Kentucky Escrow and Trust Duties
The Kentucky principal broker is responsible for handling client money in escrow. This chapter covers earnest-money deposits, conversion, disputed funds, and reconciliation.
Earnest Money and Escrow Accounts
Client money such as earnest money must be held in an escrow (trust) account separate from the broker's business and personal funds and deposited within the time set by KREC regulations. Commingling escrow money with the broker's own funds is prohibited, and the principal broker is accountable for accurate escrow records.
Conversion and Disputed Funds
Using escrow money to pay the brokerage's own expenses is conversion—one of the most serious violations of Kentucky license law. When a transaction collapses and both parties claim the deposit, the broker must keep the funds in escrow and disburse them only upon the written agreement of the parties or a court order, not release, keep, or move them arbitrarily.
Reconciliation
The principal broker reviews and reconciles the escrow account regularly, comparing the bank balance to the total owed on each transaction to confirm the account holds exactly what is owed and to detect shortages. It does not authorize using client funds, and per-transaction records remain required.