What are some of the main things to watch out for with escrow accounts?
Three of the most common escrow account pitfalls our members encounter are:
a. Commingling of Funds.
Funds cannot be transferred from the escrow account to an operating account until the transaction has closed. We often hear of members who preemptively transfer funds from their escrow to their operating account so that they can bring a check for the co-broker at closing. Even if it is a near certainty that the transaction will close as scheduled, this is an impermissible commingling of funds. There is nothing in
254 CMR 3.10(a) that would prohibit the disbursement of funds directly from the escrow account after the closing has occurred.
b. Having Non-Broker Signatories.
The Board interprets 254 CMR 3.10(a) as allowing for only brokers to keep and maintain escrow accounts. Neither salespeople nor unlicensed individuals, such as a bookkeeper, may have check signing authority.
c. Escrow Accounting:
The broker is responsible for keeping a proper account of the escrow account. This requires not only tracking all deposits and distributions, but also maintaining copies of each check deposited into and withdrawn from the escrow account for a period of three (3) years from the date of issuance. The check register must be kept for a period of ten (10) years.