4.1 New Hampshire Escrow Account Requirements
Key Takeaways
- Only the principal broker maintains the escrow (trust) account; salespersons must turn all client funds over to the principal broker, who deposits them promptly into an insured New Hampshire financial institution under RSA 331-A:13.
- Deposits on fully executed contracts must be deposited promptly and kept separate and apart from the broker's individual or office accounts; commingling and conversion are prohibited.
- Interest on an interest-bearing escrow account accrues to the party making the deposit as a sum toward the purchase price, unless otherwise agreed in writing.
- A broker may place personal or business funds in escrow ONLY to cover bank service charges or maintain a minimum balance; writing checks against uncollected (uncleared) deposits is prohibited.
- Each principal broker and managing broker must maintain a $25,000 surety bond running concurrently with the license, and must permit the Commission to audit escrow records as a condition of licensure.
Why Escrow Rules Dominate the State Exam
The New Hampshire salesperson exam is 120 questions (80 national + 40 state) administered by PSI, scored on a 70% pass standard for each portion. Escrow handling is one of the most heavily tested state topics because it is where new licensees most often get disciplined. The governing statute is RSA 331-A:13 (Escrow Accounts of Broker; Interest; Audit).
What an Escrow Account Holds
An escrow account (also called a trust account) is a bank account where the broker holds money that belongs to other people, never to the broker. Typical deposits include:
| Fund Type | Example |
|---|---|
| Contract deposits | Buyer's earnest money on a purchase and sale agreement |
| Security deposits | Tenant deposits on a managed rental |
| Rent collections | Rent collected on behalf of a landlord-client |
| Pending proceeds | Funds awaiting disbursement at or after closing |
Who May Hold the Account
This is the single most tested distinction. Only the principal broker maintains the escrow account.
| Can Hold Escrow | Cannot Hold Escrow |
|---|---|
| Principal broker | Salesperson |
| Managing broker (under the firm's account) | Unlicensed assistant |
Trap: A salesperson who receives a buyer's $5,000 check must deliver it to the principal broker for deposit. A salesperson who deposits earnest money into a personal or separate account has committed a violation, even if no money is lost. The salesperson never "holds" escrow.
Where and When
The principal broker shall maintain the account separate and apart from the individual or office account, at an insured financial institution within the State of New Hampshire. Deposits on fully executed contracts (signed by all parties) must be deposited promptly. "Promptly" is the operative word the exam tests, in contrast to states that name a specific number of business days.
Interest, Commingling, and Permitted Broker Deposits
Interest-Bearing Accounts
Under RSA 331-A:13, a principal broker may place the deposit in an interest-bearing escrow or trust account. The rule on who gets the interest is a frequent exam item:
- The interest accrues to the party making the deposit (normally the buyer) as a sum to be used toward the purchase price, unless otherwise agreed in writing.
- The broker may NOT keep the interest as a fee. Keeping escrow interest without written agreement is conversion.
Commingling vs. Conversion (Know the Difference)
| Term | Definition | Example |
|---|---|---|
| Commingling | Mixing client funds with the broker's own funds | Depositing earnest money into the operating account |
| Conversion | Using or taking client funds for the broker's own purposes | Paying office rent out of escrow money |
Commingling is the mixing; conversion is the taking. Conversion is the more serious offense, but both are grounds for discipline.
The Narrow Exception
A principal broker may put personal or business money into the escrow account in only two situations:
- To cover bank service charges on the account.
- To maintain the minimum balance the bank requires to keep the account open.
Any other deposit of personal funds is prohibited commingling.
Prohibited Practices Checklist
- Writing checks against uncollected (uncleared) deposits — wait for the deposit to clear first.
- Commingling client and broker funds.
- Converting (using) client funds for any unauthorized purpose.
- Disbursing escrow money before the contract or a written agreement authorizes it.
Worked example: A buyer's $10,000 earnest-money check is deposited Monday. The seller asks the broker to release $2,000 on Tuesday before the check clears. The broker must refuse — writing a check against an uncollected deposit violates RSA 331-A:13 even if the underlying check is eventually good.
Surety Bond, Audits, Records, and Disputes
The $25,000 Surety Bond
Every principal broker and managing broker must maintain a surety bond of not less than $25,000. Key facts the exam tests:
| Feature | Rule |
|---|---|
| Minimum amount | $25,000 |
| Term | Runs concurrently with the license period (NH licenses renew on a 2-year cycle) |
| Purpose | Protects consumers if the broker mishandles entrusted funds |
| Who needs it | Principal brokers and managing brokers (not individual salespersons) |
Commission Audit Authority
By accepting a license, the broker consents to escrow audits. The New Hampshire Real Estate Commission (operating under the Office of Professional Licensure and Certification, OPLC) may audit the escrow account and all related records. Refusing access is itself a violation.
Required Records
| Record | Purpose |
|---|---|
| Bank statements | Document monthly account activity |
| Deposit slips/records | Prove when funds were received and deposited |
| Disbursement records | Show every withdrawal and its authorization |
| Client/transaction ledgers | Track each client's balance separately |
| Transaction files | Tie deposits to specific signed contracts |
A clean ledger should let an auditor reconcile the account so that the total of all individual client balances equals the bank balance (minus any permitted service-charge/minimum-balance funds).
Handling Disputes Over Earnest Money
If a deal collapses and buyer and seller both claim the earnest money, the broker should not simply pick a side. The broker is protected from liability when acting under:
- A written agreement authorizing how disputed funds are held.
- Mutual written instructions from both parties.
- A court order (including interpleader, where the broker deposits the funds with the court).
Scenario: Buyer backs out claiming a financing contingency; seller demands the deposit as liquidated damages. The broker holds the money, requests written release instructions from both, and if none come, follows the contract's dispute clause or interpleads the funds — never disburses unilaterally.
A salesperson receives a buyer's $7,500 earnest-money check on Saturday. What must the salesperson do under New Hampshire law?
Under RSA 331-A:13, when may a principal broker deposit the broker's own money into the escrow account?
On an interest-bearing escrow account, who is entitled to the interest earned on a buyer's earnest money?
What is the minimum surety bond a New Hampshire principal broker must maintain?