Escrow, Earnest Money, and Trust Accounts
Handling other people's money is the most broker-distinctive competency. This chapter covers the Tennessee principal broker's duty to hold earnest money in escrow, handle disputed deposits, and keep proper records.
Holding Earnest Money
In Tennessee the principal broker is responsible for the firm's escrow/trust account and for depositing earnest money and other client funds into it as required. Trust money must be kept separate from the broker's personal or business funds; commingling or converting client money is a serious violation. An affiliate broker who receives funds must deliver them to the principal broker promptly rather than holding them personally.
Disputed Deposits
When the buyer and seller make conflicting demands for an earnest-money deposit, the principal broker acts as a neutral stakeholder and must not unilaterally decide who is entitled to the funds. The prudent course is to retain the deposit in escrow until the parties agree in writing, a court resolves the dispute, or another lawful method such as interpleader is used. Releasing disputed money on one party's demand exposes the broker to liability.
Recordkeeping and Reconciliation
Principal brokers must keep accurate records of escrow-account activity and reconcile the account so that every client's funds can be shown to be intact and properly handled. Complete records protect consumers and the broker, and unexplained shortages or poor records are grounds for discipline. This recordkeeping responsibility rests with the principal broker who controls the account, not the individual affiliate broker.