NJ trust funds and escrow
Who holds deposits, the 5-business-day rule, who can sign on the account, how long records are kept, and the two violations the exam loves.
Sources: N.J.A.C. 11:5-5.1 and 11:5-5.4
Trust funds and escrow in one paragraph
Commingling vs conversion
| Commingling | Conversion | |
|---|---|---|
| What it is | Mixing client money with the broker's own, or not depositing or segregating it promptly | Using client money for the broker's own business or personal purposes |
| Classic example | Depositing an earnest money check in the operating account, or holding it 2 weeks | Paying the office rent out of the escrow account |
| Safe harbor | A clearly nominal amount of broker money to keep the account open or cover bank charges | None. Spending client money is never allowed |
| Seriousness | A violation of N.J.S.A. 45:15-17(o), even if no one loses money | The more serious offense, since client money is actually taken |
| Possible sanctions | Fine up to $5,000 first, $10,000 after; suspension or revocation | Fine up to $5,000 first, $10,000 after; suspension or revocation |
Trust funds and escrow: 4 rules to memorize
Salespersons never keep deposits.
Every deposit goes to the broker, who holds it in a special trust account.
5 business days.
'Promptly' means no more than five business days after the money is received.
No commingling.
Client money stays separate from the broker's business and personal money.
6 years of records.
Trust account records are kept at least six years from the date the funds were received.
Trust funds and escrow, explained
The broker must deposit escrow money promptly, which the rule defines as no more than five business days after receipt. There is one practical exception: if the buyer withdraws the offer before acceptance, or the seller rejects it without a counteroffer, the broker can hand the check back in the same form it came in.
The account has to be a special account at an authorized New Jersey bank, separate from every other account the broker has. The broker of record signs on it. The only other people allowed to sign are actively licensed salespersons or broker-salespersons.
Commingling means mixing client money with the broker's own money, or not depositing it promptly. Conversion means actually using client money for the broker's own purposes. A small, clearly nominal amount of the broker's money kept in the account to cover bank charges is not commingling.
Records for every trust transaction, including ledgers, deposit slips, bank statements and quarterly reconciliations, are kept for at least six years from the date the funds came in, at the broker's main New Jersey office. Unaccepted offers and expired listings only need to be kept six months.
The return-instead-of-deposit exception is narrow. It only covers an offer withdrawn or rejected without a counteroffer within the 5-business-day window. Once there is a signed contract, attorney review or ongoing negotiation does not pause the clock, so the check still goes into the trust account within 5 business days.
The broker does not have to be the escrow holder. The rule lets any person or entity legally authorized to hold funds do it, such as the broker, an attorney or a bank, and in New Jersey attorneys often hold the deposit. If a licensee has reason to doubt the seller could perform or return the money, the licensee must make sure the deposit is safeguarded, or get the buyer's separate signed acknowledgment of the risk.
The broker reconciles the trust account at least quarterly: checkbook balance, bank statement balance and client ledger balances. The broker files the account numbers with the Commission and reports any change right away. Files on pending and closed transactions must be kept at the broker's office, and an agent who changes firms cannot take them along.
NJ vs national: National textbooks talk about escrow in general terms. The New Jersey section asks for the specific numbers: five business days, six years, and who can sign.
How the exam tries to trip you up
- The question says the contract is 'still in attorney review' and asks if the broker can hold the check. No. Attorney review does not stop the 5-business-day deposit clock. Only an offer withdrawn or rejected without a counteroffer lets the broker hand the check back.
- A broker keeps a small, clearly nominal amount of personal money in the trust account to cover bank fees. That is allowed, not commingling. Do not pick commingling just because broker money is in the account.
- Moving client money out 'just for a day' and putting it back is still a violation. There is no grace period for borrowing escrow funds.
- Do not mix up the retention periods. Trust records are kept 6 years from receipt of the funds. Unaccepted offers and expired listings that never led to a contract are kept 6 months.
Trust funds and escrow practice questions
A New Jersey salesperson receives an earnest money deposit at an open house. What must they do?
Trust funds and escrow flashcards
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All 6 terms at a glanceShowHide
- Commingling
- Mixing client funds with the broker's own money, or failing to deposit them promptly.
- Conversion
- Using client funds for the broker's own purposes.
- Promptly (escrow)
- No more than five business days after receipt of the funds.
- Nominal amount
- A clearly small sum of the broker's own money kept in the trust account to keep it open or cover bank charges.
- Quarterly reconciliation
- Matching checkbook, bank statement and client ledger balances for the trust account at least every 3 months.
- Escrow holder
- Anyone legally authorized to hold deposits, such as the broker, an attorney or a bank.
Trust funds and escrow: common questions
Sources and further reading
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