Broker Patricia in Detroit has a trust account at First Michigan Bank. The bank fails and is taken over by federal regulators. Patricia's trust account held $95,000 in client earnest money deposits from 12 different transactions. The FDIC insurance limit is $250,000 per depositor per institution. Patricia argues that each client's funds are separately insured up to $250,000 because they are held in trust for individual clients. Which statement best reflects the correct FDIC insurance treatment AND Patricia's legal obligations under Michigan law?
Correct Answer
C) FDIC pass-through insurance may cover each client's beneficial interest separately, but Patricia remains responsible under Michigan law for proper trust fund management regardless of bank failure
Under FDIC rules, properly designated trust accounts (titled as 'broker trust account' or 'escrow account' for the benefit of identified clients) may qualify for pass-through insurance, where each client's beneficial interest is separately insured up to $250,000. However, this requires proper titling, recordkeeping, and identification of beneficial owners. Critically, under MCL 339.2512 and Michigan's Occupational Code, Patricia's legal obligation to safeguard client funds does not end with bank failure. She remains responsible for proper trust fund management, including choosing a financially sound institution and maintaining proper records that would support any FDIC pass-through claim.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Florida real estate licenses must be renewed biennially, and sales associates have specific post-license education requirements for their first renewal.
License requirements are the mandatory qualifications—including pre-licensing education, examination, and background checks—that a person must satisfy before legally practicing real estate. These requirements are established and enforced by each state's real estate commission.
Market allocation is an illegal antitrust practice in which competing real estate brokerages agree to divide markets among themselves by geographic area, property type, or price range, thereby eliminating competition.
More Practice Of Real Estate Questions
In Wyoming real estate practice, an associate broker or salesperson is not associated with a responsible broker at renewal. What should the licensee remember?
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A Wyoming licensee is reviewing an out-of-state salesperson applicant prepares for testing. What is the best answer?
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