A Tennessee broker's trust account is subject to a TREC audit. The auditor finds that the broker's trust account ledger shows a total of $42,000 in client funds, but the actual bank balance is $41,850. The $150 shortfall is the result of a bank service charge that the broker paid from the trust account without replacing the funds. Which of the following correctly identifies the violation?
Correct Answer
B) The broker has violated trust account rules by allowing the account to be short of client funds, constituting conversion
Under Tennessee trust account rules, the trust account balance must always equal or exceed the total of all client fund ledger balances. When bank service charges reduce the account below the total client balance, the broker has effectively used client funds to pay a business expense, which constitutes conversion. There is no acceptable tolerance range; any shortfall in client funds is a violation. The broker should have maintained sufficient personal funds in the account to cover service charges, or paid the charge from operating funds.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Advertising regulations govern how real estate licensees may market properties and services, requiring truthful, non-deceptive advertising that includes proper identification of the brokerage.
Antitrust violations in real estate occur when competing brokerages or agents engage in practices that restrain trade, reduce competition, or harm consumers through collusion. These violations are governed by the Sherman Antitrust Act and can result in severe penalties.
Broker supervision is the legal obligation of a designated or managing broker to oversee and be accountable for the real estate activities of all salespersons and associate brokers operating under their license.
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