Colorado Association of REALTORS | Colorado Real Estate Commission Adopts New Rules Concerning Deposits
34568
post-template-default,single,single-post,postid-34568,single-format-standard,edgt-core-1.0,ajax_fade,page_not_loaded,,colorado association of realators-child-ver-1.0.0,hudson-ver-1.5, vertical_menu_with_scroll,smooth_scroll,blog_installed,wpbdp-with-button-styles,wpb-js-composer js-comp-ver-6.0.3,vc_responsive

Colorado Real Estate Commission Adopts New Rules Concerning Deposits

Jun 15 2020

Colorado Real Estate Commission Adopts New Rules Concerning Deposits

The Colorado Department of Regulatory Agencies sent the following bulletin on 06/03/2020

On June 2, 2020, the Colorado Real Estate Commission (“Commission”) adopted rules concerning Money Belonging to Others for deposit by a Broker for services other than Real Estate Brokerage Services. This adoption specifically modifies Rule 5.11, to set a standard and add clarity for Brokers concerning accepting monies from others in these instances. These rule adoptions will be effective on July 30, 2020.

These rule changes were a result of the real estate industry’s request to provide greater clarification and direction concerning the requirements for Brokers holding Money Belonging to Others for non-Real Estate Brokerage Services. The rule changes were also necessitated due to the statutory language found in section 12-10-217(1)(h), C.R.S., which states, “Failing to account for or to remit, within a reasonable time, any money coming into the licensee’s possession that belongs to others, whether acting as real estate brokers or otherwise, and failing to keep records relative to the money, which records shall contain such information as may be prescribed by the rules of the commission relative thereto and shall be subject to audit by the commission.”

Chapter 5: Separate Accounts and Accounting 

Rule 5.11. (Money Belonging to Others for Deposit by a Broker for Non-Real Estate Brokerage Services) was expanded to include that monies accepted for deposit by Brokers for activities not involving Real Estate Brokerage Services must be deposited into the Broker’s or Brokerage Firm’s Trust or Escrow Account(s), and that those funds are subject to record-keeping requirements.

Examples of accepted deposits for non-real estate related activities that are subject to this rule would include:

  • Guest deposits for short term rentals;
  • Security deposits for the broker’s own rental properties where the broker’s ownership interest is more than 20%;
  • Deposits from a buyer when the broker is acting as a builder; or
  • Any other purposes, other than Real Estate Brokerage Service.

A Broker must review their Brokerage Firm’s Office Policy Manual regarding the depositing of these funds into the Brokerage Firm’s Trust or Escrow Accounts. If the Broker’s Brokerage Firm’s Office Policy Manual requires Money Belonging to Others for non-Real Estate Brokerage Services to be deposited into the Brokerage Firm’s Trust or Escrow Accounts, then the Brokerage Firm must follow all the accounting rules as prescribed in Chapter 5 of these rules.

If however, the Broker is holding any such funds outside of the Brokerage Firm, the Broker would need to set up Trust or Escrow Accounts as set forth in Rule 5.2 (trusts or escrow accounts) and comply with Rules 5.6 (funds must be available immediately without penalty), 5.9 (diversion and conversion prohibited), Rule 5.14.A. (maintain a journal), and 5.21 (production of documents and records). Also with regard to these funds, the Broker is required to perform a two-way reconciliation monthly to show that on the date of reconciliation the cash balance shown in the journal and the reconciled bank balance are the same. Please note that this is a different standard than the three-way reconciliation required for Brokerage Firms. 

The effect of the adoption of these rules means that Brokers accepting Money Belonging to Others for any purpose other than Real Estate Brokerage Services, which includes managing their own rental properties or acting as a builder outside of a Brokerage Firm must now be cognizant of placing those monies for deposit into a Trust or Escrow Account, making sure that those monies are not commingled with personal or business operating funds, maintaining appropriate records, and following all the accounting practices set forth within those rules.

Additional rules adopted at the Commission’s rule-making hearing:

Chapter 1: Definitions

Rule 1.34. (Definitions) was modified to include in the definition of “Money Belonging to Others” rental receipts and security deposits.

Chapter 5: Separate Accounts and Accounting:

Rule 5.2. (Trust or Escrow Accounts) was modified to add that a “Broker” who accepts money belonging to others {for non-real estate brokerage services} must deposit those monies into the broker’s or brokerage firm’s trust or escrow account {pursuant to the Broker’s Brokerage Firm’s Office Policy Manual.} If applicable, the Broker must identify the fiduciary nature of each separate Trust or Escrow Account with a Recognized Depository and retain a copy of any such account deposit agreement for inspection by the Commission. All Money Belonging to Others for Real Estate Brokerage Services must always be deposited in the Broker’s Brokerage Firm’s Trust or Escrow Accounts. 

Rule 5.10.D. (Commingling Prohibited) was modified to specify that “rental proceeds” received by a Broker for managing one’s own properties through the Broker’s Brokerage Firm where the Broker’s ownership interest is greater than 20% must be deposited in an account separate from any other Trust or Escrow Accounts maintained for Money Belonging to Others. These rental proceeds would not be subject to the Trust or Escrow Accounts and record keeping requirements in Rules 5.2. and 5.14.

Chapter 6: Practice Standards 

Rule 6.14.C. (Listing must be in Writing) was modified to clarify that all seller Listing Contracts and landlord Listing Contracts must be in writing prior to performing any Real Estate Brokerage Services.

Full version of the Rules

Share Post