Broker Lisa in Massachusetts has been holding a $15,000 earnest money deposit in her trust account for 60 days. The transaction has closed successfully and the deposit was applied to the purchase price at closing. Lisa notices there is still $200 remaining in the trust account from accumulated bank interest. Under Massachusetts regulations, what should Lisa do with this $200?
Correct Answer
A) Handle the interest according to the terms of the purchase and sale agreement or applicable law, which may direct it to the client or a designated fund
Under Massachusetts regulations and the broker's fiduciary obligations, interest earned on trust account funds does not belong to the broker. The disposition of interest must follow the terms of the purchase and sale agreement or applicable law. In many cases, interest belongs to the party whose funds generated it (typically the buyer), or the account may be structured as an IOLTA (Interest on Lawyers' Trust Accounts) equivalent arrangement. The broker cannot simply take the interest as personal income.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A tie-in arrangement is an illegal antitrust practice in which a seller conditions the purchase of one product or service on the buyer's agreement to purchase a separate product or service.
A trust account, also called an escrow account, is a separate bank account maintained by a broker to hold funds belonging to others, such as earnest money deposits, security deposits, or other client funds.
Advertising regulations govern how real estate licensees may market properties and services, requiring truthful, non-deceptive advertising that includes proper identification of the brokerage.
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