Escrow & Trust Accounts: What You Should Know in California

Escrow accounts play a crucial role in transactions to ensure the security and execution of agreements. Here, we present some key definitions related to escrow accounts:


  • A deposit given by the grantor to a neutral third person, to be delivered when a specific condition is met (CC 1057).
  • A transaction in which one person gives something of value to another person to hold until a specified event or condition occurs, at which time the thing of value will be delivered to another party (FC 17003).
  • Essential elements: binding contract between buyer and seller; conditional delivery of something of value to a neutral third party.

Escrow Agent and Depository (Escrow holder/agent)

  • The agent and bailee who receives the item of value to hold it until certain conditions are met; It becomes an “escrow holder” when the escrow instructions are fulfilled.
  • The escrow holder, as agent and fiduciary of the escrow principals, acts as a dual agent for the buyer and seller, and the lenders, if applicable.
  • Upon completion and closing of the sale in escrow, the escrow holder is the agent of each of the principals to deliver in accordance with the escrow instructions.

Escrow Principals

  • Persons who execute and carry out escrow instructions and make conditional deliveries; includes the buyer and seller and, if applicable, the lender.
  • Non-principles, to whom the trust owner does not owe fiduciary duties, include claimants within the chain of title, persons who file demands for payment on the trust, persons who submit reports/inspections to be delivered through the trust .
  • For these parties, the trust holder has a duty to act in good faith and in a manner consistent with the standard of care applicable to trust holders/agents.

Neutral Escrow Depository

  • An escrow business conducted by a person duly licensed as such or permitted under the Financial Code (17000-17006).

Trust Funds

  • Money or other valuables received by a broker or sales agent on behalf of a principal or any other person and held for the benefit of others in the performance of any act requiring a real estate license.
  • It can be in cash or non-monetary items.

Commingling (CCR 2835; Ref 176, 500-01; BPC 10176(e))

  • Commingling refers to the commingling of the broker's money or property with the money or property of others that the broker has received and maintains (10176(e)).
  • The following circumstances are not considered commingling:
    • Funds, NOT to exceed $200, deposited to pay service charges or fees imposed to maintain the account.
    • Funds belonging partly to the broker's principal and partly to the broker, deposited together when it is not reasonably practicable to keep them separate, provided that the broker's share is distributed no later than 25 days after deposit and there is no dispute over the broker's portion; Any dispute must be resolved before withdrawing the fund.
    • Broker-owned funds deposited in connection with permitted activities, such as making and collecting payments in servicing a loan.

It is essential that real estate brokers and agents understand and comply with the regulations and practices related to trust accounts to ensure safe and ethical transactions in the real estate industry in the United States. Proper management of trust accounts is essential to maintaining the trust of all parties involved in a transaction.

Escrow and Trust Account Regulations in California

The regulations of escrow and trust accounts in California are critical to ensuring safe and ethical transactions in the real estate industry. Here, we present a description of the key terms related to these regulations:

Fiduciary relationship (Ref 119)

  • The owner of escrow acts as agent and fiduciary of the principals in the escrow; the owner of escrow must at all times exercise reasonable care, loyalty and good faith towards the principals of the escrow.
  • The fiduciary duty of the owner of escrow It is generally limited to the faithful execution of the instructions given by the principals to the escrow.

Who Can Act as an E Holderscrow (Who may hold) (Ref 125; FC 17006(a)(4))

  • The Commissioner of Business Oversight must license holders/agents of escrow that they carry out escrows public.
  • Banks, savings and loan associations, title insurance companies, endorsed title companies, trust companies, attorneys, and real estate brokers have certain exemptions from the licensing requirements of the Law. escrow.
  • A real estate broker licensed by the Commissioner of Real Estate is exempt from the Real Estate Law. escrow when performing acts incidental to a real estate transaction.
    • The real estate broker must be an agent or a party to the real estate transaction and perform an act that requires a real estate license.

Instructions of escrow (Escrow instructions) (Ref 120)

  • In California, there are two general forms of instructions escrow: bilateral (executed and binding on both buyer and seller) and unilateral (separate instructions executed by the buyer and the seller, binding on each).
  • If the instructions of escrow conflict with the original contract/agreement, the instructions constituting the subsequent contract/agreement will generally prevail.
  • Once the joint/bilateral instructions have been signed by the principals, neither principal can unilaterally change the instructions; Principals may change instructions at any time by mutual agreement.

Escrow Completed escrow (Ref 120, 176)

  • The instructions of escrow Properly prepared and executed they become an executable contract.
  • A escrow It is considered “completed” or “perfected” when all terms of the instructions have been fulfilled or performed (satisfied or waived).

Termination, Cancellation (Termination, cancellation) (Ref 124)

  • The escrows are completed voluntarily through full compliance and closure, or the escrow can be terminated by mutual consent.
  • The termination of escrow sale is achieved by canceling the escrow and the termination or cancellation of the sales agreement.
  • If a escrow cannot be completed, funds are released based on the parties' agreement.
  • A party who refuses to agree to the release of funds when there is no good faith dispute over ownership may be liable for treble damages (CC 1057.3(b)).

Advertising Services escrow (Advertising escrow services) (Ref 125; CCR 2731(d), 2830.1, 2950-1)

  • A real estate broker may not advertise in a manner that could mislead the public or advertise that it carries out escrows without specifying that these services are related solely to the broker's real estate intermediation business.
  • A real estate broker may not use a fictitious name that contains the word “escrow” unless the fictitious business name includes the term “a trust.” escrow “non-independent broker” in any advertising, signs or electronic promotional material.

Violations of the Escrow (Escrow violations) (Ref 126, 127, 176; CCR 2830.1, 2950, 2951; CC 1057.3)

• The following acts carried out by a real estate broker who manages real estate funds escrow are prohibited and may be considered grounds for disciplinary action:

  • Request or accept an instruction escrow that contains some blank space to be completed later.
  • Allow or make any changes to an instruction escrow that is not signed or initiated by all persons who signed or initiated the original instruction.
  • Failure to provide a copy of an instruction escrow to all parties at the time of execution.
  • Failure to properly maintain records and keep them accessible to the Commissioner.
  • Do not deposit all the money escrow received in a bank, trust account or account escrow the next full business day after receipt (CCR 2950(f)).
  • Withdraw or pay any money deposited in a trust account or escrow without the written instruction of the parties who deposited the money in the escrow.
  • Failure to inform all parties in writing that a licensee handling funds of escrow has an interest in the agency that maintains the escrow.
  • Failure to provide each principal with a written statement of all receipts and disbursements along with the names of the recipients of the disbursements when closing a transaction escrow.
  • Delivering or recording an instrument purporting to transfer an interest in real property without the written consent of the party whose interest is to be transferred (CCR 2950, 2951).

Trust Accounts

The accounts of escrow They play an essential role in the real estate industry in the United States, ensuring the integrity and security of transactions. Here is a detailed description of the key terms related to these accounts:

Account requirements (Ref 122-127, 176, 498-530; CCR 2830-2834, 2950, 2951; BPC 10145-6; FC 17003; CC 105)

  • An account of escrow has to:
    • Be designated as an account escrow in the name of broker as fiduciary.
    • Be held in a recognized bank or depository located in California.
    • Not accrue interest if prior written notice is required as a condition of withdrawal, unless requested by owners or principals under certain conditions.

A broker can have an account escrow out-of-state if the account is insured by the Federal Deposit Insurance Corporation (FDIC) and is used for first loan servicing of the types of note owners/investors specified in Section 10145(a)(2) of the Code Business and Professions.


  • A real estate broker who is not licensed under the Law of Escrow and who acts as owner of escrow when carrying out licensed activities and accepts funds from escrow in connection with a transaction you must deposit the funds in a neutral depositary of escrow, in the hands of the principal of the broker, or in an account escrow maintained by the broker in a bank or depository recognized in this state no later than the next business day after receipt of the funds by the broker or the seller of broker (CCR 2832(e)).
  • A seller who receives funds from escrow in the name of broker must immediately deliver the funds to the broker or, if so indicated by the broker, deposit them as indicated above.
  • A deposit check may be held uncashed by the broker until the offer is accepted if the check is not negotiable by the broker or if the offeror has given written instructions, and the offeror is informed that the check is being withheld.
    • In case of acceptance, the broker You can continue to retain the check only if indicated in writing by the offeror (Ref 498-501, BPC 10145).
  • All funds deposited into an account escrow They must be kept there until the broker distribute them according to the instructions of the person who is entitled to the funds.
  • A broker real estate agent that provides services in connection with loans secured by a first lien on real property may, under certain circumstances, deposit funds of escrow at an out-of-state depository institution insured by the Federal Deposit Insurance Corporation.
  • A broker of real estate that deposits funds of escrow in an out-of-state depository institution must make available to the Commissioner or the Commissioner's representatives the books, records and files relating to the accounts of escrow.
  • A broker of real estate who acts as principal in the making of loans or in the purchase, sale or exchange of contracts or notes secured by liens on real property must deposit all purchase funds received in the course of this business in a neutral depositary of escrow, unless the contract or note is delivered simultaneously with the receipt of purchase funds.
  • Unless expressly prohibited, and if requested by the owner of the funds or the principals of the transaction, a broker real estate agent can deposit the funds escrow received in an interest-bearing account at an approved financial institution if the accounts are insured by the Federal Deposit Insurance Corporation and all of the following requirements are met:
    • The account is in the name of broker as fiduciary.
    • All funds in the account are covered by insurance provided by a federal government agency.
    • All funds in the account are funds in escrow maintained by the broker for others.
    • He broker informs the debtor how interest will be calculated and paid.
    • No interest earned on the funds will directly or indirectly benefit the broker nor to any person licensed by the broker.
    • The parties to the contract have specified in the contract or written agreement to whom the interest earned on the funds will be paid or credited.


  • Withdrawals from an account escrow of a broker individual can only be made with the signature of the broker or one or more of the following persons if the broker specifically authorizes it in writing:
    • A licensed seller broker.
    • A person licensed broker that has entered into a written agreement with the broker.
    • An unlicensed employee of the broker with fidelity bond coverage or insurance coverage at least equal to the maximum amount of the funds of escrow to which the employee has access at any time (BPC 10145 (a)(2)C)).
  • Withdrawals from the account escrow of a broker corporate can only be done with the signature of:
    • An officer through whom the corporation is licensed or.
    • A person authorized in writing by the officer through whom the corporation is licensed, provided he or she is an authorized signatory of the account escrow.

Regardless of who makes a withdrawal, the broker individual or broker officer of a broker corporate maintains responsibility and liability for funds escrow in his custody.

  • A broker You must obtain the written consent of each principal who owns the funds in the account before any disbursement that reduces the balance of funds in the account to an amount less than the aggregate liability of escrow existing of broker (CCR 2832.1).

Accounting, records and reports (CCR 2831, 2836, BPC 10141.5-.6, 10148; Ref 126, 177; 507-08)

  • A broker has to:
    • Maintain a separate record of the receipt and disposition of all funds escrow, including interest accrued on the funds.
    • Maintain a record of all funds escrow received and disbursed for each bank account containing funds of escrow.
    • Maintain a separate record for each beneficiary or transaction.
    • Perform and maintain records of two account reconciliations escrow each month, except in those months when the bank account had no activity: the registration of the bank account with the bank statement and the registration of the bank account with separate records of beneficiaries, transactions or properties.
    • Make records available for examination and inspection in California during regular business hours upon request of the Commissioner.

The brokers are not required to maintain a check register issued by a principal to a third party for services when the total amount does not exceed $1,000.

  • He broker must be able to give an accurate accounting, declare the amount that the broker owes the beneficiaries at any time to demonstrate that there is no imbalance in the account and ensure that the beneficiaries' funds are insured up to the FDIC maximum.
  • The records must show all receipts and outputs for each beneficiary in chronological order, the account balance based on transactions, and the balance owed to each beneficiary for each transaction.
  • Records must be in accordance with accepted accounting practices, whether produced manually or electronically.
  • Records must be retained for three years from the closing or contract date.

Subdividers must maintain records of all funds received from purchasers or tenants of subdivision interests and of the receipt, deposit and disbursement of all funds collected in connection with the operation of a homeowners' association in accordance with accepted accounting practices.

  • Records must show the dates of receipt and disbursement of funds and the names of the persons giving and receiving funds.
  • Subdividers must retain these records for 3 years after the date of receipt or disbursement.

Unexplained account overages escrow must be recorded in a separate register and cannot be used to offset other deficiencies in the account escrow.

Audits and Examinations (Audits and examinations) (Ref 508)

  • The Commissioner has an ongoing program of review of the records of the brokers.
  • With proper notice, books, accounts and records must be available for examination by the Commissioner during regular business hours and are subject to audit without further notice if cause is found.
  • If an audit reveals actual funding imbalances escrow or procedures detrimental to the handling of money, appropriate disciplinary procedures are initiated.

Responsibility (Liability) (Ref 501-2)

  • For an account escrow with multiple beneficiaries, the added responsibility of escrow at any time is equal to the total positive balances owed to all beneficiaries on the account at that time.
  • If there are negative balances, they are not deducted when calculating the aggregate liability of escrow.
  • The funds deposited in the account escrow They must always be equal to the aggregate responsibility of escrow of the broker.
  • If the account balance escrow is less than the total liability, an illegal deficiency of funds occurs. escrow.
  • If the account balance escrow is greater than the total liability, there is an excess of funds escrow and the broker may be guilty of commingling (mix of funds).


  • A broker that does not comply with the Real Estate Law regarding the management of property funds escrow is subject to disciplinary action by the Commissioner and may be subject to criminal prosecution for the conversion of funds belonging to the public.

Legal and Tax Disclaimer

Please be advised that the content presented in this blog is for informational purposes only and should not be construed as legal or tax advice. The articles and information provided here are written from the perspective of a real estate agent affiliated with Keller Williams, and do not represent legal or tax counsel.

As the author, I am a licensed real estate professional under Keller Williams, holding Brokerage DRE License Number: #02197031. However, it is important to note that my expertise is in the field of real estate, and not in legal or tax matters. The insights and opinions shared on this blog are based on my experiences and knowledge in the real estate industry and should be treated as general guidance rather than definitive legal or tax advice.

For specific legal or tax concerns relating to any real estate transactions or investments, readers are strongly encouraged to consult with a qualified attorney or tax advisor who can provide tailored advice based on your individual circumstances and the latest legal and regulatory requirements.

The information on this blog is provided "as is" without warranty of any kind, and I, along with Keller Williams and its affiliates, disclaim all liability for any loss, damage, or misunderstanding arising from reliance on the information contained herein.

Related news

Leave a Comment

Your email address will not be published. Required fields are marked *

Get your FREE guide

Enter your email so we can send you your guide

Secure your space in our webinar.

Don't worry if you can't attend: we'll send you the recording!