Practice and Disclosures, 25% of the examination
Trust funds
Money or other things of value received by a broker on behalf of another person in a transaction requiring a real estate license.
Trust funds belong to another person while a broker or salesperson holds them in licensed activity. A salesperson must immediately deliver them as the responsible broker directs. Unless a valid check-holding instruction applies, the broker must place them into the hands of the owner, a neutral escrow depository, or the broker's trust account no later than three business days after receipt by the broker or salesperson. A broker acting as an escrow holder in a transaction requiring a real estate license generally has a next-business-day deadline. Separate beneficiary records are reconciled with the account control record at least monthly, except in a month with no bank-account activity.
What this is confused with
The exam rarely asks for a definition. It describes a situation and offers two terms that both sound plausible.
Commingling
Commingling is mixing trust money with the broker's own money. It is a violation even if nothing is spent.
Conversion
Conversion is an unauthorized use of trust money. It is more serious than commingling because the holder has exercised control inconsistent with the owner's rights.
See also
Test the distinction
A relevant question from Practice and Disclosures, selected because its facts or explanation use this concept.
A salesperson receives a $5,000 good-faith deposit check made payable to the seller. What must happen to it?
Written to DRE's published topic list. Not a real examination question, since reproducing those is a misdemeanor under B&P Code section 123.
Primary sources
Use these authorities when a course summary, forum answer, or older flashcard conflicts with the current California rule.