Related Articles (OHIO REALTOR and eConnections)
WHITE PAPER: Earnest Money Trust Accounts
FAQS: Earnest Money: License Law
Published by OAR’s Legal Services Group
Summary: FAQs; Naming a trust account; branch offices and trust accounts.
FAQS: White Paper: Earnest Money
Published by OAR’s Legal Services Group (2009)
Summary: Earnest money deposits are involved in almost every real estate transaction. Although not essential to the creation of a valid and binding purchase agreement, it is the rare residential real estate transaction that does not require the buyer to make an earnest money deposit. The earnest money is almost always turned over to the real estate broker who holds the money in trust for the parties to the transaction. Since the Ohio real estate licensing laws place some very definite obligations on the broker with respect to the earnest money deposit, it is the purpose of this paper to discuss generally the law of earnest money and, more specifically, the manner in which the broker should handle the earnest money deposit to comply with the state licensing laws.
FAQS: Earnest Money: General
Published by OAR’s Legal Services Group
Summary: FAQs: Earnest money deposits; responsibility for holding the deposit and accepting other offers. See ODRE’s Sample form: trust account ledger
FAQS: Earnest Money: Property Management Accounts
Published by OAR’s Legal Services Group
Summary: FAQs
Earnest Money Trust Accounts: License Law
1. What name must be used on a broker’s trust account?
A: A broker’s trust account must reflect the broker’s name as it appears on his/her license. If the broker has been granted permission by the Division to do business in a trade name (referred to by the Division as a “dba”) then that is the only name that should appear on the account. The account must be labeled as a “trust” or “special” account and all deposits slips, checks and bank statements must include those words as well.
2. I will be opening a branch office in another city. Can my branch office have a separate trust account?
A: Yes. The name, account number and location of the depository must be submitted in writing to the Division of Real Estate and Professional Licensing.
Earnest Money Trust Accounts…General
See ODRE’s sample trust account ledger
1. A broker who is retiring at the end of the year has a $500 earnest money deposit in his trust account from a transaction which failed to close six years ago. What should be done with the $500?
A: When the parties to a real estate transaction can not agree on who gets the earnest money, the courts have to resolve the issue. The broker should file an interpleader action with the local small claims court. In this action, the broker is the plaintiff and the buyer and seller are the defendants. The court will determine who is entitled to the earnest money and will order disbursement accordingly.
2. When does earnest money have to be deposited?
A: Brokers must deposit earnest money into their trust or special account as soon as possible upon receipt. The Division generally considers 24-48 hours to be a reasonable time, but does weigh the circumstances in determining what is reasonable. If the purchase contract provides for deposit upon acceptance the earnest money should be deposited within 24-48 hours of acceptance.
3. Is the selling broker legally required to hold the earnest money?
A: No. There is no law which mandates who holds the earnest money. It is determined by agreement of the parties as provided in the purchase contract.
4. If a purchase contract expires, can the earnest money be returned to the buyer without a release?
A: No. The Division of Real Estate always requires a release or court order to disburse earnest money in the event a purchase contract does not close, regardless of the reason.
5. Can a seller accept another offer if there is still a dispute going on with a previous buyer over earnest money?
A: Even though the broker may still be holding earnest money from a previous contract that failed, the seller can go forward with a new offer. It is always best to recommend that the seller consult with legal counsel in this situation.
Earnest money trust accounts.: Property management accounts
1. When do you need a property management trust account?
A: Any broker who engages in the management of any property must have a property management trust account. All rents, security deposits, and other monies received by the broker in connection with the management of that property must be deposited in that trust account, unless otherwise agreed.
2. Do rents and security deposits I receive in connection with properties I manage have to be deposited in my trust account?
A: Yes. Because these funds are received in a fiduciary capacity they must be placed in a broker’s property management trust account. This requirement applies even if a broker only manages one property.
3. If I manage my own property should the rent and security deposit go into my property management trust account?
A: Only monies received on behalf of another person or entity should be placed in the brokerage trust account. You should not comingle your own monies with fiduciary funds that are deposited in your trust account.
4. If I manage rental property must tenant security deposits be deposited in my property management trust account?
A: Yes, unless the lease and property management agreement provide the security deposits will be paid directly to the owner.
5. What name must be used on my property management trust account?
A: Any property management trust account the broker maintains must include the broker’s name as it appears on his/her license and must be labeled as a “property management trust account”. This must appear on all checks, deposit tickets, etc.
6. Can a broker have more than one property management trust account, for example one for each owner?
A: Yes. Each account must contain the broker’s name as it appears on his/her license and must be designated as a “property management trust account”. Additional descriptive terms can be added to distinguish the accounts from one another (i.e. Breckenridge Apartment, John Jones Properties).
7. Must a property management trust account be non-interest bearing?
A: A property management trust account may be interest bearing with the interest being paid to the property owners on a pro rata basis unless the broker and owners agree otherwise.