Property Management Webinar Series
TRUST ACCOUNTS
Instructed by
Tom Morgan,
Vice President of Legal Affairs
Edra Anderson,
Associate Counsel
May 19, 2010
Whose Money Is It?
At any given time, property managers (PMs) may
have money in their possession that falls into three
categories
1. PM Money
2. Owner Money
3. Tenant Money
Commingling
As a real estate licensee, any time you hold money that
belongs to another, you must keep that money in a trust
account or risk a charge of commingling
TOC §1101.652(b)(10) – [TREC] may suspend or
revoke a license issued under this chapter or take other
disciplinary action authorized by this chapter if the
license holder, while acting as a broker or salesperson
commingles money that belongs to another person with
the license holder's own money
But What Is a Trust Account?
How do you even define “trust account”?
Where can I get one?
Do I have to have a trust account as a PM?
Are salespersons allowed to maintain trust
accounts?
What exactly goes into a trust account?
If the account earns interest, can I keep it?
Course Overview
Trust accounts unmasked
When use of trust accounts is required
The rules associated with trust accounts
Practically speaking…what does this mean for you?
Conclusion
Trust Accounts Unmasked
Black’s Law Dictionary defines client trust accounts
as a bank account, usually interest-bearing, in which
a [real estate licensee] deposits money belonging to
a client
TREC Rules states in §535.146(a) that “for the
purposes of this section, "trust account" includes any
trust, escrow, custodial, property management
account , or other account in which a licensee holds
money on behalf of another person.”
Trust Accounts Unmasked
Bottom Line: If you have money belonging to
someone else in one of your accounts, it is
considered by TREC to be a trust account
***Defining an account as a trust account implicates
numerous other provisions of TREC Rules and
TRELA (TOC 1101)***
When Use of Trust
Accounts is Required
TREC Rule §535.146(f): If escrow or other money
belonging to another is held by a licensee, it must be
maintained in a trust account. Placing such money in
a licensee's operating account constitutes
commingling.
If security deposits are held by licensee in a
property management context (as may be dictated
by your PM agreement), they must be held in a trust
account. (TAC §535.159(g))
When Use of Trust
Accounts is Required
Oftentimes, PMs will require owners provide cash to
be used for repairs and other issues that may occur
during management of property
• Must be maintained in a trust account
• Best practice: Never use one owner’s money to pay
for repairs on another owner’s property
• Best practice: Maintain a strict office policy preventing
you from spending money in excess of actual owner
cash on hand
The Rules Associated with
Trust Accounts
1. Trust accounts must always be in the broker’s name
TAC 535.2(c) A broker is responsible for the proper handling of
escrow monies placed with the broker, although the broker may
authorize other persons to sign checks for the broker.
TAC 535.159(f) A salesperson may not maintain an escrow
account or act as an escrow agent. Any money received by a
real estate salesperson which is to be held in trust pursuant to a
real estate transaction must be delivered to the salesperson's
sponsoring broker to be deposited in accordance with the
agreement of the principals in the transaction.
The Rules Associated with
Trust Accounts
2. Trust accounts must always be identified as such
TAC 535.159(h) If a broker maintains a trust or escrow account,
that account must be identified as such.
The Rules Associated with
Trust Accounts
3. Trust accounts may be savings accounts and are
otherwise not defined by statute or rule
TAC 535.159(e) It is permissible for a broker to establish a
savings account as an escrow account, provided said funds may
be withdrawn at the appropriate time for disbursal…
TAC 535.159(j) If money held in trust by a broker is held in a
noninterest bearing account, the broker is not liable for interest
or for charges on the funds unless there is an agreement to the
contrary.
The Rules Associated with
Trust Accounts
4. Trust accounts may be interest-bearing and broker
may retain interest so long as client agrees
TAC 535.159(e) …In the absence of an agreement to the
contrary signed by the person depositing the funds with the
broker, any interest earned on a savings account must be
distributed to the person or persons who are the equitable
owners of the funds during the time the interest is earned.
The Rules Associated with
Trust Accounts
5. Any money that becomes property of broker must
be removed from the trust account within 30 days
of acquiring the ownership interest
TAC 535.146(g) If a licensee acquires ownership of money in
the licensee's trust account that was originally held in trust for
another, such money must be removed from the trust account
within a reasonable time. "Reasonable time" in this context
means within 30 days after the licensee acquires ownership of
the money.
The Rules Associated with
Trust Accounts
6. Brokers are strictly prohibited from commingling
money that belongs to the broker with money they
are holding that belongs to someone else
TOC §1101.652(b)(10) – [TREC] may suspend or revoke a license
issued under this chapter or take other disciplinary action
authorized by this chapter if the license holder, while acting as a
broker or salesperson commingles money that belongs to another
person with the license holder's own money
TAC 535.146(h) (h) Paying operating expenses or making
withdrawals from a broker's trust account for any purpose other
than proper disbursement of money held in trust is prima facie
evidence of commingling money held in trust with the broker's own
funds.
What This Means for You
Any property manager must have at least one
trust account
•
Must be in the broker’s name and identified as such
•
May be any type of account, including interest-bearing
•
Need to set office policy as to whether or not individual
properties should have separate accounts
•
Best Practice: Have separate trust accounts for security
deposit funds and owner cash funds
What This Means for You
Be sure your operating expenses are kept
completely separate from any funds you are
holding in trust for an owner
• Payroll, office expenses, commissions, etc. all belong in your
operating account
• Security deposits, owner cash (e.g. for property repairs), afterexpenses rent payments, etc. all belong in a trust account
• Establish an office policy dictating how and when you will transfer
owner money (typically from rents) to owner accounts and money
that becomes yours to your operating account (typically interest)
What This Means for You
Always be prepared to provide an accurate
accounting of any money you hold in trust
• Anytime the person for whom you are holding the money asks
for the money, you must provide an accounting (or remit if
required) to the person within 30 days
• Be sure any accounting software you use in your office is able
to segregate various property accounts, security deposits and
owner funds
What This Means for You
Be sure your Property Management Agreements
and other paperwork are kept in strict order
• If owner agrees to you earning and keeping interest on trust
accounts, be sure your agreement says so
• If you require owners to furnish cash for you to keep on hand,
have that provision in your agreement
• Always be able to demonstrate what money you have in trust
and to whom it belongs (may be requested by TREC, and
owner, or a tenant)
In Case You Missed It
Maintenance of at least one trust account as a
property manager is unavoidable
Commingling of broker money with trust money is
strictly forbidden
Brokers are ultimately responsible for trust money
and trust accounts
Stay up to date and informed about current statute
and rules to maintain a compliant operation
Conclusion
Thanks for your participation in our 1st PM Webinar!
Future Topics
A.
Lease Paragraph of the TAR Lease – August
B.
Credit Reporting – October
C.
Security Deposit – December
Questions? Contact the Legal Hotline 800/873-9155
Give us your feedback! Send to:
eanderson@texasrealtors.com