Tennessee Real Estate Broker Exam — All Questions

Tenn. Comp. R. and Regs. 1260-02-.09 lists the circumstances in which a Tennessee principal broker may properly disburse trust money. Which of the following is on that list?

• a.Upon the listing agent's signed written instruction to release the funds directly to the seller
• b.Upon the expiration of ninety calendar days from the date on which the purchase contract was signed
• c.Upon a written request from the closing attorney that the funds be sent ahead of the closing date
• d.Upon the rejection of an offer to purchase, sell, rent, lease, exchange or option real estate✓

Tenn. Comp. R. and Regs. 1260-02-.09(7) sets out the complete list of proper disbursements: on a reasonable interpretation of the contract authorizing the broker to hold the money; on a written agreement signed by all parties having an interest and separate from that contract; at the closing of the transaction; upon the rejection of an offer to purchase, sell, rent, lease, exchange or option real estate; upon the withdrawal of an offer not yet accepted; upon filing an interpleader action in a court of competent jurisdiction; or upon the order of a court of competent jurisdiction. Paragraph (8) requires disbursement in a proper manner without unreasonable delay. One agent's instruction is not an agreement signed by all interested parties; the mere passage of time is not on the list; and a closing attorney's request ahead of the closing is not the closing itself, which is the event subparagraph (c) names.

A Tennessee principal broker receives a written request to disburse earnest money and the parties disagree about who should get it. Absent a demonstration of a compelling reason, the Commission's rule requires the broker to disburse, interplead, or turn the funds over to an attorney with instructions to interplead them within:

• a.seven (7) calendar days from the date of the written request
• b.fourteen (14) calendar days from the date of the written request
• c.twenty-one (21) calendar days from the date of the written request✓
• d.forty-five (45) calendar days from the date of the written request

Tenn. Comp. R. and Regs. 1260-02-.09(9) provides that absent a demonstration of a compelling reason, earnest money shall be disbursed, interpleaded, or turned over to an attorney with instructions to interplead the funds within twenty-one calendar days from the date of receipt of a written request for disbursement. A Tennessee broker facing a disputed deposit therefore cannot simply sit on the money indefinitely waiting for the parties to agree; the clock starts on the written request. Paragraph (7)(f) confirms that filing an interpleader action in a court of competent jurisdiction is itself a proper disbursement, and paragraph (8) separately requires trust money to be disbursed in a proper manner without unreasonable delay. Seven, fourteen, and forty-five days do not appear in the rule.

Under Tenn. Comp. R. and Regs. 1260-02-.09, who must maintain the separate escrow or trustee account holding a Tennessee firm's trust money and remains responsible for that money at all times?

• a.The affiliate broker who wrote the contract
• b.The principal broker of the firm✓
• c.The closing attorney named in the contract
• d.The county register of deeds for that county

Tenn. Comp. R. and Regs. 1260-02-.09(2) requires each principal broker to maintain a separate escrow or trustee account for the purpose of holding any trust money received in a fiduciary capacity, and paragraph (4) makes principal brokers responsible at all times for trust money accepted by them or their affiliated brokers, in accordance with the terms of the contract. Paragraph (5) requires the contract to specify the terms and conditions for disbursement and the name and address of the person or firm who will actually hold the money. Only paragraph (6) shifts responsibility: where the contract authorizes someone other than the principal broker to hold trust money, the principal broker is relieved of responsibility on that agent's receipt of the funds. Tenn. Code Ann. section 62-13-309(f) requires proof of the firm's escrow account at original firm application and at each renewal.

Tenn. Comp. R. and Regs. 1260-02-.09 defines commingling as a licensee maintaining funds belonging to others in the same bank account that contains:

• a.another client's rental security deposits
• b.funds held for a different closing agent
• c.the licensee's personal or business funds✓
• d.escrow money from a cooperating firm

Tenn. Comp. R. and Regs. 1260-02-.09(1)(a) defines commingling as the act of a licensee maintaining funds belonging to others in the same bank account that contains his or her personal or business funds, and paragraph (13) states that commingling of funds contained within firm accounts is expressly prohibited. The same rule defines trust money as money belonging to others received by a licensee acting as agent or facilitator, or any money held by a licensee acting as temporary custodian of funds belonging to others. Mixing one client's money with another client's money in a properly designated escrow account is ordinary escrow practice, not commingling, though paragraph (12) does require lease-related trust money to be held in one or more separate escrow or trustee accounts. Tenn. Code Ann. section 62-13-312(b)(5) supplies the discipline for failing to account for or remit money belonging to others.

A Tennessee firm manages rental property in addition to handling sales. Under Tenn. Comp. R. and Regs. 1260-02-.09, all trust money the firm receives and holds relating to leases must be:

• a.held in the firm's general operating account and reconciled at the end of each calendar month
• b.held in one or more escrow or trustee accounts separate from the sales escrow account✓
• c.forwarded to each property owner within three business days of every receipt
• d.deposited into the Commission's real estate education and recovery account

Tenn. Comp. R. and Regs. 1260-02-.09(12) provides that in addition to the escrow or trustee account referenced in paragraph (2), all trust money received and held which relates to the lease of property must be held in one or more separate escrow or trustee accounts. A firm doing both sales and property management therefore runs at least two trust accounts. Paragraph (13) prohibits commingling of funds contained within firm accounts, which rules out an operating account, and paragraph (1)(b) treats money held as temporary custodian for others as trust money regardless of how quickly it is passed on. The real estate education and recovery account under section 62-13-208 is funded by a one dollar fee at original licensure and by renewal assessments; it is not a depository for client money.

Interest-bearing escrow or trustee accounts in Tennessee are:

• a.neither required nor prohibited, if disclosed to the payor at contract execution and agreed in writing✓
• b.required for every earnest money deposit that exceeds ten thousand dollars in a residential sale transaction
• c.prohibited unless the Commission grants the principal broker a written exemption in advance
• d.required whenever earnest money is held for more than sixty days before the closing date

Tenn. Comp. R. and Regs. 1260-02-.09(14) states that interest-bearing escrow or trustee accounts are neither required nor prohibited by the Commission, and then imposes three conditions if one is used. Subparagraph (a) requires the licensee, at the time of contract execution, to disclose to the payor that the deposit will be placed in an interest-bearing account, and requires the licensee and payor to execute a written agreement indicating the manner of disposition of any interest earned. Subparagraph (b) provides that as a depositor of the trust money the licensee does not own the money or the interest earned on it until properly disbursed to the licensee. Subparagraph (c) requires a detailed and accurate accounting of the precise sum of interest earned for each separate deposit. No dollar threshold, exemption procedure, or holding period appears in the rule.

A Tennessee affiliate broker takes an earnest money check from a buyer. Tenn. Comp. R. and Regs. 1260-02-.09 requires the affiliate broker to:

• a.deposit it into the affiliate broker's own business account until the closing date
• b.pay it over to the principal broker immediately upon receipt✓
• c.deliver it directly to the seller within three business days of receiving it
• d.mail it to the Commission together with a copy of the signed purchase contract

Tenn. Comp. R. and Regs. 1260-02-.09(3) requires an affiliated broker to pay over to the principal broker with whom he is affiliated all trust money immediately upon receipt. The principal broker then holds it under paragraph (2) and remains responsible for it under paragraph (4). Paragraph (11) governs the deposit itself: trust money shall be deposited into an escrow or trustee account promptly upon acceptance of the offer, unless the offer contains a statement such as Trust money to be deposited by, and paragraph (10) bars accepting a postdated check for trust money unless the offer provides otherwise. Placing the check in the licensee's own account is the commingling prohibited by paragraphs (1)(a) and (13), and neither the seller nor the Commission is a proper recipient of an earnest money deposit.