Real estate brokers are required to have a real estate trust account set up for their company in order to deposit money into a safe environment during a real estate purchase.
This includes money used as a down payment or made during a “good faith” bid or any monies that are to be transferred between parties as part of that transaction. Each state has their own specific laws regarding the opening and handling of a real estate trust account but many of the requirements are the same.
You must open the account in a federally insured bank and the bank must know prior to issuance that this is a real estate trust account. All checks, registers, deposit slips and other paper products relating to this account must specifically state that this is a trust account. By law, the account must be an interest bearing account and the brokerage firm must accurately comply with interest disbursements to clients. Many states have a certain amount of money that can be placed in the account by the brokerage to cover bank maintenance fees but other than that the brokerage cannot use this account for any other purpose.
When you open the real estate trust fund you must set aside specific accounting records for each transaction to the account. Regulatory agencies often audit these accounts. The largest fault found is brokers not keeping accurate enough records or making timely deposits.
A trust account is basically a third party account that secures the money during the real estate purchase. The brokerage firm does not have any ownership rights to the money in the account and money deposited in the account cannot be used for anything else but that specific transaction.
Real estate trust accounts are opened much like any other bank account when it comes to paperwork. You will need to provide the bank with all the relevant information about yourself and your company. You will need to provide information about any other brokers in your firm allowed access to the trust account. Trust accounts can be established in very little time and if you shop around you may find banks that offer little or no maintenance fees on this type of account.
Again, each state has their own regulations regarding these types of accounts. It is critical that you check with your bank to make sure that you meet all the criteria for your particular state to establish this type of account.