If a real estate broker maintains a trust account, which of the following is generally PROHIBITED?

COMMINGLING is the prohibited mixing of client trust funds with the broker's own personal or operating funds. It violates the fundamental principle that the broker holds client money as a FIDUCIARY — the funds remain the property of the client until properly disbursed at closing or returned. Examples of commingling: (1) Depositing client earnest money into the broker's personal or operating bank account; (2) Using trust funds for operating expenses, even temporarily; (3) Maintaining a personal balance in the trust account beyond a small allowed amount for bank service charges (some states permit a minimum balance to keep the account open, typically $100-1000); (4) Failing to remove personal commissions from the trust account promptly after closing; (5) Using one client's funds to cover another transaction (also called 'conversion'). CONVERSION is more serious than commingling — it's using client funds for an unauthorized purpose, even temporarily. Most states treat conversion as evidence of fraud and grounds for criminal prosecution as well as license revocation. To AVOID commingling: (1) Maintain a separate, clearly labeled trust account (or accounts — some brokerages have separate sales trust, rental trust, etc.); (2) Never deposit personal or commission funds into the trust account; (3) Remove commissions PROMPTLY at closing (typically same day or next business day); (4) Reconcile monthly with bank statements; (5) Maintain individual ledgers for each transaction showing all deposits and disbursements; (6) Promptly notify clients when funds are deposited and disbursed.

Auditing: Many state commissions audit trust accounts, sometimes randomly. They check for: proper separation, timely deposits, accurate ledgers, monthly reconciliation, no missing funds, no improper disbursements. Other prohibited acts include: writing checks against undeposited funds, allowing checks to be written by unauthorized personnel, failing to maintain records for required periods.