Property Management Trust Accounts
All real estate brokerage are required to maintain a general trust account and wouldn’t achieve licensure without it. The law requires these trust accounts to be non-interest bearing and include the words “trust” or “special account” on the checks. However until recently, brokerages that offered property management also had to have a separate property management trust account, even though the brokerage may never hold any property management funds for their owner clients. Ohio law has been clarified to except those brokerages that do not hold funds in a fiduciary capacity or the brokerage only maintains accounts that are in the name of the owner (more on that below).
For those brokerages that manage properties and receive money “in trust” for their owner, a property management trust account is still required. Specifically I’m talking about instances where a tenant writes a security deposit check to the brokerage and the brokerage intends to deposit the check and hold it on the owner’s behalf. This account may be interest bearing and must be utilized for any funds coming into the property manager’s possession that belongs to others. Examples would be security deposits, rents and the owner’s reserve funds.
Owner’s Accounts. As discussed above, the brokerage does not need to maintain a separate property management trust account if it only has access to owner’s accounts and does not hold funds itself on behalf of the owner. There are however procedures a brokerage must follow with respect to owner accounts. First, the brokerage must have a written agreement with the owner giving the brokerage permission to exercise signatory authority on the account. The contract must specify any dollar limits and purposes for withdrawals from the account.
In all circumstances, regardless of whether the brokerage is utilizing its own property management trust account or that of an owner, the brokerage must maintain a columnar ledger that includes the name/address of the property, the parties to the transaction, the amount/date/purpose of deposits, party from whom deposits are received, amount/date/check number/purpose of any disbursements, party to whom disbursements are made, running balance and any interest earned. Last, the brokerage is required to provide a financial accounting of the owner’s funds (either in the brokerage trust account or in the owner’s own account) once a quarter or more frequently if the management agreement directs.
Improper handling of a client’s funds creates exposure for the real estate broker for both licensure and professional sanctions as well as civil litigation. Brokerages that place close attention to the authority they are provided from owners in handling owners’ funds and proceed accordingly will be well situated to rebut any regulatory or civil challenges.