Florida law requires a licensed real estate broker to place any money received in connection with a real estate transaction into a separate escrow or trust account. This account holds deposits, earnest money, and rents. The broker must maintain an accurate record of every transaction to uphold their professional responsibility. The integrity of this accounting system is regularly scrutinized by the Florida Real Estate Commission (FREC) to ensure consumer protection.
The Mandatory Timeline for Escrow Journal Updates
The law does not specify a deadline for the recording of an entry in the escrow journal, but compliance standards dictate that the entry must be made immediately following the financial event. The broker’s books must reflect the account’s activity as soon as a deposit, receipt, or disbursement occurs. This diligence prevents commingling and allows the broker to instantaneously know the total trust liability, which is the sum of all funds held on behalf of others.
The practical requirement for maintaining accurate records means the journal entry should be completed no later than the close of the next business day following the transaction. This internal standard aligns with the statutory deadlines for the physical deposit of funds, which must occur within three business days of receipt by the broker. Timely entry of all receipts and disbursements in the journal guarantees that the required monthly reconciliation can be performed.
What Constitutes the Escrow Account Journal
The escrow journal, or ledger, is the primary book of entry that tracks all funds received and disbursed through the trust account. This record must be maintained to show a clear audit trail for every dollar that moves into or out of the escrow account. The journal must contain specific information for each transaction, including the date the funds were received, the name of the party who provided the funds, and the purpose of the deposit.
For disbursements, the journal must record the check number, the date the check was written, the payee, and the purpose of the expenditure. The journal is necessary because it is the foundation for calculating the broker’s total trust liability at any given moment. Property management accounts may require a separate ledger for each owner and tenant to track individual balances that contribute to the overall escrow account balance.
General Requirements for Escrow Account Maintenance
Maintaining the escrow account involves compliance duties that extend beyond the initial journal entry, primarily centered on mandatory monthly reconciliation. According to Rule 61J2-14.012, Florida Administrative Code, the broker must prepare a written statement monthly comparing the reconciled bank balance with the broker’s total trust liability. This reconciliation process requires comparing the bank statement balance, the balance in the checkbook or ledger, and the total of all individual transaction balances.
The monthly statement must include an itemized list of all outstanding checks, deposits in transit, and any other items necessary to reconcile the bank account balance with the broker’s books. The broker must review, sign, and date this statement, taking responsibility for its accuracy. Commingling, the illegal mixing of client funds with the broker’s personal funds, is prohibited. However, a broker may place up to $1,000 of their own money in a sales escrow account to cover bank charges.
The broker must adhere to procedures when a dispute arises over escrowed funds, such as conflicting demands from a buyer and seller. A broker who holds the funds must notify FREC in writing within 15 business days of receiving the last party’s demand. Following the notification, the broker must institute one of the legally defined settlement procedures, such as mediation, arbitration, or interpleader, within 30 business days.
Consequences of Non-Compliance
Failure to maintain the escrow journal constitutes a violation of a broker’s fiduciary duty. The Florida Real Estate Commission (FREC) has disciplinary authority under Chapter 475, Florida Statutes, to address these record-keeping deficiencies. Violations can lead to administrative complaints against the broker’s license, even if no client funds were intentionally misappropriated.
The penalties for non-compliance with escrow regulations can include administrative fines, license suspension for a specified period, or permanent revocation of the real estate license. In cases where a shortage of funds or conversion is suspected, the Department of Business and Professional Regulation (DBPR) may seek a court injunction to freeze the accounts and appoint a receiver to manage the brokerage’s affairs. Poor record-keeping is viewed as professional misconduct and a failure to protect the public.