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 licence.
Trust funds are not the broker's money at any point. They must be placed, by the end of the next business day after receipt, into a trust account, into the hands of the principal, or into a neutral escrow depository. A separate record is kept for each beneficiary alongside a control record for the whole account, and the two are reconciled at least monthly. A broker may keep up to $200 of their own funds in the account solely to cover bank service charges.
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 spending trust money. It is far more serious than commingling because the funds are gone.
See also
See it in a question
One question from Practice and Disclosures, so the term lands in the context the exam uses it in.
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 misdemeanour under B&P Code section 123.