Broker Howard has been inactive for two years and allowed his Tennessee broker's license to lapse. During that period, his former property management clients' security deposits remained in his trust account. A former client, Mrs. Rivera, now demands the return of her $2,400 security deposit. Howard's trust account still contains sufficient funds, but his license has lapsed. Which of the following correctly describes Howard's obligations and potential liability under Tennessee law?
Correct Answer
B) Howard must return Mrs. Rivera's security deposit regardless of his license status, and failure to do so constitutes conversion; however, disbursing the funds does not require an active license
A broker's obligation to return client funds held in trust is a fiduciary and legal duty that exists independent of the broker's current license status. The security deposit belongs to Mrs. Rivera, and Howard's failure to return it upon proper demand constitutes conversion of client funds regardless of whether his license is active or lapsed. The act of returning funds already held in trust to the rightful owner does not constitute the practice of real estate requiring a license; it is fulfilling a pre-existing fiduciary obligation. Retaining the funds while using license lapse as a justification would compound the violation.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Commingling is the illegal act of mixing client funds with a broker's personal or business operating funds, while conversion is the unauthorized use of client funds for the broker's own benefit. Both are serious violations that can result in license revocation.
Commingling is the illegal act of mixing client trust funds with a broker's personal or business operating funds; conversion is the misappropriation of those funds.
Continuing education (CE) refers to the ongoing coursework that licensed real estate professionals must complete during each renewal cycle to maintain an active license. CE ensures agents stay current with changes in laws, regulations, and industry practices.
More Practice Of Real Estate Questions
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