3.3 Trust Account Management
Key Takeaways
- ORC 4735.18 and 4735.24 require brokers to keep client funds in a special/trust account that is noninterest-bearing and separate from personal or business funds
- The depository's name and account number must be reported in writing to the superintendent of the Division of Real Estate
- Commingling client funds with the broker's own money is prohibited; conversion (using client funds personally) is grounds for license revocation and criminal prosecution
- Transaction records — receipts, disbursements, listings, offers — must be retained for three years
- Disputed earnest money is held until written agreement or court order; an interpleader lets the broker deposit funds with the court and step out
Why Trust Accounts Dominate Discipline Cases
Mishandling client funds is one of the most common — and most severely punished — license-law violations in Ohio. The exam tests the trust (special) account rules closely because they protect consumers' earnest money, security deposits, and rents.
Trust Account Setup (ORC 4735.18 / 4735.24)
A broker must maintain a special or trust bank account that is separate and distinct from any personal or business account and is used only for funds the broker holds in a fiduciary capacity.
| Requirement | Specification |
|---|---|
| Account type | Special/trust account, noninterest-bearing (unless statute/parties direct otherwise) |
| Separation | Distinct from personal and brokerage operating funds |
| Labeling | Checks and deposit tickets bear 'trust account' or 'special account' |
| Notice to state | Depository name, location, and account number reported in writing to the superintendent |
Correction worth memorizing: The default Ohio trust account is noninterest-bearing. Do not assume an interest-bearing account is automatically allowed — interest belongs to the client, not the broker, and earning it without authority can itself be a violation.
Funds That Belong in Trust
| Fund type | Source |
|---|---|
| Earnest money | Deposits on purchase contracts |
| Security deposits | Rental property the broker manages |
| Rent collections | Property-management client funds |
| Down payments / option fees | Advance payments under contracts |
Deposit Timing
Funds must be deposited promptly and held per the purchase agreement. ORC 4735.24 does not set one rigid statutory number of days; the broker deposits in accordance with the purchase agreement, and the Division's guidance treats roughly 24-48 hours as reasonable. Receipt occurs when the check is physically received, a wire is confirmed, or cash is taken in (document cash immediately).
Prohibited Practices
Commingling
Commingling is mixing client trust funds with the broker's personal or business funds. It is prohibited. The only routine exception is keeping a small amount of the broker's own money in the account to cover bank service charges, so the account is not overdrawn.
| Permitted | Prohibited |
|---|---|
| Minimal broker funds to cover bank fees | Depositing personal income into the trust account |
| One clearly labeled trust account | Running client funds through the operating account |
Conversion
Conversion is using client trust funds for the broker's own purposes — even temporarily 'borrowing' to cover payroll. It is far more serious than commingling: it is grounds for license revocation and can be prosecuted as a crime (theft). The intent to repay is no defense.
Premature Disbursement
A broker may release trust funds only when:
- The transaction closes and funds go to the closing/escrow agent, or
- Both parties give written instructions to disburse, or
- A court order directs disbursement.
Record Retention and Reconciliation
Under ORC 4735.18, brokers must keep complete and accurate records of all transactions — listings, earnest-money receipts, offers and acceptances, and records of receipts and disbursements — for three years from the date of the transaction. Best practice is to reconcile the trust account against the bank statement monthly and resolve any discrepancy immediately.
| Record | Retention |
|---|---|
| Trust account ledgers | 3 years |
| Bank statements / reconciliations | 3 years |
| Earnest-money receipts | 3 years |
| Offers, acceptances, listings | 3 years |
Earnest Money Disputes and Interpleader
When buyer and seller disagree over who gets the earnest money, the broker is a neutral stakeholder and must not take sides or pick a winner.
- Hold the funds in trust; do not disburse.
- Document the dispute in writing.
- Seek written agreement from both parties.
- If unresolved, file an interpleader action: deposit the funds with the court, name both buyer and seller, and let the judge decide.
Statutory backstop: Under ORC 4735.24, if disputed funds remain unclaimed and no written instructions or notice of court action arrive within roughly two years, the broker follows the statute's process for handling the long-unclaimed funds rather than keeping them.
Property-Management Trust Accounts
A broker who manages rentals handles a different stream of fiduciary money — security deposits and rent — and these must also live in a trust/special account, not the broker's operating account. Under Ohio landlord-tenant law (ORC 5321.16), a security deposit over $50 or one month's rent (whichever is greater) held more than six months accrues interest to the tenant on the excess, and the deposit must be returned with an itemized statement of deductions within 30 days after the tenancy ends. The broker, as the owner's agent, must keep these funds segregated and accounted for separately from sales escrow.
| Property-management fund | Handling rule |
|---|---|
| Security deposits | Held in trust; partial interest to tenant if over the threshold and held 6+ months |
| Collected rent | Trust account until disbursed to the owner per the management agreement |
| Deposit return | Itemized statement and refund within 30 days of move-out |
Audits and Discipline
The Ohio Division of Real Estate may audit a broker's trust account at any time. Failure to maintain the account, commingling, conversion, or sloppy records can lead to a formal complaint before the Ohio Real Estate Commission, which can impose fines, suspend, or revoke a license. Because the broker is responsible for funds handled by every affiliated licensee, trust-account compliance is ultimately the principal broker's personal obligation — agents cannot shift blame upward or downward.
Exam anchor: The single most-tested trust-account fact set is the three-year record retention, the noninterest-bearing default account, and the rule that conversion is criminal while commingling is a regulatory violation. Lock those three in.
An Ohio broker uses $4,000 of earnest money from the trust account to make payroll, intending to repay it next week. This is best described as:
How long must an Ohio broker retain transaction records such as earnest-money receipts and disbursement records?