Alabama Real Estate Broker Exam — All Questions

Where must an Alabama qualifying broker hold funds that belong to others?

• a.In a separate account at any federally insured institution in the country
• b.In a separate federally insured account at an institution located in Alabama✓
• c.In the company's operating account, provided a separate ledger is kept
• d.In an interest-bearing account at a bank the buyer and seller choose

Section 34-27-36 makes it a prohibited act to fail "to deposit and account for at all times all funds belonging to, or being held for others, in a separate federally insured account or accounts in a financial institution located in Alabama." Two words in that sentence are doing the work: separate, which is why the operating account with a tidy internal ledger will not do — the same subdivision independently prohibits "commingling money belonging to others with his or her own funds" — and located in Alabama, which is why federal insurance alone is not enough and an out-of-state bank fails even if it is larger and safer. The account is not the parties' to choose, and nothing requires it to bear interest. Rule 790-X-3-.03(1) adds who must be able to reach it: the qualifying broker must be a customer of the institution holding the account and "one of the persons with authority to deposit and withdraw funds and to write or make checks as necessary on all such accounts." And the money leaves a trail — the same statute requires a complete record of funds belonging to others, showing to whom the money belongs, date deposited, date of withdrawal and other pertinent information, kept for at least three years.

An Alabama salesperson takes a buyer's earnest money check on Tuesday. The contract form says nothing about when the check is to be deposited. Under the commission's rules, when must it be deposited?

• a.Within three banking days
• b.When the offer becomes a contract✓
• c.Within seven business days of receipt
• d.Immediately, on the day it is received

Rule 790-X-3-.03(3) makes the contract form the timekeeper, and supplies a default when the form is silent: "In cases where a check is received as earnest money and the contract form states that the check is to be held for a specific length of time or until the occurrence of a specific event, then the check shall be deposited when the contract form states, or if no time for deposit is specified in the contract form, then the check shall be deposited when the offer becomes a contract." Immediate deposit is the rule for a different kind of money in the same paragraph: "In cases where the funds are U. S. currency, i.e. cash as opposed to a check or note, these funds shall be deposited immediately." Three banking days is a deadline several other states use and Alabama does not. Seven business days is an Alabama number, but it governs the far end of the transaction — disbursement after consummation. Note that the salesperson has a separate and immediate duty of her own: paragraph (2) requires each salesperson or associate broker to pay over to the qualifying broker all funds coming into his or her possession in trust for other parties "immediately upon receipt of same."

An Alabama sale falls apart and the buyer and the seller each demand the earnest money the qualifying broker is holding. What may the broker do?

• a.Release the funds to whichever party the broker believes is entitled
• b.Return the funds to the buyer, who is the source of the deposit
• c.Hold the funds pending a written agreement signed by all parties or a court order✓
• d.Keep the funds as a fee, since a commission was earned on the contract

Rule 790-X-3-.03(5) sets a prompt deadline for the ordinary case and then removes the broker's discretion in this one: "each qualifying broker shall promptly disburse to the appropriate party or parties any trust funds within 7 business days of the consummation of the transaction for which the funds were deposited. If for any reason the transaction terminates without consummation, or if there is a disagreement regarding the disbursement of trust funds, the qualifying broker shall not disburse any trust funds except pursuant to a written agreement signed by all parties after or upon termination, or pursuant to a court order." A broker who decides who deserves the money is adjudicating a contract dispute he is not authorized to decide, and that is true whichever way he decides it, so returning it to the buyer as the original source is the same error wearing a fairer face. Keeping it against a claimed commission is worse: Section 34-27-36 separately prohibits failing within a reasonable time to properly account for or remit money belonging to others. If the standoff persists, paragraph (7) leaves the exit open — the rule does not prohibit a broker from depositing disputed trust funds with the appropriate court "under the rules of interpleader or other lawful procedure."