Key Takeaways
- Virginia principal brokers must maintain escrow accounts in federally insured Virginia financial institutions
- Earnest money and client funds must be deposited promptly in accordance with contract terms
- Escrow accounts must be reconciled regularly; records retained for 3 years
- Commingling (mixing personal and escrow funds) is prohibited except for nominal amounts to keep account open
- Brokers must hold disputed funds until the dispute is resolved or file interpleader
Escrow Account Management in Virginia
Proper handling of client funds is one of the most important responsibilities of a Virginia real estate broker. Escrow account violations are a leading cause of license discipline.
Escrow Account Requirements
Account Setup
Virginia principal brokers must:
| Requirement | Specification |
|---|---|
| Account Type | Designated escrow or trust account |
| Location | Federally insured Virginia financial institution |
| Account Name | Must designate as escrow or trust |
| Registration | Must notify REB of account information |
| Protection | Account is NOT subject to broker's personal creditors |
Types of Funds Held in Escrow
| 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
Prompt Deposit Requirement
Virginia regulations require escrow funds to be deposited promptly and in accordance with contract terms.
Best Practice: Deposit within 1-3 business days of receipt, unless contract specifies otherwise.
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 promptly after receipt
- If check bounces, notify parties immediately
- Document all deposits with transaction records
Prohibited Practices
Commingling
Commingling is mixing escrow funds with personal or business operating funds. It is strictly prohibited.
Exceptions:
- A broker MAY keep a nominal amount of personal funds in the escrow account to keep it open
- The amount should be minimal and documented
Conversion
Conversion is using escrow funds for personal purposes. It is:
- A serious violation
- Potential criminal offense
- Grounds for license revocation
Premature Disbursement
Brokers are not entitled to escrow funds until:
- Transaction is closed (settled), OR
- Transaction is terminated with agreement on fund distribution
Escrow Account Maintenance
Reconciliation Requirements
| Task | Frequency |
|---|---|
| Bank statement reconciliation | Monthly (recommended) |
| Trial balance preparation | Regularly |
| Record retention | 3 years minimum |
Reconciliation Process
- Compare bank statement to ledger
- Identify and resolve discrepancies
- Document reconciliation date and findings
- Maintain clear audit trail
REB Audits
The Real Estate Board may audit broker escrow accounts:
- Randomly as part of routine oversight
- In response to complaints
- During investigations
Failure to maintain proper records is itself a violation.
Escrow Fund Disputes
When parties dispute escrow 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 escrow disputes.
Where must Virginia escrow accounts be maintained?
What should a Virginia broker do when there is a dispute over escrow funds?
How long must Virginia brokers retain escrow account records?