Key Takeaways
- Maryland brokers must maintain trust accounts in federally insured Maryland financial institutions
- Earnest money and client funds must be deposited within 7 business days of contract ratification
- Trust accounts must be reconciled monthly; records retained for 5 years
- Commingling (mixing personal and trust funds) is prohibited except for nominal amounts
- Brokers must hold disputed funds until resolution or file interpleader
Maryland Trust Account Requirements
Proper handling of client funds is one of the most important responsibilities of a Maryland real estate broker. Trust account violations are a leading cause of license discipline.
Trust Account Requirements
Account Setup
Maryland brokers must:
| Requirement | Specification |
|---|---|
| Account Type | Designated trust or escrow account |
| Location | Federally insured Maryland financial institution |
| Account Name | Must be designated as trust or escrow |
| Registration | Must notify MREC of account information |
| Protection | Account is NOT subject to broker's personal creditors |
Types of Funds Held in Trust
| Fund Type | Description |
|---|---|
| Earnest Money | Deposits on purchase contracts |
| Security Deposits | Rental property deposits |
| Rent Collections | When broker is property manager |
| Advance Payments | Down payments and advance fees |
| Settlement Funds | Funds held pending closing |
Deposit Timing
Maryland Deposit Requirement
Earnest money must be deposited within 7 business days of contract ratification (unless otherwise specified in contract).
| Timeline | Requirement |
|---|---|
| Contract ratification | Clock starts |
| 7 business days | Deposit deadline |
| Earlier if specified | Follow contract terms |
Best Practice: Deposit as soon as possible to avoid any questions about compliance.
What Counts as Receipt
A broker "receives" funds when:
- Check is physically received
- Wire transfer is confirmed
- Cash is received (document immediately)
Checks and Electronic Funds
If check is received:
- Deposit within 7 business days of ratification
- If check bounces, notify parties immediately
- Document all deposits with transaction records
Prohibited Practices
Commingling
Commingling is mixing trust funds with personal or business operating funds. It is strictly prohibited.
Exceptions:
- A broker MAY keep a nominal amount of personal funds in the trust account to keep it open
- The amount should be minimal and documented
Conversion
Conversion is using trust funds for personal purposes. It is:
- A serious violation
- Potential criminal offense
- Grounds for license revocation
Premature Disbursement
Brokers cannot disburse trust funds until:
- Transaction is closed (settled), OR
- Transaction is terminated with agreement on fund distribution
Trust Account Maintenance
Reconciliation Requirements
| Task | Frequency |
|---|---|
| Bank statement reconciliation | Monthly |
| Trial balance preparation | Monthly |
| Record retention | 5 years minimum |
Reconciliation Process
- Compare bank statement to ledger
- Identify and resolve discrepancies
- Document reconciliation date and findings
- Maintain clear audit trail
MREC Audits
The Maryland Real Estate Commission may audit broker trust accounts:
- Randomly as part of routine oversight
- In response to complaints
- During investigations
Failure to maintain proper records is itself a violation.
Trust Fund Disputes
When parties dispute trust funds:
- Hold the funds until dispute is resolved
- Do NOT disburse to either party without agreement
- Document the dispute and all communications
- Interpleader action - File with court if parties cannot agree
- Court will determine rightful owner of funds
Key Point: The broker is a neutral stakeholder. Do not take sides in trust fund disputes.
Within how many business days must earnest money be deposited in Maryland?
Where must Maryland trust accounts be maintained?
How often must Maryland brokers reconcile their trust accounts?