Key Takeaways
- Brokers must maintain a trust account at a North Dakota financial institution
- Trust funds must be deposited within 24 hours of receipt unless otherwise provided in the contract
- Commingling is prohibited, but brokers may keep up to \$500 to cover service charges
- NDREC has authority to examine and audit trust accounts at any time
- Title companies may hold earnest money as an alternative to broker trust accounts
North Dakota Trust Account Requirements
North Dakota brokers must maintain trust accounts to hold client funds separate from their operating funds.
Trust Account Basics
What is a Trust Account?
A trust account (also called an escrow account) is a bank account where brokers hold funds belonging to others:
| Fund Type | Examples |
|---|---|
| Earnest money deposits | Buyer's good faith deposit |
| Security deposits | Tenant deposits on rentals |
| Rent collections | Collected on behalf of landlords |
| Other client funds | Closing proceeds pending disbursement |
Account Requirements
| Requirement | Details |
|---|---|
| Account name | Must include "trust account" or "escrow account" |
| Location | Authorized financial institution in North Dakota |
| Type | Non-interest-bearing account (effective August 1, 2021) |
| Notification | Must notify NDREC of account details |
Deposit Requirements
Timeline
| Situation | Deposit Deadline |
|---|---|
| Earnest money | Within 24 hours of receipt, unless contract specifies otherwise |
| Security deposits | Per lease agreement |
| Rent | Per management agreement |
Important: Beginning August 1, 2021, trust funds must be deposited in a non-interest-bearing account.
Proper Deposits
All client funds must be deposited into the broker's trust account—not:
- Salesperson's personal account
- Broker's operating account
- Any other non-trust account
Critical Rule: Salespersons cannot hold client funds. Only brokers maintain trust accounts.
Title Company Alternative
North Dakota allows an alternative to broker trust accounts:
| Option | Requirements |
|---|---|
| Title company holds funds | Earnest money deposited directly with title company |
| Broker responsibility | Must track earnest money for all transactions |
| Record keeping | Broker maintains records even if not holding funds |
Prohibited Practices
Commingling
Commingling is mixing client funds with broker's personal or business funds. It is strictly prohibited.
| Allowed | NOT Allowed |
|---|---|
| Client funds in trust account | Client funds in operating account |
| Up to $500 broker funds for service charges | Large broker funds in trust account |
| Funds per contract terms | Using client funds for business expenses |
Exception: A broker may deposit and keep up to $500 from personal funds to cover service charges relating to the trust account.
Conversion
Conversion is using client funds for unauthorized purposes. It is a serious violation that can result in:
- License revocation
- Criminal charges
- Civil liability
- Payment from Recovery Fund
Record Keeping
Required Records
Brokers must maintain:
| Record | Description |
|---|---|
| Bank statements | Monthly statements from financial institution |
| Deposit slips | Showing date, amount, source, and where deposited |
| Check records | Documentation of each disbursement |
| Client ledgers | Individual records for each transaction |
| Transaction records | All supporting documentation |
Changes to Trust Account
Brokers must notify NDREC within 10 days of any change to:
| Change Type | Notification Required |
|---|---|
| Depository (bank) | Yes |
| Account number | Yes |
| Business name | Yes |
| Method of doing business | Yes |
NDREC Audits
Authorization
Each broker must:
- Authorize NDREC to examine and audit the trust account
- Complete authorization form attesting to the trust account
- Consent to examination by NDREC representatives
Common Audit Findings
| Issue | Consequence |
|---|---|
| Shortage of funds | Serious violation—potential revocation |
| Poor record keeping | Warning to suspension |
| Late deposits | Warning to fine |
| Commingling | Fine to revocation |
| Failure to notify of changes | Warning to fine |
Disbursement of Trust Funds
When to Disburse
| Situation | Action |
|---|---|
| Transaction closes | Disburse per contract terms |
| Transaction cancels | Disburse per contract or mutual agreement |
| Dispute | Hold funds until resolved or court order |
Abandoned Deposits
| Requirement | Details |
|---|---|
| Unclaimed period | 3 years after payable/distributable |
| Presumption | Abandoned property |
| Action | Report and deliver to administrator of unclaimed property |
| Reference | North Dakota Century Code chapter 47-30.1 |
Within what timeframe must earnest money be deposited in North Dakota if not otherwise specified in the contract?
How much of a broker's personal funds may be kept in a North Dakota trust account to cover service charges?
What is an alternative to a broker holding earnest money in North Dakota?