Chapter 5: Separate Accounts & Accounting

Chapter 5, formerly known as the E Rules, specifies the trust and escrow account requirements and accounting methods for Brokers. This chapter takes former Rules E-1, E-2, E-3, E-5 and E-16, and re-organizes the accounting rules into 22 separate rules. Important highlights include:

5.1. Establishment of Internal Accounting Controls.

Rule 5.1. is a new rule that requires written accounting control policies and procedures be established for any Brokerage Firm or Broker who receives Money Belonging to Others. Those policies and procedures must include adequate checks and balances regarding the financial activities of the Broker, Brokerage Firm and any unlicensed persons, as well as managing any possible risk of fraud or illegal activity.

5.3. Accounts in the Name of the Brokerage Firm or Broker.

This rule requires Brokerage Firms acting in the capacity of a sole-proprietorship to maintain separate Trust or Escrow accounts in the name of the responsible broker (Employing Broker or Independent Broker). Brokerage Firms licensed as a partnership, corporation or an LLC must maintain separate trust or escrow accounts only in the name of the entity. This is a modification to Rule E-1(a), which required separate trust or escrow accounts to be in the name of both the entity and Employing Broker.

5.5. Trust or Escrow Accounts Required for Rental Receipts and Security Deposits.

This rule was modified to remove the “exemption” of 6 or less residential properties under management from using a single “sales trust or escrow” account for both rental receipts and security deposits. If the Brokerage Firm is engaged in property management, it must maintain separate Trust or Escrow accounts for rental receipts and security deposits no matter the number of properties that are under management.

5.8. Transfer of Security Deposits.

Part B of this rule is new and requires a Brokerage Firm that is taking over the management of a property from another Brokerage Firm to disclose in writing to the owner and tenant within thirty (30) days after the execution of a management agreement, the status of any security deposit held by the previous Brokerage Firm, including the amount and confirmation of receipt of the funds.

5.10. Commingling Prohibited.

This rule was modified to clarify that money held in a Trust or Escrow account which becomes due and payable to the Brokerage Firm must be withdrawn monthly.

5.22. Responsibility of the Employing Broker or Independent Broker for Brokerage Firm’s Compliance.

This new rule was added to clarify that the Employing Broker or Independent Broker is responsible for ensuring the Brokerage Firm's compliance with statutory and regulatory requirements.