From the California Dept. of Real Estate website, here are the last five of 10 most common violations found in DRE Audits:

Regulation 2832.1 – Trust Fund Handling for Multiple Beneficiaries (Trust Fund Shortage)
Regulation 2832.1 requires the real estate broker to obtain written consent from every owner of the trust funds in the bank account prior to each disbursement if the disbursement will reduce the balance of the funds in the bank account to an amount less than the existing trust fund liability of the broker to all owners of the funds. A trust fund shortage therefore exists when the following conditions are present:

  • The balance of the bank account is less that the total trust fund liability of the broker to all owners of the funds; and
  • There is no written authorization from all owners of the trust funds allowing this.

The most obvious reason for a trust fund shortage is the intentional misuse (conversion) of trust funds. However, simple record keeping errors that remain undetected could result in trust fund shortages and an actual loss of funds. Failure to record a disbursement, or understating the amount of a check disbursed, or overstating the amount of a deposit on the beneficiary ledger/record will cause the beneficiary ledger to show a balance that is larger than the true amount owed to the individual beneficiary. This overstated balance on the ledger is more likely to be paid and, consequently, the beneficiary will be paid more than what is due. The end result is a trust fund shortage.

Performing the proper trust account reconciliation pursuant to Regulation 2831.2 should enable the broker to detect such causes of a trust fund shortage.

Regulation 2832 – Trust Fund Handling
The most common violations of this section found in audits relate to Commissioner’s Regulation 2832(a), which requires that a broker place funds accepted on behalf of another into the hands of the owner of the funds, into a neutral escrow depository or into a trust fund account in the name of the broker, or in a fictitious name if the broker is the holder of a license bearing such fictitious name, as trustee at a bank or other financial institution not later than three business days following receipt of the funds by the broker or by the broker’s salesperson. Two of the most common problems related to this regulation are:

  • A broker’s failure to designate accounts receiving trust funds as trust fund accounts in the name of the broker or broker’s dba as trustee; and
  • Failure to deposit trust funds received by a broker or broker’s employee into a trust fund account within three business days of receipt.

Other violations of this section relate to a broker’s use of an improper interest-bearing account {Regulation 2832(b)}, a broker’s failure to place checks received from an offeror into a neutral escrow depository or trust fund account in a timely manner following acceptance of an offer {Regulations 2832(c & d)} and failure of a broker acting as an escrow holder in a transaction in which the broker is performing acts for which a real estate license is required to place trust funds received as required not later than the next business day following receipt of the funds {Regulation 2832(e)}.

Regulation 2834 – Trust Account Withdrawals
Commissioner’s Regulation 2834(a) states that withdrawals may be made from a trust fund account of an individual broker only upon the signature of the broker or one or more of the following persons if specifically authorized in writing by the broker:

  • A salesperson licensed to the broker.
  • A person licensed as a broker who has entered into a written agreement pursuant to Section 2726 with the broker.
  • An unlicensed employee of the broker with fidelity bond coverage at least equal to the maximum amount of trust funds to which the employee has access at any time.

Regulation 2834(b) also states that withdrawals may be made from a trust fund account of a corporate broker only upon the signature of:

  • An officer through whom the corporation is licensed pursuant to Section 10158 or 10211 of the Code; or
  • One of the persons enumerated in paragraph (1), (2) or (3) of Regulation 2834(a), provided that specific authorization in writing is given by the officer through whom the corporation is licensed and the officer is an authorized signatory of the trust fund account.

Regulation 2834(c) states that a broker or broker-officer is responsible or liable for the handling of trust funds regardless of the existence of any authorization given regarding signature authority.

The most common violations found in audits related to Regulation 2834 are:

  • The failure of the broker or designated officer to be a signatory on the trust account (this may indicate a supervision problem).
  • Presence of an unlicensed signatory on the trust account who does not have fidelity bond coverage.
  • Fidelity bond coverage inadequate in amount and/or has a deductible.
  • The failure of the broker or designated officer to give specific written authorization permitting a salesperson, broker or unlicensed person to sign on the trust account.


B & P Code Section 10145/ Regulation 2835 – Commingling

A broker shall not commingle with his or her own money or property the money or property of others that he or she receives and holds. Common causes of this violation are the deposit of trust funds received into the broker’s general business account or maintenance of over $200 in broker funds in a trust account holding trust funds.

A common example of this violation is when a broker deposits credit report fees and/or appraisal fees received into his or her general bank account instead of a trust account when he or she has not yet paid the bill. Often, the reason for this violation is that the broker does not maintain a trust account or the broker was not aware that credit report fees and appraisal fees are trust funds.

B & P Code Section 10240 – Written Disclosure Statement

Another often-cited violation is Section 10240 of the code which requires brokers to provide a borrower with a mortgage loan disclosure statement within three business days after receipt of a completed loan application or before the borrower becomes obligated on the note, whichever is earlier. Real estate brokers often fail to provide the Mortgage Loan Disclosure Statement (Borrower) or, in a federally regulated residential mortgage loan transaction, fail to comply with Section 10240(c). Other brokers fail to maintain completed copies for their files.



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