What is a real estate trust account (also called an escrow account or client funds account)?

TRUST ACCOUNTS (or escrow accounts or client funds accounts) are separate bank accounts where brokers hold funds belonging to others — earnest money deposits, lease security deposits, rental funds, settlement funds. Strict requirements (state-specific but widely shared): (1) SEPARATE FROM PERSONAL/OPERATING — brokers cannot commingle their own funds with client funds; commingling is a serious license law violation and can lead to fund seizure, fines, suspension, revocation; (2) AT AN APPROVED BANK — typically a state-chartered or federally insured bank within the state; (3) BROKER IS RESPONSIBLE — broker maintains and reconciles the account; salespersons typically don't have signing authority; (4) DETAILED RECORDS — every deposit and disbursement tracked, customer ledger maintained, monthly reconciliation; (5) INTEREST: in some states, broker can keep interest if disclosed; in others, interest belongs to the client; some states require interest-bearing accounts with interest going to a state fund (IOLTA-like — Interest on Lawyers Trust Accounts is a related concept); (6) AUDITS: state commission may audit trust accounts; (7) BOND or INSURANCE may be required; (8) TIME LIMIT: client funds must be deposited within specified time after receipt (often 1-3 business days). VIOLATIONS — common types: (a) Commingling (mixing funds); (b) Conversion (using client funds for own purposes — serious crime); (c) Failure to deposit timely; (d) Failure to maintain records; (e) Failure to reconcile; (f) Disbursing without authority; (g) Refusing to refund earnest money. SHORTAGES in trust accounts trigger immediate state investigation. THEFT from trust accounts is criminal embezzlement plus license violation. EARNEST MONEY HANDLING is a frequent state portion exam topic — know who deposits, when, into which account, how disputes are handled, when funds are released or returned.