Trust Account
Definition and meaning of Trust Account in real estate.
A trust account is a specialized bank account managed by a neutral third party, such as a real estate broker, escrow company, or attorney, to safely hold client funds during a transaction. Also known as an escrow account, it ensures that money is only disbursed when all contract terms are fulfilled.
In more detail
In a real estate transaction, buyers typically deposit earnest money into a trust account to show their good faith to the seller. State real estate commissions strictly regulate trust accounts to prevent brokers from mixing client funds with their personal or business operating funds, a violation known as commingling.
Because these funds are legally protected, neither the buyer nor the seller can access them unilaterally if a dispute arises. Understanding trust accounts is vital for consumers and license exam students alike, as the proper handling of these funds is critical to maintaining a broker's professional license.
Key facts
| Category | Legal, Titles & Closing |
|---|---|
| Also Known As | Escrow account |
| Strict Rule | No commingling of business and client funds |
| Common Custodians | Title companies, brokers, and escrow agents |
A buyer writes a check for their earnest money deposit, which the buyer's broker places into a designated trust account until the closing of the sale.
Frequently asked questions
Who keeps the interest earned on a real estate trust account?
Real estate trust accounts are typically non-interest-bearing, but in some states, any interest generated is directed to state housing programs or charity funds.
What happens to the money in a trust account if a deal falls through?
The funds are held in the trust account until both the buyer and seller sign a release agreement, or until a court decides how the funds should be distributed.