Washington Managing Broker Exam — All Questions

A Washington firm manages a 40-unit building under a written management agreement signed by the owner and the designated broker. Tenant security deposits totaling $34,000 sit in the firm's property management trust account, and every tenancy is continuing. The owner needs cash for a roof repair and emails the managing broker: "Move the deposit money to the operating side this month — I'll put it back before anyone moves out." What should the managing broker do?

• a.Comply, because the signed management agreement authorizes the firm to collect and to disburse owner funds
• b.Comply as to month-to-month tenants only, since those tenancies may be ended on the statutory notice
• c.Move the deposits into the firm's business account and write the owner a check drawn on that account
• d.Refuse: security deposits stay in trust until the end of each tenancy absent the tenant's written agreement✓

WAC 308-124E-115(5) is the controlling sentence: no disbursement may be made from the trust account of funds received as a damage or security deposit "to the owner or any other person without the written agreement of the tenant, until the end of the tenancy when the funds are to be disbursed to the person or persons entitled to the funds as provided by the terms of the rental or lease agreement." Two conditions, and neither is met while the tenancies continue and no tenant has agreed. The second option is right about one rule and wrong about this one: WAC 308-124D-215(1)(c) and (d) do require the management agreement to say whether the firm may collect and disburse funds and whether it may hold deposits, but an owner's authority over his own money does not reach the tenants'. Whether a tenancy could be terminated is not the test; the tenancy must actually have ended. And routing the money through the firm's own account adds the commingling that RCW 18.85.285(5) and WAC 308-124E-105(15) forbid. WAC 308-124E-115(6) completes the picture: when the management agreement ends, deposits go to the owner or the successor manager and the tenants are notified.

A broker licensed for eight months hands his managing broker a purchase and sale agreement that reached mutual acceptance nine days ago, together with the buyer's $10,000 earnest money check, which he has been carrying in his car. The firm's designated broker has delegated contract review and trust accounting to this managing broker under a signed written delegation. What should the managing broker do?

• a.Complete and document the file review now, but leave the check with the broker until the buyer's funds have cleared
• b.Deposit the check at once and skip the file review, because the five business day review window has already lapsed
• c.Get the check deposited at once, complete and document the file review, and retrain the broker on both deadlines✓
• d.Report the broker to the department and take no further step, because the designated broker holds the trust account duty

Two deadlines have already been missed and both are the delegated managing broker's to enforce. WAC 308-124E-100 required the broker to deliver the funds within two business days of the client's signature, and WAC 308-124E-105(6) requires deposit not later than the next banking day after receipt. WAC 308-124C-125(9)(c), carried to the delegate by WAC 308-124C-137(13)(c), required review of a contract involving a broker licensed under two years within five business days of mutual acceptance, with documented proof retained. A lapsed window is a reason to review now and record the lapse, not a reason to skip the review, so the third option is right that the window has run and wrong about what follows. Leaving the check with the broker repeats the violation, whatever the review shows. And RCW 18.85.275(2) does make the designated broker responsible for funds and records once received, but WAC 308-124C-137 has placed this duty on the delegate, and RCW 18.85.361(22) makes failure to supervise adequately its own ground for discipline. WAC 308-124C-145 requires heightened supervision throughout the broker's first two years.

Ten days before closing, a broker at your firm tells you the seller mentioned in passing that the crawlspace floods every spring. The seller does not want it disclosed, and the buyer's inspector never reached the crawlspace. The broker asks whether the firm's loyalty to its seller-client means he should stay quiet. As the supervising managing broker, what do you tell him?

• a.He may stay quiet, because the seller's completed disclosure statement fixes what the buyer is entitled to
• b.He must disclose it: the duty to disclose known material facts runs to all parties and cannot be waived✓
• c.He must disclose it only if the buyer's agent puts the question to him directly and in a written request
• d.He may stay quiet until closing and disclose it afterwards, because some duties survive the relationship

RCW 18.86.030(1) lists the duties a broker owes "to their principal and to all parties in a transaction, which may not be waived," and (1)(d) is the disclosure of "all existing material facts known by the broker and not apparent or readily ascertainable to a party." Recurring seasonal flooding of the crawlspace substantially affects value and is not apparent, so it is a material fact under RCW 18.86.010(11), and the broker knows it. Loyalty under RCW 18.86.040(1)(a) is owed to the seller, but it never licenses concealment from the other side, and the client cannot waive a duty the statute says may not be waived. The second option is right that a seller disclosure statement exists but wrong that it caps the broker's own duty. Nothing conditions the duty on a written inquiry from the other agent. And the fourth is right that duties survive termination — RCW 18.86.070(2) preserves the duty to account and the duty of confidentiality — but disclosure after closing is not disclosure at all, since the point is to inform the buyer while the decision is still his. RCW 18.86.031 makes a violation of RCW 18.86.030 a violation of RCW 18.85.361.

A transaction your firm brokered collapses three days before closing. The buyer demands the $15,000 earnest money back and the seller claims it. Your affiliated broker asks you to release $7,500 to each side to keep the peace, and to draw the firm's earned share of the commission from the trust account at the same time. What is the correct response?

• a.Both: the designated broker has delegated trust authority to you, and a delegated managing broker may disburse trust funds at will
• b.The split only: a supervising broker may settle a dispute over funds the firm itself holds, but never touch the firm's own commission
• c.Neither: disputed funds need a written release signed by both parties, and a commission check may be drawn only after closing✓
• d.The commission only: the firm plainly earned it, and commissions owed to another firm may lawfully be paid out of the trust account

WAC 308-124E-110(3) forbids any disbursement from the trust account before closing, or before a condition in the purchase and sale agreement occurs, "to any person or for any reason, without a written release from both the purchaser and seller," with two exceptions that do not help here: an agreement that terminates by its own terms disburses as the agreement provides, and funds may go to the escrow agent the parties designate in writing. A broker's even-handed split is not a written release, so the third option is wrong even though its instinct about the commission is sound. WAC 308-124E-110(2) allows a commission check payable to the firm to be drawn on the trust account only "after the final closing," and WAC 308-124E-105(16)(c) bars trust disbursements for commissions to persons licensed to the firm or for firm business expenses at any time. The fourth option is right about one rule — WAC 308-124E-105(14) does let commissions owed to another firm be paid from trust — and wrong about this one, since nothing was earned in a deal that never closed. A written delegation under RCW 18.85.275(3) transfers the work, not a discretion to ignore the rules.