unilaterally pick a side. If buyer and seller cannot agree on who gets the earnest money, the broker can file an interpleader action, depositing the disputed money with the court and letting a judge decide.

Trap: An agent who hands disputed earnest money to whichever party is angrier — or to the seller "because the buyer breached" — without written authorization has committed an unauthorized disbursement, a disciplinable act.

Records and Department Oversight

Brokers must keep records of all trust funds and trust accounts (82.75, subd. 5) and retain trust account records and transaction documents for six years (82.72, subd. 3). The commissioner may examine a broker's records at reasonable times, within or outside Minnesota (82.72, subd. 2).