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BROKER CORNER

Trust Funds

2/7/2020

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Trust funds are other people’s money (OPM).  A licensed salesperson or associate broker must place all cash, checks or other items of value received in a brokerage capacity into the custody of a broker holding the licensee’s license as soon after receipt as practically possible.  It is possible to receive things of value other than cash or checks like jewelry or a vehicle.  In these cases, the Broker must make appropriate arrangements for the safekeeping of those items.

Litmus Test for Trust Funds.
What funds are required to be held in trust? The litmus test is this: Do the funds has the potential of being returned to the original owner of the property or have the potential of any other future distribution.  If so, the funds have to be placed into the Broker’s trust account.

Common EMD Violations.
A common violation of licensees involves the basic sales agreement when a contract is signed by all of the parties and clearly states an amount of earnest money.  Most contracts actually state that the Earnest Money Deposit (EMD) has been received or is attached, when, really, it has not.  It may be the case that the buyer did not have a check on hand or that the funds would only be good the following day or for whatever other reason.

If a contract is written stating the EMD has been received when it is actually not received, it is a direct violation of the License Law, Rules and Regulations and can carry a fine, a citation, a requirement for additional education or other sanctions by GREC.

A possible solution to this problem is to state in an offer that $0 Earnest Money Deposit is given at the time of offer and that the Earnest Money Deposit will be given by the Buyer at the time the contract is bound or at a later time specified in the contract.  This gives the buyer time to get the deposit together and avoids the licensee being in violation of the Georgia License Law, Rules and Regulations.

Unaccepted offers. 
Unaccepted offers are still required to be kept by the Broker for a period of 3 years if the offer involved earnest money.  If there is a concern that the offer will not be accepted, the offer could be written with $0 EMD, as earnest money is not an essential element of a contract.  A stipulation can be included in the offer that if the offer is accepted, the Buyer will provide an earnest money payment at Binding or a certain later date and further stipulate what would happen if the Buyer fails to do so.  What if the contract states that a check is to be held for a period prior to deposit?  If so, the check must be held by the Broker, never by the licensee.  So, take the check to the Broker asap.  The Broker can hold it.  A licensee can’t.
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  • RMAA HUB
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  • Local Service Providers
    • Attorney Partners
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    • Home Cleaning Services
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    • Home Warranty Companies
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    • Photography
    • Estate Sales/Clean-outs
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