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WEST VIRGINIAWEST VIRGINIA

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Trust Fund Account Trust Fund Account ManagementManagement

West VirginiaWest Virginia

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Learning ObjectivesLearning ObjectivesThe student upon finishing this chapter will be able toThe student upon finishing this chapter will be able to

► establish trust fund accountsestablish trust fund accounts► understand timely deposit of fundsunderstand timely deposit of funds► maintain trust fund recordsmaintain trust fund records► understand the two-ledger systemunderstand the two-ledger system► know deposits and disbursementsknow deposits and disbursements► handle trust fund account disputes handle trust fund account disputes ► deal with abandoned funds deal with abandoned funds ► maintain property management depositsmaintain property management deposits► deal with rental account transactionsdeal with rental account transactions

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Establishing Trust Fund AccountsEstablishing Trust Fund Accounts

► West Virginia requires all brokers to be held fully West Virginia requires all brokers to be held fully accountable for all funds placed in the broker’s accountable for all funds placed in the broker’s handshands

► Trust fund account – established to hold in trust Trust fund account – established to hold in trust money that belongs to someone else. money that belongs to someone else.

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Irrevocable Consent to Examine and AuditIrrevocable Consent to Examine and Audit

► Brokers, before receiving Brokers, before receiving trust funds, must file a trust funds, must file a “Trust Fund Account “Trust Fund Account Statement and Consent to Statement and Consent to Examine” which Examine” which irrevocably authorizes the irrevocably authorizes the West Virginia Real Estate West Virginia Real Estate Commission to examine Commission to examine and audit the account. and audit the account.

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No Interest-bearing AccountsNo Interest-bearing Accounts

► Broker Trust Fund Accounts cannot be interest Broker Trust Fund Accounts cannot be interest bearingbearing

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Where are Trust Funds Kept?Where are Trust Funds Kept?

► Trust funds must be deposited in a federally Trust funds must be deposited in a federally insured institution. insured institution.

► Federally insured institutions can be aFederally insured institutions can be a BankBank Saving and LoanSaving and Loan Saving BankSaving Bank Credit UnionCredit Union

► Any institution insured Any institution insured against loss by an against loss by an agency of the federal government. agency of the federal government.

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Timely Deposits of Trust FundsTimely Deposits of Trust Funds

► All funds belonging to others (except funds agreed All funds belonging to others (except funds agreed to by contracting parties) must be deposited into to by contracting parties) must be deposited into the broker’s trust fund accountthe broker’s trust fund account

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Timely DepositTimely Deposit

► Escrow money must be in the Escrow money must be in the trust fund account before the trust fund account before the end of the next business day.end of the next business day.

Business Days:Business Days:►Do not count Saturdays; Do not count Saturdays; ►Do not count Sundays;Do not count Sundays;►Do not count legal holidaysDo not count legal holidays

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Timely Deposit contTimely Deposit cont

► Example: The broker received the moneyExample: The broker received the money on Monday: The money must be deposited on Monday: The money must be deposited

into the trust fund account before the end of into the trust fund account before the end of TuesdayTuesday

► Example: The broker received the money on Example: The broker received the money on Wednesday: The money must be deposited Wednesday: The money must be deposited into the trust fund account before the end of into the trust fund account before the end of ThursdayThursday

► Example: The broker received the money on Example: The broker received the money on Friday: The money must be deposited into Friday: The money must be deposited into the trust fund account before the end of the trust fund account before the end of Monday. Monday.

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In order to close a Trust Fund AccountIn order to close a Trust Fund Account

► The broker must file an affidavit with the West The broker must file an affidavit with the West Virginia Real Estate Commission before closing a Virginia Real Estate Commission before closing a trust fund account. trust fund account.

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CommingleCommingle

► TheThe illegal illegal practice of practice of mixing a broker’s personal mixing a broker’s personal operating money with the operating money with the buyer’s, seller’s, tenant’s, buyer’s, seller’s, tenant’s, or landlord’s funds or landlord’s funds

►A broker can keep up to $100 of personal A broker can keep up to $100 of personal money in the account to:money in the account to: Pay for checks for the accountPay for checks for the account Pay for service chargesPay for service charges Keep the account openKeep the account open

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Negative Balance IllegalNegative Balance Illegal

► A trust fund account can A trust fund account can never show a negative never show a negative balancebalance

► The broker’s equity in the The broker’s equity in the account can never exceed account can never exceed $100$100

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Funds in a Cooperative SaleFunds in a Cooperative Sale

► The listing broker may elect to close the The listing broker may elect to close the transaction. transaction. If that happens:If that happens:

►The buyer’s agent can make the earnest The buyer’s agent can make the earnest money check payable to the listing brokermoney check payable to the listing broker

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Funds in a Cooperative Sale and the Listing Funds in a Cooperative Sale and the Listing Broker elects to Close the TransactionBroker elects to Close the Transaction

► If cash is received by the If cash is received by the buyer’s co-op agent buyer’s co-op agentA.A. Buyer’s agent can convert Buyer’s agent can convert

cash into a money order cash into a money order & give to listing broker & give to listing broker

B.B. Cash can be deposited Cash can be deposited into co-op broker’s trust into co-op broker’s trust fund account and check from that fund account and check from that account is issued to listing companyaccount is issued to listing company

C.C. A paper trail for the money MUST be A paper trail for the money MUST be maintained. maintained.

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Postdated checksPostdated checks

► Post dated checks are illegal in West Virginia for Post dated checks are illegal in West Virginia for earnest money deposits: earnest money deposits: However:However:

►if the fact of a postdated check is clearly if the fact of a postdated check is clearly spelled out in the contract; orspelled out in the contract; or

►if the person considering the offer if the person considering the offer understands and accepts the offer; then if it understands and accepts the offer; then if it goes to court---goes to court---

►the contract would probably be considered the contract would probably be considered legally bindinglegally binding

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A diamond ring instead of earnest money?A diamond ring instead of earnest money?

► This is not a common practiceThis is not a common practice It is not advisable under any circumstances to It is not advisable under any circumstances to

accept as earnest money.accept as earnest money. Anything that cannot be immediately turned into Anything that cannot be immediately turned into

cash.cash.

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Should this go into the Trust Fund Account?Should this go into the Trust Fund Account?

► When in doubt as to whether funds should go into When in doubt as to whether funds should go into the trust funds accountthe trust funds account

► Best course of action, place the money into the Best course of action, place the money into the broker’s trust fund account. broker’s trust fund account.

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Money in a Trust Fund AccountMoney in a Trust Fund Account

► Customers can give broker money to cover Customers can give broker money to cover expenses such as:expenses such as: Appraisal feesAppraisal fees Credit report feesCredit report fees Utility cut on/off feesUtility cut on/off fees

► These fees are trust money and must be These fees are trust money and must be deposited into trust fund account. deposited into trust fund account.

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Is this Trust Money?Is this Trust Money?

► Trust money does NOT include:Trust money does NOT include: License renewal feesLicense renewal fees Association membership feesAssociation membership fees MLS feesMLS fees Any money belonging to brokerAny money belonging to broker Funds belonging to the companyFunds belonging to the company Monies such as salariesMonies such as salaries Business expensesBusiness expenses

► These expenses cannot be paid from a trust fund These expenses cannot be paid from a trust fund account. account.

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Unlawful Funds in a Trust Fund Acct:Unlawful Funds in a Trust Fund Acct:IFIF

► The Commission discovers money in a trust fund The Commission discovers money in a trust fund account that can not be classified as trust fundsaccount that can not be classified as trust funds

► The broker does not maintain proper records for The broker does not maintain proper records for funds and transactions concerning the trust fund funds and transactions concerning the trust fund accountaccount

THENTHEN► The broker is in violation of the West Virginia Real The broker is in violation of the West Virginia Real

Estate License ActEstate License Act► The broker’s license may be suspended or The broker’s license may be suspended or

revoked.revoked.

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Unclaimed Trust FundsUnclaimed Trust Funds

► After a five-year periodAfter a five-year period Unclaimed trust funds must be remitted to: Unclaimed trust funds must be remitted to:

►The Unclaimed Property Division of the West The Unclaimed Property Division of the West Virginia’s Treasurer’s OfficeVirginia’s Treasurer’s Office

WELCOME TO WEST VIRGINIA UNCLAIMED PROPERTY Do we have your money?

    

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► No funds can be disbursed from fund account:No funds can be disbursed from fund account: Prior to closingPrior to closing Without the written consent of all parties. Without the written consent of all parties.

Disbursing FundsDisbursing Funds

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Trust Fund DisputeTrust Fund Dispute

► Dispute over the return of moneyDispute over the return of money► Dispute over forfeiture of moneyDispute over forfeiture of money► Broker must hold money in trust fund account until Broker must hold money in trust fund account until

written consent of disbursement, from BOTH written consent of disbursement, from BOTH parties.parties.

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Trust Fund DisputeTrust Fund Dispute► Broker can disburse funds without written consent Broker can disburse funds without written consent

of both parties when: of both parties when: broker receives a court final judgment ordering broker receives a court final judgment ordering

disposition of funds.disposition of funds. a final decision of a binding alternative dispute a final decision of a binding alternative dispute

resolution determines dispositionresolution determines disposition a civil action over funds is filed, broker deposits a civil action over funds is filed, broker deposits

funds with court (Interpleader) funds with court (Interpleader)

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Trust Fund DisputeTrust Fund Dispute► Written consent not required when:Written consent not required when:

seller rejects the offer; seller rejects the offer; buyer withdraws offer before being notified of buyer withdraws offer before being notified of

acceptanceacceptance►Then…. the buyer’s money must be returned Then…. the buyer’s money must be returned

without delaywithout delay►Broker can wait a Broker can wait a

reasonable length of reasonable length of time before returning time before returning money to assure the money to assure the check has cleared check has cleared

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Trust Term DisbursementTrust Term Disbursement

► Broker’s Commissions can NEVER be taken Broker’s Commissions can NEVER be taken directly from the trust fund accountdirectly from the trust fund account

► The broker can NEVER withhold any portion of the The broker can NEVER withhold any portion of the earnest money even though a commission is earnest money even though a commission is earned.earned.

► The broker must disburse the escrow money as The broker must disburse the escrow money as directeddirected

► Broker must look to seller for compensation for Broker must look to seller for compensation for services rendered. services rendered.

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Brokerage Firms in West Brokerage Firms in West Virginia MUSTVirginia MUST

Maintain Records of ALL Maintain Records of ALL Funds Funds

Deposited into Deposited into Trust Fund AccountTrust Fund Account

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Trust FundsTrust Funds

► Trust Fund Account Records Must Include:Trust Fund Account Records Must Include: date of receiptdate of receipt name from whom money was receivedname from whom money was received date of withdrawaldate of withdrawal to whom money belongsto whom money belongs for whose account money was received for whose account money was received other pertinent transaction information other pertinent transaction information

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Keeping Trust Fund Account RecordsKeeping Trust Fund Account Records

► A two-journal A two-journal record-keeping record-keeping system helps broker system helps broker comply with record comply with record requirementsrequirements General ledger – General ledger –

all receipts and all receipts and disbursements disbursements recorded in recorded in chronological chronological orderorder

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General LedgerGeneral Ledger

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Keeping Trust Fund Account RecordsKeeping Trust Fund Account Records

Individual ledgers Individual ledgers (separate from (separate from general ledger) general ledger) chronological chronological receipts and receipts and disbursements for disbursements for each separate each separate transaction. transaction.

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Ledger for TransactionLedger for Transaction

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Trust Fund Account RecordsTrust Fund Account Records

► ReceiptsReceipts Both journals must identify Both journals must identify

►DateDate►Name of depositorName of depositor►Name of principal or property IDName of principal or property ID►Amount deposited. Amount deposited.

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Trust Fund Account RecordsTrust Fund Account Records

► Purpose of two-journal Purpose of two-journal system:system: Facilitates the Facilitates the

required monthly required monthly reconciliationreconciliation

The general ledger The general ledger account balance at account balance at month’s end must month’s end must match the bank’s match the bank’s balance and balance and individual ledger individual ledger accountsaccounts

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Purpose of Individual LedgersPurpose of Individual Ledgers

► Individual ledgers alert the broker when an Individual ledgers alert the broker when an account is low on fundsaccount is low on funds

► Prevents broker from spending more money than Prevents broker from spending more money than the individual account hasthe individual account has

► Prevents unknowingly using someone else’s funds Prevents unknowingly using someone else’s funds to pay for a different account to pay for a different account

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Property Management FundsProperty Management Fundsandand

Security Deposits Security Deposits

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Property Management & Rental AccountsProperty Management & Rental Accounts

► Funds received from property management and/or Funds received from property management and/or rental account transactions should be:rental account transactions should be: Pursuant to a written property management Pursuant to a written property management

agreementagreement Pursuant to a written rental agreementPursuant to a written rental agreement

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Property Management and Rental AccountsProperty Management and Rental Accounts

►Receipts from property management or Receipts from property management or rental account transactions may be rental account transactions may be deposited into a separate non interest deposited into a separate non interest bearing account. bearing account.

► Not less than annually, the broker must provide Not less than annually, the broker must provide complete accounting of all monies received and complete accounting of all monies received and disbursed from this account. disbursed from this account.

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Property Management & Rental AccountsProperty Management & Rental Accounts

► Broker must maintain individual ledgers for each Broker must maintain individual ledgers for each tenant.tenant.

► Ledger must identifyLedger must identify Rental unitRental unit Security depositSecurity deposit Receipts with date and check number Receipts with date and check number Disbursements with date and check number Disbursements with date and check number

► ReconciliationsReconciliations Brokers must provide a written bank Brokers must provide a written bank

reconciliation of each bank statement received reconciliation of each bank statement received as of the ending date on the statement.as of the ending date on the statement.

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Reconciled Bank StatementReconciled Bank Statement******

Must Equal Must Equal General LedgerGeneral Ledger

******Must EqualMust Equal

Sum of Subsidiary LedgersSum of Subsidiary Ledgers******

All Postings Must be in All Postings Must be in Chronological OrderChronological Order

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Every broker can expect to Every broker can expect to have the trust have the trust

fund account (s)fund account (s)examined on a periodic basisexamined on a periodic basis

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Maintain the account!Maintain the account!A few simple rules:A few simple rules:

► Immediately record the amount in the Individual Immediately record the amount in the Individual Ledger and the General Ledger when money is Ledger and the General Ledger when money is accepted or disbursedaccepted or disbursed

► Routinely check to see balance in checkbook and Routinely check to see balance in checkbook and balance in General Ledger are equal and equal balance in General Ledger are equal and equal the total of the Individual Ledgersthe total of the Individual Ledgers

► Be sure to make entries for Broker’s Equity if Be sure to make entries for Broker’s Equity if necessary for service charges or bank feesnecessary for service charges or bank fees

► Reconcile the bank statement each and every Reconcile the bank statement each and every monthmonth

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Broker’s Bookkeeping SystemBroker’s Bookkeeping System

► Commission requires broker’s system is current at Commission requires broker’s system is current at ALL timesALL times

► Visits by the investigator are unannouncedVisits by the investigator are unannounced

► Efficiency is improved if all files and records are Efficiency is improved if all files and records are maintained in a neat and orderly fashion.maintained in a neat and orderly fashion.

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Broker’s Bookkeeping System:Broker’s Bookkeeping System:Broker Must Provide Investigator Broker Must Provide Investigator

► Checkbook and check registerCheckbook and check register► Checks (canceled, voided and unused)Checks (canceled, voided and unused)► Bank statements and reconciliationsBank statements and reconciliations► Deposit slips (original and/or duplicate)Deposit slips (original and/or duplicate)► Bookkeeping System (ledgers and journals)Bookkeeping System (ledgers and journals)► Transaction files (pending and closed)Transaction files (pending and closed)

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Every broker must have the Every broker must have the trust fund account records trust fund account records current and up to date atcurrent and up to date at

all times, so that the all times, so that the investigator can completeinvestigator can complete

the entire examination eventhe entire examination evenin the broker’s absence.in the broker’s absence.

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If you have any question, always feel Free to e-mail the instructor at:

Instructors@CookeSchool.com

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Test your Knowledge

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1. Before a broker opens a trust fund account, the 1. Before a broker opens a trust fund account, the broker:broker:

A. must register the account with the commission.B. can deposit earnest money in an operating

account.C. files an irrevocable consent to examine and a

trust fund account statement with the commission.

D. may commingle trust funds as long as careful records are kept.

A broker must file a “Trust Fund Account Statement A broker must file a “Trust Fund Account Statement and Consent to Examine” that irrevocably authorized and Consent to Examine” that irrevocably authorized the Commission to audit the account. This must be the Commission to audit the account. This must be accomplished before a trust fund account can be opened.accomplished before a trust fund account can be opened.

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2. When a listing broker will close the transaction, 2. When a listing broker will close the transaction, the agent for buyer’s broker: the agent for buyer’s broker:

A. is responsible for delivering the earnest money to closing.

B. gives the listing broker any cash that is an earnest money deposit.

C. has 2 days to deliver the earnest money to the listing broker.

D. must establish a paper trail for the escrow account.

When a listing broker elects to close a transaction, When a listing broker elects to close a transaction, the buyer’s broker must establish a paper trail for the buyer’s broker must establish a paper trail for the earnest money to be held by the listing broker. the earnest money to be held by the listing broker.

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3. All funds belonging to others must be deposited 3. All funds belonging to others must be deposited into a trust fund account:into a trust fund account:

A. before 2 days pass.B. on the next business day.C. the day of the receipt.D. when the broker receives the money from the

agent.

All trust fund money must be deposit into the All trust fund money must be deposit into the broker’s trust fund account no later than the next broker’s trust fund account no later than the next business day after receipt. business day after receipt.

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4. Monies in a trust fund account can include:4. Monies in a trust fund account can include:

A. license renewal fees.B. MLS fees.C. commissions to the brokerD. credit report fees.

Out of the list given, only money given to a broker by Out of the list given, only money given to a broker by a customer to pay for transaction expenses such asa customer to pay for transaction expenses such asutility on/off fees, appraisal fees, or credit report fees utility on/off fees, appraisal fees, or credit report fees can be placed into the trust fund account. can be placed into the trust fund account.

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5. The broker can keep a portion of the earnest 5. The broker can keep a portion of the earnest money: money:

A. if the seller refuses to pay the commission.B. when authorized by the buyer.C. under no circumstances. D. when authorized by the seller.

The broker has no legal right to money in the trust The broker has no legal right to money in the trust fund account. All monies must be disbursed. If the fund account. All monies must be disbursed. If the seller owes the commission, this must be addressed seller owes the commission, this must be addressed with the seller. with the seller.