Under TREC rules, a broker's trust account is audited by TREC. The auditor finds that the broker has been taking early commission deductions from earnest money before transactions close. The broker claims this is permitted because the commission was earned. Under TREC rules, is this practice permitted?
Correct Answer
B) No, this practice constitutes conversion of trust funds; commissions are paid at closing from the sale proceeds, not from the trust account
Under TREC rules, taking commission deductions from earnest money before closing is conversion of trust funds. Earnest money is held in trust for the parties to the transaction and cannot be used to pre-pay commissions. Commissions are paid at closing from the sale proceeds through the closing statement.
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