Commingling Question - Urgent!

10 Replies

Hey BP members!  I have a question about a current situation I am in.  So heres the breakdown:

EMD amount of $1,000 - selling agent was provided with wiring instruction (account and routing for escrow account)

Buyer used email to "wire" EMD

Somehow (guessing they did not do a wire but a transfer using my email address) the funds went into my personal checking account

What now?  Kind of summed it up to 2 ways

1. Cut a bank check from my personal account made to the escrow account, deposit it - and keep all documentation of why/how this deposit came from my personal account

2. Refund buyers the EMD deposit of $1,000 and have them resubmit the funds to the proper account?

Any help would be appreciated - I am located in CT but believe commingling laws are the same across the board

If the transfer can be reversed easily and the funds are immediately available for the buyer to send the transfer, I would go that route

If not, I would either transfer or write a check from my account and document the transaction 

There is clearly no intent to commingle funds here, you are just correcting an error 

512-293-3885

Hi Brian,

I would definitely refund the money to the buyer and have them submit it properly to escrow. It would be just another added layer of protection. Make sure you notify all of the proper parties, especially your designated broker to ensure they're aware and see if they have any advice. Perhaps this has happened before and they know the exact answer.

@Brian Barbosa are you a broker? If you are not a broker with a IORETA account, you should not be taking any form of EMD in your possession. The funds need to be in one of two places (in CT): Real estate brokers ioreta account or an agreed upon attorney (usually the sellers) to put in their IOLTA account. I would also never use wire for EMD unless your attorney is accepting the funds and agree to the financial responsibility. My advice is to start over, return the funds ASAP, and have them write your attorney a check. Normally it would be paid like this “John Smith, trustee.” If John Smith were your attorney.

Originally posted by @Rick Santasiere :

Brian Barbosa are you a broker? If you are not a broker with a IORETA account, you should not be taking any form of EMD in your possession. The funds need to be in one of two places (in CT): Real estate brokers ioreta account or an agreed upon attorney (usually the sellers) to put in their IOLTA account. I would also never use wire for EMD unless your attorney is accepting the funds and agree to the financial responsibility. My advice is to start over, return the funds ASAP, and have them write your attorney a check. Normally it would be paid like this "John Smith, trustee." If John Smith were your attorney.

I have not written a check for EM in 10 plus years we always wire it..

in our state the EM can and is often given straight to the seller out side of escrow as there is a box to check on our forms.. for that.. in my new construction homes if they want any upgrades I make then give me the seller the EM non refundable and released to me.. now granted went to title company first.. ( we don't use attorneys for RE closings in our state or on the west coast.. that's an east coast thing.)

I have owned 3 brokerages and NEVER kept a trust account.. quickest way to lose your license :)  deposits went to title co or the seller but never the brokerage.. brokers that are PM's have trust accounts of course for deposits but most transactional brokers do not.

its an accounting night mare and also when you have EM squabbles the brokers stay far away from it.. buyer seller title co..

I find Real estate so fun and unique and regional..   also when I close deals in South Carolina some brokers take my EM and others send to closing attorney the ones that take my EM  then give a credit on the hud against their commish again to me a bookkeeping nightmare and way more liability than I would want to take..

Not sure if you do it.. but in this state we will use promissory notes for the EM  that need to be redeemed for cash upon mutual acceptance this allows the EM to be valid at the time the contract is written.. if you don't redeem the note and send in your cash the contract voids..  you guys do that ?

@Jay Hinrichs two mentions in one day! CT is one of those states that has definitely not caught up with technology. Lawyers handle closings and title companies are simply just pulling and sending title for attorneys to review. I would love for wiring to be common practice. Sadly, wire fraud has most likely kept our state in the dark, for now... it will be nice when this changes... I’m ready!

Interesting to hear all the differences across the nation. I find it odd Jay, that you, as a seller actually holds on to a buyers money in your personal accounts. You clearly know what you are doing, but for our state and our contracts, all money (especially emd), is changed hands AT the transfer of title and the signing of the deed, which is the closing. This is probably the reason why attorneys want to hold all money until closing, or take in checks from brokers trust accounts. In CT we have a split state, in that a portion of our state, attorneys hold the emd from the very start, and some 

In this particular case (unless I am missing details), EMD should be held by broker (if one is involved) or sellers attorney. I could paste the portion of our contract that states that deposit money is released at transfer of title, but I'm on a road trip. @Brian Barbosa , does the contract you used state that this deposit money is given to the seller right away? 

Originally posted by @Rick Santasiere :

@Jay Hinrichs two mentions in one day! CT is one of those states that has definitely not caught up with technology. Lawyers handle closings and title companies are simply just pulling and sending title for attorneys to review. I would love for wiring to be common practice. Sadly, wire fraud has most likely kept our state in the dark, for now... it will be nice when this changes... I’m ready!

Interesting to hear all the differences across the nation. I find it odd Jay, that you, as a seller actually holds on to a buyers money in your personal accounts. You clearly know what you are doing, but for our state and our contracts, all money (especially emd), is changed hands AT the transfer of title and the signing of the deed, which is the closing. This is probably the reason why attorneys want to hold all money until closing, or take in checks from brokers trust accounts. In CT we have a split state, in that a portion of our state, attorneys hold the emd from the very start, and some 

In this particular case (unless I am missing details), EMD should be held by broker (if one is involved) or sellers attorney. I could paste the portion of our contract that states that deposit money is released at transfer of title, but I'm on a road trip. @Brian Barbosa , does the contract you used state that this deposit money is given to the seller right away? 

 you missed my point.

in our area and this is true in CA OR WA were I have spent most of my 40 plus years selling real estate

EM can be handled in 3 ways.

1. Made out and given directly to the seller outside of escrow and is a credit towards the purchase price . ( Rare but does happen ..)_ and this is what I do on my new builds when they want extras..)... or in land developments were I am flipping plats to national builders..

2. EM is done like your talking about sent to the Escrow company which is also the title company one and same.. IE FATCO  Fidlity  WFG  Lawyers who ever they all have their own escrow departments  ( think your lawyer closing shops)

3. Trust account of the Broker  ( happens but not as common anymore and huge liability in my mind I would and never did have a trust account in my 3 brokerages )....

Yes wire fraud is rampant and we are diligent as best that we can be.. But for me as a buyer and a large volume buyer I ONLY wire I NEVER send checks EVER.... like when buying on Auction . com EM is wired in.. If I am buying Charleston say Attorney state EM wired into their trust account or the brokers trust account..

now to be fair 95% of EM I receive comes in checks from homeowners  many simply don't know how to wire..

@Jay Hinrichs , I often miss the point. I have never been great at the interpretation of others (I have to work on that).  

1. Makes sense

2. THAT IS CT for 95% of all transactions

3. Why liability? Because you do have multiple brokerages and can often be the broker and the buyer/HML/seller all in one? That, I can understand (if I am interpreting that correctly)When I (as a broker) sell one of my properties, I will never take that money as I would never want that $$ in ANY of my accounts. I send directly to my attorney (payable to them as well)

100% of ALL EMD comes in checks in CT right now. That will change at some point, but most likely when we get rid of the dinosaur regulators, and the wire fraud thing decreases... My guess is the title companies (who at some point will take over the job of the attorney in CT, will be pioneering that effort)

@Rick Santasiere  

the reason I never have and never would have a trust account

1.  lots of work in the accounting realm ( unless your a small shop but my brokerages were 50 to 75 agents) so you basically have to hire staff to keep those books so you have cost and over head.. when you can just pitched it to the title company or in your case the attorney and let them take on that over head.

2. the quickest and easiest way to get your real estate license suspended or revoke is trust account violations  like the one that started this thread..  Not sure if you get a bulletin like we get but at the back of it each month list the agents that got suspended or revoked and the section of law they violated to get these sanctions.. number 1  TRUST ACCOUNT commingling.. so why take the risk.

3. EM squabbles much easier to pitch to title or attorney and stay out of those squabbles other than to write your EM release addendums and see if the buyer and seller will conform..

that's my take on Trust accounts..  Also anytime there are large deposits sitting in an account and you have a bigger firm there is always the risk of theft from an employee.. and being the supervising broker at least in our market your in big trouble if this happened under your watch.

@Jay Hinrichs , awesome points, thank you.  We hijacked this guys thread and had a nice chat. Thanks Brian!  I am a very small shop and have 11 agents other than me.  None of them are full time real estate agents, so the time spent is minimal, although, I completely get what you are saying. I wish I could just have the checks get sent to the attorney, but our custom is payable to the brokerage (IORETA). Maybe I will be the little guy to change this!  I never commingle, and at less than 100 transactions per year (50-70 on the buy side), it is really not a ton of work.  I have an assistant, but she (as of now) has no access to my books, but get point for the future when I start to give her some more responsibility.  Thanks my man!

Join the Largest Real Estate Investing Community

Basic membership is free, forever.