27.2 AL – Trust Funds

A trust fund account (also called an escrow account) is used to hold money that belongs to someone else—like a buyer’s
earnest money or tenant security deposits. Alabama law and AREC rules are strict about how these funds are received, deposited, accounted for,
and disbursed.

Purpose + What Counts as Trust Funds

Trust funds are held to keep client money separate from the broker’s personal or business money. Trust accounts must be set up by the
qualifying broker at a federally insured bank located in Alabama.

• Trust funds include earnest money, security deposits, and other funds related to a contract for sale or lease,
  or a property management agreement.
• Trust funds can be cash, checks, notes, other recognized forms of money, or other items of value.
• Cash must be deposited immediately.
• Checks may be held only if the offer specifies a time/event for deposit; otherwise, deposit when the offer becomes a contract.
• Salespersons and associate brokers must submit all such funds to their qualifying broker.

Who Holds the Funds (Qualifying Broker Responsibilities)

• The qualifying broker is responsible for depositing and holding trust funds unless expressly relieved in writing.
• If a purchase contract involves more than one qualifying broker, any qualifying broker involved may deposit/hold the funds.
• For purchases, leases, and property management, funds are held by the qualifying broker providing services to the owner.
  If a successor broker takes over, the first broker must provide a complete accounting and transfer the funds.
• The current qualifying broker must immediately account for trust funds upon AREC request.
• The qualifying broker must be a customer at the bank and have authority to deposit/withdraw funds (including writing checks as needed).

Disbursement Rules (Including Disputes)

• The qualifying broker must disburse trust funds to the appropriate party within 7 days of the consummation (closing) of the transaction.
• If the transaction does not close or there is disagreement, the broker must not disburse funds unless there is a court order
  or a written agreement signed by all parties.
• Alternatively, the broker may deposit the funds with the appropriate court using interpleader (or another lawful procedure).

Trust Fund Management (Accounting, No Commingling, Discipline)

• Licensees must properly account for or remit money belonging to others and be able to determine how much trust money is being held.
• Funds must be deposited and accounted for in a federally insured account in a financial institution located in Alabama.
• No commingling: trust accounts must be separate from personal/business accounts. The trust account may hold multiple clients’ funds,
  but not the broker’s funds (except limited funds allowed to cover bank service charges/check fees).
• Using trust funds for personal/business use can result in the qualifying broker losing the license.
• The qualifying broker may be held responsible for trust fund violations committed by supervised licensees (commingling, embezzlement, conversion).

Trust Fund Scams + Reconciliation + Recordkeeping

Wire fraud is a real risk in real estate transactions. Scammers may hack or impersonate email accounts and send false wiring instructions.

• Do not send wiring instructions or sensitive bank info by email.
• Tell clients wiring instructions will not be sent by email.
• Verify wiring instructions by phone using a trusted number.
• Use strong passwords, change them regularly, and keep security software updated.