A broker receives an earnest-money deposit in connection with an accepted real estate transaction. Unless the parties have agreed otherwise in writing, where should the broker place the funds?
The correct answer is B, a properly designated escrow account. Massachusetts imposes strict rules on the handling of transaction funds belonging to others.
A broker who receives deposits in connection with a transaction generally must place them in an appropriately established escrow account unless the parties have made another legally valid written arrangement. The money must remain separate from the broker ' s personal or operating funds.
Placing client money into the brokerage ' s ordinary operating account creates improper commingling. Using the money for the broker ' s personal or business purposes can constitute the much more serious act of conversion.
A salesperson who receives deposit money does not maintain an independent escrow account; the salesperson must promptly transmit the funds to the responsible employing broker for lawful handling.
The ultimate right to the money depends on the contract and outcome of the transaction. Deposit funds do not automatically become the seller ' s property merely because an offer was accepted.
Study Guide Reference: Massachusetts License Law — 254 CMR Professional Standards; Escrow Deposits, Segregation and Accounting.
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