Broker Steven manages a large property management portfolio. He maintains a single pooled trust account for all client security deposits and rental income. His recordkeeping system shows individual ledgers for each property owner. During a TREC audit, the auditor notes that Steven's trust account is an interest-bearing account and that Steven has been retaining all interest earned on the account for his own benefit without disclosing this to his property management clients. Which of the following best describes Steven's situation under Tennessee law?
Correct Answer
A) Steven's practice is a violation because interest earned on trust funds belongs to the clients whose funds generated the interest, unless otherwise agreed in writing
Under Tennessee trust account rules and general fiduciary principles, interest earned on trust funds belongs to the clients whose funds are held in the account, not to the broker. If Steven wishes to retain interest for himself, he must obtain written agreement from each client authorizing him to do so. Retaining interest without disclosure or written client authorization violates the broker's fiduciary duty and trust account rules.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Brokers in Florida have strict responsibilities for managing escrow accounts, including monthly reconciliation and proper handling of trust funds.
FREC has the authority to impose fines and other disciplinary actions on licensees who violate real estate laws and rules.
A group boycott is an illegal antitrust practice in which two or more competing real estate businesses agree to refuse to work with a specific person, company, or entity in order to harm that party's ability to compete.
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