Key Takeaways
- Brokers must deposit all client funds into a trust account within five banking days
- Trust accounts must be maintained at a bank or financial institution licensed in Vermont
- Commingling broker funds with client funds is prohibited
- Brokers must notify VREC within 10 days of opening any trust account
- Interest from pooled accounts is remitted to the Vermont Housing Finance Agency
Vermont Trust Account Requirements
Vermont brokers must maintain trust accounts to hold client funds separate from their operating funds, as specified in Title 26, Chapter 41, Section 2214.
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 |
Where to Open
Trust accounts must be at:
- A bank licensed to do business in Vermont
- A financial institution licensed in Vermont
- A credit union (same rules apply)
Vermont-Specific: Every brokerage firm must maintain a pooled interest-bearing trust account so long as it holds funds of others.
Deposit Requirements
Timeline
| Requirement | Deadline |
|---|---|
| Earnest money deposits | Within five banking days |
| Contract deposits | Within five banking days |
| Other client funds | Per applicable agreement |
Notification to VREC
| Requirement | Deadline |
|---|---|
| Notify Commission of new trust account | Within 10 days of opening |
| Information required | Bank/institution name and location |
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.
Interest-Bearing Account Requirements
Vermont has specific rules for handling interest on trust account funds:
Individual Interest-Bearing Accounts
When a deposit is reasonably expected to earn a substantial amount of interest:
| Requirement | Details |
|---|---|
| At depositor's request | Broker shall place funds in individual interest-bearing account |
| Beneficiary | For benefit of the beneficial owner |
| Written agreement | Unless otherwise agreed in writing by all parties |
Interest Distribution (Individual Accounts)
Unless otherwise agreed in writing:
| Outcome | Interest Goes To |
|---|---|
| Sale closes | Applied to purchase price due from buyer |
| Deposit returned to buyer | Interest returned to buyer |
| Buyer defaults | Interest payable to seller |
Pooled Interest-Bearing Accounts
When a deposit is NOT expected to earn substantial interest:
| Requirement | Details |
|---|---|
| Account type | Pooled interest-bearing trust account |
| Interest remitted to | Vermont Housing Finance Agency |
| Use of interest | Agency's single family home mortgage programs |
Vermont-Specific: This interest remittance to VHFA is unique to Vermont—know it for the exam!
Disclosure Requirements
| Requirement | Details |
|---|---|
| Inform depositor | Whether funds are in individual or pooled account |
| Written statement | Retain signed statement from beneficial owner |
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 |
Conversion
Conversion is using client funds for unauthorized purposes. It is a serious violation.
Check Restrictions
| Prohibition | Details |
|---|---|
| Uncollected funds | No checks shall be drawn against uncollected deposits |
Withdrawal Restrictions
Contract deposits shall NOT be withdrawn until:
- Contract terminated by performance
- Contract terminated by its own terms
- Written agreement of all parties
Record Keeping
Required Records
Brokers must maintain at their usual place of business:
| Record | Description |
|---|---|
| Books and records | Pertinent to trust/escrow account |
| Contracts | Related to trust account funds |
| Documents | All documentation related to monies |
Inspection Rights
| Authority | Rights |
|---|---|
| VREC | May inspect records at broker's usual place of business |
| Timing | During regular business hours |
| Notice | May be conducted without advance notice |
Retention Period
| Requirement | Duration |
|---|---|
| Trust account records | Per VREC rules (typically 3+ years) |
| Transaction files | Per VREC rules |
Common Trust Account Violations
| Violation | Consequence |
|---|---|
| Failure to deposit within 5 days | Fine to suspension |
| Commingling | Fine to revocation |
| Conversion | Revocation, criminal charges |
| Failure to maintain records | Warning to suspension |
| Drawing against uncollected funds | Fine to suspension |
| Failure to notify VREC of account | Warning to fine |
Within how many banking days must a Vermont broker deposit earnest money into a trust account?
Where does interest from Vermont pooled trust accounts go?
Within how many days must a Vermont broker notify VREC of opening a new trust account?