An agency's trust account bank offers to set off an overdue overdraft on the agency's business account against the trust account. Under reg 5 of the Real Estate Agents (Audit) Regulations 2009, what should already have been put in place?
Correct Answer
A) Written notice to the bank that it cannot combine or set off against the trust account.
Regulation 5 requires each trust account to be designated a trust account and the bank to receive written notice that the money is held in trust. The notice must say the bank cannot combine the account with any other account or set off against it, and that interest must be credited to the trust account. The agency must also ask the bank to confirm in writing that it accepts these terms. Section 122(4) of the Act also protects trust money from the agent's creditors.
Why This Is the Correct Answer
Regulation 5's notice removes the bank's right to set off the agency's debts against trust money.
Why the Other Options Are Wrong
Option B: A guarantee from the agency's directors that the overdraft will be repaid.
Regulation 5 deals with written notice to the bank that trust money is protected, not guarantees for the agency's debts.
Option C: The Authority's written consent before the bank may set off against trust money.
No one can consent to set-off; regulation 5 requires the bank to be told it has no right of set-off at all.
Option D: A written agreement that trust account interest will be paid to the agency.
Regulation 5 requires that interest on the account be credited to the trust account, not paid to the agency.
Background Knowledge for Compliance
Source: https://www.legislation.govt.nz/regulation/public/2009/0279/latest/whole.html
Exam Tip for Compliance
Trust account bank notice: trust money, no set-off, and interest to the trust account.
Common Mistakes to Avoid on Compliance Questions
- •Thinking the bank may use trust funds to cover the agency's own borrowing.
More Compliance Questions
A real estate advertisement states 'Best value in the area' without any supporting evidence. Under the Fair Trading Act, this statement is:
Under the Fair Trading Act 1986, which statement about advertising a property for sale is correct?
A client provides a bank cheque for $30,000 as a deposit and mentions recently selling cryptocurrency to fund the purchase. Under AML/CFT requirements, what is the appropriate next step?
An agent holds $180,000 in trust across four transactions. One agreement is validly cancelled because the purchaser's finance condition was not met, and both parties' lawyers confirm the $60,000 deposit is to be refunded to the purchaser. What is the correct trust account procedure?
Under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, what is the minimum threshold for conducting customer due diligence when establishing a business relationship in real estate transactions?
- → An international client buying a $2.8 million commercial property provides a copy of their overseas passport but refuses any further identity checks or information, claiming diplomatic immunity. How should the agent proceed under AML/CFT requirements?
- → Which statement best describes the trust account requirements under the Real Estate Agents Act 2008?
- → An agency's trust account reconciliation reveals that interest earned on client deposits has been retained by the agency rather than distributed to clients. This practice is:
- → According to trust account regulations, how long must real estate agencies retain records of trust account transactions?
- → What is the primary purpose of the Consumer Guarantees Act 1993 in relation to real estate services?
- → Under the Consumer Guarantees Act 1993, if a real estate agent fails to exercise reasonable care and skill when marketing a property, what remedy might be available to the client?
- → A real estate agency's trust account shows a shortage of $5,000 during a routine audit. What is the most serious disciplinary order available under the Real Estate Agents Act 2008?
- → A real estate agent advertises a property as having a 'new roof' when they know it was repaired but not replaced. A buyer purchases based on this information and later discovers the truth. Which Acts could potentially apply to this situation?
- → Which statement best describes the primary purpose of trust accounts in real estate transactions?
- → A property advertisement states 'Guaranteed rental return of 8% per annum', although no one has contracted to pay that return. Under the Fair Trading Act 1986, this statement is:
People Also Study
Property Law & Legislation
56 questions
Agency Practice
89 questions
Sale & Purchase Process
63 questions
Professional Conduct & Ethics
46 questions
Related Study Resources
Previous Question
An agency's compliance officer, who wrote its AML/CFT programme, offers to carry out the agency's independent AML/CFT audit. Under s 59B of the AML/CFT Act 2009 and DIA's current audit guidance, what is correct?
Next Question
At an auction a successful bidder, whom the agency does not act for, hands the agency $15,000 in banknotes toward the deposit. How does reg 5B of the AML/CFT (Definitions) Regulations 2011 treat this bidder?