In real estate, fund management is a fundamental responsibility. Discover how real estate experts can successfully navigate the process of opening trust accounts as required by California Business and Professions Code Section 10145(a)(1) and Commissioner's Regulation 2832(a). This article explores why brokers sometimes face challenges when establishing trust accounts and provides specific advice on how to address these challenges.

The Law and Requirements for Broker Trust Accounts

The combination of California's Business and Professions Code Section 10145(a)(1) and Commissioner's Regulation 2832(a) requires a broker that accepts funds belonging to third parties to deposit those funds in one of three locations, within 3 business days after receiving the funds from the broker or its seller:

1. In a neutral escrow depository,
2. In the hands of the owner of the funds, or
3. In a trust account maintained by the broker in the name of the broker, or in a fictitious name if the broker is the holder of a license under such fictitious name, such as trustee. The account must be at a recognized bank or depository in California.

Challenges When Establishing Trust Accounts in Banks or Depositories

The opening of trust accounts may present difficulties for some brokers due to the absence of a “formal trust agreement“. Some banks may require a “formal trust agreement“, which is a legal document prepared by a lawyer, to open a trust account. However, in real estate, the fiduciary relationship between broker and client exists even without a formal trust agreement.

Steps to Request the Opening of a Trust account

If you are a real estate broker Looking to open a trust account, here are some key steps to follow:

1. Request to open a business checking account.
2. Verify that the account has federal insurance coverage (FDIC, NCUSIF, etc.).
3. Request that the account be opened and titled as a trust account in your name, registered fictitious name, or corporate name of the broker, with the broker designated as “trustee” on the title or on the signature line of the broker/designated officer.
4. No separate or special trust agreement is required. The bank/depository will ask for additional documentation to verify your identity, business certificates, articles of incorporation, etc.

Tips for Facing Challenges and Obstacles

If, despite following these steps, you STILL have difficulty opening a trust account, consider finding another bank or depository willing to work with you.

It is essential that brokers understand their responsibilities in managing trust accounts and are willing to advocate for compliance with legal requirements to ensure the integrity of their operations and the protection of their clients' funds. With this knowledge and clear communication with banks or depositories, brokers can establish trust accounts efficiently and effectively, complying with the law and providing professional and reliable service in the California real estate market.