3.3 Trust Account Requirements

Handling Trust Money

Trust money is any money a broker holds that belongs to others — earnest money, due diligence fees a listing firm agrees to hold, tenant security deposits, rents collected for owners, and HOA funds. Handling is governed by Commission Rules 21 NCAC 58A .0116 (handling), .0117 (accounting), and .0118 (POA trust money).

Account and deposit basics

What goes in trust vs. operating

Worked timing example. A broker receives an earnest money check on Monday. Banking days are Mon-Tue-Wed, so the deposit must clear into the trust account by the end of Wednesday. If a federal bank holiday falls on Tuesday, that day does not count, pushing the deadline to Thursday.

Prohibited Practices

Commingling

Commingling is mixing trust money with the broker's personal or operating funds. The broker may, however, keep a small amount of the broker's own money in the trust account to cover bank service charges — that is the only permitted exception.

Conversion

Conversion is the more serious offense: actually using trust money for the broker's own purposes — even temporarily "borrowing" it. Conversion is grounds for license revocation and possible criminal prosecution. The key distinction tested: commingling = mixing funds; conversion = using funds.

Accounting, Reconciliation, and Records

• Reconciliation: Trust accounts must be reconciled at least monthly, comparing the bank balance to the sum of all individual ledgers. The broker must keep a journal/general ledger plus a ledger for each beneficial owner or transaction.
• Record retention: Under 21 NCAC 58A .0108, all transaction and trust records must be kept for three years after the broker has disbursed all funds or the transaction concludes, whichever occurs later (and three years after agency termination if the agency ends earlier). Required records include contracts, leases, agency agreements, offers, earnest money receipts, trust/escrow records, and closing statements.
• Disputed funds: If buyer and seller both claim the earnest money, the broker must continue to hold the funds and may not unilaterally release them; the broker can file an interpleader action or, after the contract ends, follow the statutory notice procedure.

Broker-in-Charge Responsibility

Critical. The broker-in-charge (BIC) is personally accountable for trust money even when day-to-day tasks are delegated to staff. Delegation never transfers the legal responsibility.

Resolving Disputed Earnest Money

When a sale collapses and the buyer and seller disagree over who gets the earnest money, North Carolina gives the broker a clear procedure rather than discretion to pick a side.

The broker may not charge a fee for holding trust money, and may not deduct an alleged commission from disputed earnest money without authorization.

Worked Reconciliation Example

Suppose a firm's trust account bank balance is $48,500 at month-end. The BIC adds up the individual ledgers:

Because the ledger total equals the reconciled bank balance, the account is in balance. If the bank balance were lower than the ledger total, that shortfall signals a trust shortage — a serious red flag that may indicate conversion and must be corrected and reported immediately.

Discipline and Common Violations

• Failure to deposit timely (missing the three-banking-day rule) is one of the most frequently cited violations in NCREC audits.
• Failure to reconcile monthly or to keep per-owner ledgers.
• Commingling beyond the permitted bank-fee cushion.
• Conversion, the most severe, leading to revocation and referral for criminal prosecution.

Exam anchor. Tie the numbers together: deposit within 3 banking days, reconcile monthly, retain records 3 years after disbursement or conclusion (whichever is later). These three figures appear repeatedly on the state portion.