Brokerage Firms and Record-keeping
A brokerage firm is a business. All businesses must keep records for tax purposes. In addition, Florida brokerage firms must keep records in order to account for other people’s money that is received and disbursed, or transferred.
Florida real estate law doesn’t require brokers to maintain escrow accounts for holding other people’s money.
Escrow or trust funds may be held by an attorney or a title company.
Even so, brokers are required by law to account for other people’s money as monies are received and disbursed, and the records must be kept available for audit for at least five years.
Brokers have a legal obligation to ensure that sales associates collect escrow payments and that the deposits are made in accordance with the timeframe required by law.
Brokers who do not have an escrow account are still legally required to verify deposits have been received within the time frame required by law.
Definition of Deposit
A “deposit” is a sum of money, or its equivalent, delivered to a real estate licensee, as earnest money, or a payment, or a part payment, in connection with any real estate transaction named or described by Florida Statute.
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A deposit shall extend to and include not only cash, or currency, but any medium of exchange, or any securities to be converted into money, to be held or converted into cash or bank credits.
Placing Deposits With Title Companies Or With An Attorney
When a deposit is placed or to be placed with a title company or an attorney, the licensee who prepared or presented the sales contract shall indicate on that contract the name, address, and telephone number of such title company or attorney.
Written Verification of Deposit
Within three business days after each deposit is due under the sales contract, the Licensee’s broker shall make written request to the title company or attorney to provide written verification of receipt of the deposit.
Real Estate Sales Associates
Every sales associate who receives any deposit shall deliver the same to the broker or employer no later than the end of the next business day following the receipt of the item to be deposited.
Saturday, Sundays and legal holidays shall not be construed as business days.
Receipt by a sales associate or any representative of the brokerage firm shall constitute receipt by the broker.
Definition of “Immediately”
“Immediately” means the placement of a deposit in an escrow account no later than the end of the third business day following the day of receipt of the item to be deposited. Saturdays, Sundays and legal holidays shall not be considered as business days. Broker Responsibility
A broker shall not be responsible for the payment of any check or draft, unless the broker, through culpable negligence, fails to deposit the same in the regular course of business, and the check or draft is not paid to such culpable negligence, and damage results to some party entitled to complain of said culpable negligence.
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Brokerage Firms and Record-keeping
Florida law does not require any specific type of bookkeeping system be used by brokers who maintain escrow accounts.
The following slides proposing the minimum standards for a brokerage escrow account are only given as an example or model in order to help students become familiar with bookkeeping standards.
Accurate trust account records are essential to fulfilling a broker’s responsibilities. Real Estate Broker
Every broker who receives from sales associates, principals, prospects, or other persons interested in any real estate transaction, any deposit, fund, money, check, draft, personal property, or item of value shall immediately place the same in a bank, savings and loan association, trust company, credit union or title company having trust powers, in an insured escrow or trust account. The deposit may be placed with an attorney.
Minimum Trust Account Records
Minimum trust account records should include:
1. A separate bank or savings and loan association account or accounts in the name of the broker or brokerage firm and clearly labeled as a “trust account.” 2. Original or clearly legible copies of deposit slips if the copies include all data on
the originals, and, in case of currency or coin, an additional cash receipts book identifying date and source of all trust funds received and the client or transaction for which the funds were received.
3. Original canceled checks or clearly legible copies of original canceled checks, including any voided checks, all of which must be numbered consecutively, if the copies include all endorsements and all other data and tracking information. 4. Other documentary support for all disbursements and transfers from the trust
account.
5. A separate cash receipts and disbursements journal, including columns for receipts, disbursements, transfers and the account balance, containing at least: a. Name of client or transaction for which funds were received, disbursed, or
transferred;
b. Date on which all trust funds were received, disbursed, or transferred; c. Check number of all disbursements; and
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6. Separate file or ledger with an individual card or page for each client or transaction, showing all individual receipts, disbursements, or transfers and any unexpended balance with
a. Identification of client or transaction;
b. Date on which trust funds were received, disbursed, or transferred: c. Check number for all disbursements; and
d. Reason for which trust funds were received, disbursed, or transferred. 7. Monthly reconciliation of each escrow account.
Monthly Reconciliation
Florida law requires broker escrow accounts be reconciled monthly. The broker must personally review and sign the written reconciliation.
The broker is wholly liable for escrow account activity and for maintaining escrow records for five years, or two years after litigation involving the records has ended, whichever is longer.
Trust Liability as Defined by Florida Law
Trust liability is defined as the sum total of all deposits received, pending and being held by the broker at any point in time.
Broker’s Escrow Records
Rules of the FREC require a broker, once monthly, to cause to be made a written statement comparing the broker’s total liability with the reconciled bank balance (s) of all trust accounts.
Statement-Monthly Reconciliation
The minimum information to be included in the monthly statement reconciliation must:
Date reconciliation was undertaken, Date used to reconcile the balances, Name of the bank (s),
Name of the account (s) and account number (s), Account balance (s) and date (s),
Deposits in transit,
Outstanding checks identified by date and check number, An itemized list of the broker’s trust liability,
Any other items necessary to reconcile the bank account balance (s), The balance per the broker’s checkbook (s), and
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Other trust account books and records disclosing the date of receipt and the source of all funds.
Reconciliation
Name of bank: ____________________________________________ Name of account: __________________________________________ Account number: ___________________________________________ Reconciliation for the month of: ________________________________ Date used for reconciliation: __________________________________ Date reconciliation performed: ________________________________ Outstanding Checks Deposits in Transit Date Check# Amount Date Amount _____ _______ _________ _____ _________ _____ _______ _________ _____ _________ _____ _______ _________ _____ _________ _____ _______ _________ _____ _________ _____ _______ _________ _____ _________ Total - ______________ Total - _______________ Balance Per Bank Statement $______________________ Add Deposits in Transit (+)
$______________________ Subtract Outstanding Checks (-)
$______________________
Adjusted Account Balance (=) $______________________
List of Broker’s Trust Liability
_________________________________ $_____________ _________________________________ $_____________
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List of Broker’s Trust Liability
_________________________________ $_____________ _________________________________ $_____________ _________________________________ $_____________ _________________________________ $_____________ Total Liability $______________________ Adjusted Account Balance and Total Liability should agree. If Adjusted Account Balance and Total Liability do NOT agree, explain the difference:
Total Shortage $__________ Reason for shortage & corrective action
taken________________________________
Total Overage $__________
Reason overage & corrective action taken (if necessary)_____________________. I __________________________________, Broker, have reviewed this monthly reconciliation statement on _____________________________Date
_____________________________________________Signature of Broker
The broker must review, sign, and date the monthly statement-reconciliation.
Whenever the trust liability and the bank balances do not agree, the reconciliation must contain a description or explanation for the differences (s) and any corrective action taken in reference to shortages or overages of funds in the account (s).
Whenever a trust bank account record reflects a service charge or fee for a non- sufficient check being returned or whenever an account has a negative balance, the reconciliation must disclose the cause (s) of the returned check or negative balance and the corrective action taken.
A broker shall be provided a reasonable amount of time to correct escrow errors if there is no shortage of funds and such errors pose no significant threat to economically harm the public.
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According to FREC rules, a reasonable amount of time is defined as 30 days from the date the last reconciliation statement was performed or should have been performed. 61J2-14.010(2), F.A.C.
Authority to inspect and audit, 475.5016, F.S.
Duly authorized agents and employees of the Department have the power to inspect and audit in a lawful manner at all reasonable hours any broker or brokerage office licensed under Chapter 475, F.S., for the purpose of determining if any provisions of the chapter 475 or chapter 455, or any rule promulgated under the authority of either chapter is being violated.
It is the state’s policy that the purpose of regulation is to protect the public by attaining compliance with the policies established by the Legislature.
Notice of Noncompliance
Fines and other penalties may be provided in order to assure compliance; however fines and penalties are secondary to the primary goal of attaining compliance with an agency’s rules.
Each agency shall issue a notice of noncompliance as a first response to a minor violation of a rule.
A violation of a rule is a minor violation if it does not result in economic or physical harm to a person or adversely affect the public health, safety, or welfare or create a significant threat of such harm.
A notice of noncompliance is a notification issued to the person or business subject to the rule.
The intent of the Legislature is that a notice of noncompliance should be the first response to a minor violation in an instance in which it is reasonable to assume that the violator was unaware of the rule or unclear as to how to comply with it.
A notice of noncompliance is a notification issued to the person or business subject to the rule.
The intent of the Legislature is that a notice of noncompliance should be the first response to a minor violation in an instance in which it is reasonable to assume that the violator was unaware of the rule or unclear as to how to comply with it.
It is the obligation of each agency to review all of its rules and designate those for which a violation would be a minor violation and for which a notice of noncompliance
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must be the first enforcement action taken against a person or business subject to regulation.
In regard to escrow accounts, the Commission Rules 61J2-14.012 and 61J2- 14.014(2), F.A.C., designate as minor violations subject to notices of noncompliance:
“failure to sign the escrow account reconciliation if the account balances.” and “failure to stop interest from accruing prior to disbursement.”
The time for compliance begins to run from the time the licensee, registrant or permit-holder receives the notice of noncompliance.
Failure to comply within the time allowed shall result in the issuance of a citation, and if there is no citation listed for the violation, then regular disciplinary proceedings will be instituted.
The notice of noncompliance may be delivered to the licensee, registrant or permit holder’s current mailing address by certified mail, by restricted delivery or by personal service.
The notice of noncompliance may be issued by the Division of Real Estate. Rights of Broker in Deposits
A broker who receives a deposit does not have any right to or lien upon the said deposit until the transaction involved has been closed.
A depositor has the right to demand return of a deposit until such time as another party has acquired some interest or equity.
The depositor’s interest in the deposit is subject to the right to make an express agreement to compensate the broker for time and expense incurred prior to a demand for the return of the deposit.
The depositor’s right to demand return of the deposit again accrues upon a breach by the other party to the contract or agreement under which it is held, or the expiration of the time fixed or a reasonable time, for performance of the things necessary to establish the exclusive right of such other party to the deposit.
A broker shall not deliver the deposit to the other party to the transaction until the transaction is closed, except as otherwise directed or agreed to specifically by the depositor.
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The interested parties involved, other than the broker, may by express agreement, alter the disposal of the deposit, but the burden shall be on the broker to establish good faith in the matter if such agreement is to the broker’s advantage.
The broker shall recognize and comply with the joint directions of said parties in such cases, except where the parties act in bad faith with intent to deprive the broker of a commission.
Broker’s Good Faith Doubt Concerning Escrowed Property
A broker who has a good faith doubt as to whom is entitled to any trust funds held in the broker’s escrow account, must provide written notification to the Commission within 15 business days after having such doubt and must institute one of the settlement procedures within 30 business days after having such doubt.
A determination of good faith doubt is based on facts of each case brought before the FREC. 61J2-10.032, F.A.C...
A Broker’s Conflicting Demands on Escrowed Property
A real estate broker, upon receiving conflicting demands for any trust funds being maintained in the broker’s escrow account, must provide written notification to the Commission within 15 business days of the last party’s demand and the broker must institute one of the settlement procedures set forth in Section 475.25(1)(d)1., F.S., within 30 business days after the last demand. 61J2-10.032, F.A.C.
Broker’s Good Faith Doubt Concerning or Conflicting Demands on, Escrowed Property
If a licensee, in good faith, entertains doubt as to what person is entitled to the accounting and delivery of escrowed property, or if conflicting demands have been made upon the licensee for the escrowed property, which property she or he still maintains in her or his escrow or trust account, the licensee will notify the Commission in writing and institute one of the settlement procedures. 475.25(1)(d)1, F.S.
Lawfully Required Settlement Procedures
After promptly notifying the Commission of good-faith doubts or conflicting demands, the licensee must promptly either
a. Request that the Commission issue an escrow disbursement order determining who is entitled to the escrowed property; or
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b. With the consent of all parties, submit the matter to arbitration (decision of arbitrator is legally binding); or
c. By interpleader or otherwise, seek adjudication of the matter by a court; or d. With the written consent of all parties, submit the matter to mediation. Conditions to Mediation
Mediation is a nonbinding decision by a mediator.
The Department may conduct the mediation or contract with a professional mediator to provide the service.
Payment for mediation must be agreed to in writing by the parties.
The mediation process must be completed within 90 days following the last demand or the licensee must promptly employ one of the other escape procedures required by law.
Lawfully Required Settlement (Escape) Procedures
If the licensee promptly employs one of the escape procedures required by law, and abides by the order or judgment that results, no administrative complaint may be filed against the licensee for failure to account for, deliver, or maintain the escrowed property. 475.25(1)(d)1, F.S.
Three Exceptions to Instituting a Settlement Procedure
When there are conflicting demands on the escrow deposit, there are three circumstances under which a licensee may disburse property from the licensee’s escrow account without notifying the commission or employing one of the escape procedures.
1. If the buyer of a residential condominium unit delivers to a licensee written notice of the buyer’s intent to cancel the contract for sale and purchase, as authorized by law, the licensee may return the escrowed property to the purchaser without notifying the Commission or initiating any of the escape procedures.
2. If the buyer of real property in good faith fails to satisfy the terms in the financing clause of a contract for sale and purchase, the licensee may return the escrowed property to the purchaser without notifying the Commission or initiating any of the escape procedures.
3. Brokers who are entrusted with an earnest money deposit pursuant to a residential sales contract used by the Department of Housing and Urban Development (HUD) in the sale of property owned by HUD, are not required
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to follow the settlement procedures set forth in Section 475.25(1)(d)1, F.S., but are required to follow HUD’s broker participation rules. 61J2-10.032, F.A.C.
Residential Landlord and Tenant Act Deposit Money or Advance Rent
Whenever money is deposited or advanced by a tenant on a rental agreement as security for performance of the rental or as advance rent for other than the next immediate rental period, the landlord or the landlord’s agent has legal obligations regarding the money.
Duty of Landlord or Landlord’s Agent
When money is collected from a tenant as security or advance rent, the landlord or the landlord’s agent shall either:
a. Hold the total amount of such money in a separate non-interest bearing account; or
b. Hold the total amount of such money in a separate interest-bearing account; or
c. Post a surety bond with the clerk of the circuit court for $50,000 or the total amount of deposits and security money, whichever is less.
If the landlord as principal executes a surety bond with the clerk of the circuit court in the county in which the dwelling unit is located, the landlord shall pay to the tenant