"As a broker, if you don't have a system in place for handling trust funds, and if that system can't prove compliance to the penny, you're exposed, whether you meant harm or not. In a recent episode of our TrueCrimes podcast, we looked at the case of a California property management company that pocketed $20,000 in underperformed credit report fees and audited trust shortages of $50,000."
"In the case we discussed, the firm collected application screening fees with a portion designated for credit reports. However, the credit reports were never pulled. That's not just an oversight; it's a controls failure. Your system needs to tie the receipt of fees to service completion, retaining all documentation to show where and when the money was spent, with overages refunded as needed."
"California does not require proof of consumer harm to discipline trust account violations control failures alone are enough. As the broker, you're probably not getting out your old-fashioned adding machine and filing receipts yourself. There may be a bookkeeper or other staffer, third-party background screening vendors and individual agents involved, but the supervising broker must do just that supervise the system end to end."
Brokers trigger trust fund handling rules upon taking custody of client funds and must maintain systems that can prove compliance to the penny. Control failures such as collecting fees for services not rendered (for example, unpulled credit reports) and audited trust shortages expose brokerages to discipline regardless of intent or consumer harm. Systems must tie fee receipts to service completion, retain documentation, and refund overages. Supervision requires end-to-end oversight of bookkeepers, vendors, and agents. Policies alone are insufficient without implementation plans, documented procedures, reconciliations, and controls that allow state auditors to verify ledgers and trust account accuracy.
Read at www.housingwire.com
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