California Real Estate Practice Exam

Broker A accepted a deposit from Buyer B with an offer on a property, and promptly deposited the Buyer's check into his Trust Account. Seller rejected the offer and Buyer demanded the deposit back—immediately. Broker wrote check to Buyer from Trust Account, but later learned that Buyer's original check had not cleared due to insufficient funds. Which of the following statements is correct?

1. Broker has shortages in his Trust Account

2. Broker should have given Buyer a postdated check

3. Broker violated Real Estate Law by refunding Buyer's deposit before receiving notice it had cleared

4. All of the above

The correct answer is: Broker has shortages in his Trust Account

The correct answer reflects the situation Broker A finds himself in regarding the handling of funds within his Trust Account. When Broker A deposited Buyer B's check into the Trust Account, the expectation was that the funds would be available for withdrawal after the check cleared. However, since the check did not clear due to insufficient funds, and Broker A issued a refund check to Buyer B, the Trust Account now has a shortage because there were not sufficient funds in it to cover this refund. Real estate practitioners must ensure money in their Trust Accounts is properly accounted for, and they cannot withdraw funds from the account unless the corresponding checks have cleared. In this scenario, by issuing a check to Buyer B before confirming the deposit had cleared, Broker A exacerbated the situation, leading to a shortage in the Trust Account, which is a serious issue. The other statements revolve around the implications and responsibilities of the broker in this context but the main takeaway is the direct consequence of the broker's action—resulting in a shortage in his Trust Account.