Key Takeaways
- Qualifying brokers must maintain trust accounts at acceptable financial institutions for client funds
- New Mexico recognizes three types of trust accounts: brokerage, custodial, and property management
- Commingling broker funds with client funds is strictly prohibited
- Trust accounts may be interest-bearing with pooled interest remitted to the state housing fund
- NMREC has authority to audit trust accounts and records must be maintained for inspection
New Mexico Trust Account Requirements
New Mexico qualifying 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 is a bank account where qualifying 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 |
Where to Open
Trust accounts must be at an acceptable financial institution:
- Federally insured bank
- Federally insured credit union
- Institutions authorized to do business in New Mexico
Types of Trust Accounts in New Mexico
New Mexico recognizes three types of trust accounts:
1. Brokerage Trust Account
| Feature | Details |
|---|---|
| Purpose | Hold funds during sales transactions |
| Establishment | By qualifying broker |
| Funds held | Earnest money, deposits |
2. Custodial Trust Account
| Feature | Details |
|---|---|
| Purpose | Hold money of an owner |
| Account name | In owner's name with QB as trustee |
| Interest | May be interest-bearing |
3. Property Management Trust Account
| Feature | Details |
|---|---|
| Purpose | Hold funds during property management |
| Funds held | Rent, security deposits, owner funds |
| Requirement | Separate from brokerage trust account |
Important: Only qualifying brokers may maintain trust accounts. Associate brokers must turn over all client funds to their qualifying broker.
Deposit Requirements
Timeline
| Situation | Requirement |
|---|---|
| Earnest money | Per contract terms (promptly after acceptance) |
| Security deposits | Per lease agreement |
| Rent | Per management agreement |
Proper Handling
All client funds must be deposited into the appropriate trust account:
| Correct | Incorrect |
|---|---|
| QB's trust account | Associate broker's personal account |
| Appropriate trust type | QB's operating account |
| Any non-trust account |
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 |
| Small broker deposit to maintain account | Large broker funds in trust account |
| Using client funds for business expenses |
Conversion
Conversion is using client funds for unauthorized purposes. It is a serious violation that can result in:
- License revocation
- Criminal charges
- Civil liability
Pooled Interest-Bearing Accounts
New Mexico allows qualifying brokers to maintain pooled interest-bearing trust accounts:
Key Rules
| Rule | Details |
|---|---|
| Interest earned | Remitted to state fund (net of fees) |
| Frequency | Monthly or quarterly |
| Agreement | Account agreement must provide for remittance |
| Purpose | Supports housing initiatives |
Property Management Exception
Property managers are NOT required to establish pooled interest-bearing escrow accounts.
Note: Interest earned on customer funds in pooled accounts goes to the state, not the broker or client.
Record Keeping Requirements
Required Records
Qualifying brokers must maintain:
| Record | Description |
|---|---|
| Bank statements | Monthly statements from financial institution |
| Deposit records | Documentation of each deposit |
| Disbursement records | Documentation of each payment |
| Client ledgers | Individual records for each client |
| Reconciliation | Monthly reconciliation of accounts |
Retention Period
| Requirement | Duration |
|---|---|
| Trust account records | As required by NMREC rules |
| Transaction files | Available for inspection |
NMREC Audits
NMREC has authority to:
- Audit trust accounts as part of enforcement
- Review records during investigations
- Take disciplinary action for violations
Common Audit Issues
| Issue | Consequence |
|---|---|
| Shortage of funds | Serious violation - potential revocation |
| Poor record keeping | Warning to suspension |
| Late deposits | Warning to fine |
| Commingling | Fine to revocation |
| Conversion | Revocation and criminal referral |
Who is authorized to maintain a trust account for client funds in New Mexico?
What happens to interest earned on a pooled interest-bearing trust account in New Mexico?