What is 'commingling' in real estate brokerage and why is it prohibited?

Commingling is the prohibited practice of mixing client trust funds with the broker's own funds. Examples: depositing earnest money into the broker's operating account; using the trust account to pay business expenses; allowing the trust account balance to fall below the total of client deposits; failing to transfer earned commissions promptly from the trust account to the operating account (creates commingling in the other direction). Why prohibited: (1) Client funds belong to the client and must be protected from the broker's creditors; (2) Mixing obscures records and prevents accurate reconciliation; (3) It creates temptation and opportunity for conversion (theft); (4) Banks and regulators cannot audit effectively if accounts are mixed. Penalties for commingling: license suspension or revocation; civil liability to clients; criminal charges in egregious cases (especially when combined with conversion); personal liability for the managing broker. Even unintentional commingling — like depositing a personal check into a trust account by mistake — is a violation. Some states allow a small 'broker funds' amount (e.g., $100) in the trust account to cover bank fees without being considered commingling.