California Broker Trust Fund Handling & DRE Audit (§10145)

TL;DR

California brokers who handle trust funds — money belonging to others in connection with a real estate transaction — face strict handling requirements under Business and Professions Code §10145 and Commissioner's Regulations CCR §§2830-2832 (California Code of Regulations, Title 10). The core general rule is deposit within 3 business days: trust funds accepted by a broker or the broker's salesperson must be placed into the hands of the funds' owner, into a neutral escrow depository, OR into a properly-designated broker trust account not later than three business days following receipt. Broker-controlled escrow funds in a real estate purchase, exchange, or loan transaction are subject to a stricter next-business-day placement rule under CCR §2832(e). One narrow exception under CCR §2832(c) permits an offeror's deposit check to be held uncashed until acceptance of the offer, provided (a) the check by its terms is not negotiable by the broker (or the offeror has given written instructions the check shall not be deposited or cashed until acceptance), and (b) the offeree is informed before or at the time the offer is presented for acceptance that the check is being held uncashed. Trust accounts must be non-interest-bearing (unless expressly authorized) and must be in the broker's name (or licensed fictitious name) as trustee. Recordkeeping requirements under CCR §§2831-2831.1 mandate a Bank Account Record, Separate Beneficiary Records, and reconciliation. Commingling of broker funds with trust funds is prohibited under B&P §10176(e); trust fund shortage is grounds for discipline under B&P §10177(d). DRE audits frequently identify recordkeeping deficiencies, late deposits, commingling, or shortages, making trust fund compliance one of the most consequential ongoing broker duties.

What counts as trust funds — and what doesn't

Trust funds are money belonging to OTHERS held by the broker in the ordinary course of a real estate transaction. The classic example is a purchase money deposit from a buyer, held pending acceptance of an offer and eventual disposition through escrow. Other common trust funds include rent and security deposits collected by a broker acting as property manager, principal and interest payments collected by a broker acting as loan servicer, funds held in broker-controlled escrows, and comparable custodial arrangements. The unifying feature is that the money is not the broker's — the broker holds it for the benefit of a principal (buyer, seller, tenant, landlord, borrower, or investor).

Broker-owned property rents and security deposits are NOT trust funds because they belong to the broker. Depositing broker-owned rents in the trust account is commingling — a serious violation. Similarly, commissions earned by the broker and collectible from the trust account are not trust funds; they must be removed within 25 days of being earned or the broker risks a commingling violation under §10176(e).

Commissioner's Regulation 2832 and B&P §10145 apply whenever the broker "accepts funds belonging to others." A salesperson who accepts trust funds on behalf of the sponsoring broker must immediately deliver the funds to the broker (or, if directed, to the broker's principal, a neutral escrow depository, or the broker's trust account). The salesperson never has independent authority to hold trust funds — the broker's fiduciary obligation runs directly to the principal, and the salesperson operates as the broker's agent. The broker-versus-salesperson supervisory allocation is central to trust fund compliance because the broker bears vicarious responsibility for salesperson trust fund handling — see our broker vs salesperson license deep-dive for the supervision framework. For related state-specific frameworks, see our DRE licensing structure guide and our Commissioner disciplinary process guide.

The three-business-day deposit rule

B&P §10145(a)(1) combined with CCR §2832(a) requires the broker who accepts trust funds to place those funds into one of three destinations, not later than THREE BUSINESS DAYS following receipt of the funds by the broker or the broker's salesperson:

"Three business days" excludes Saturdays, Sundays, and legal holidays. Receipt starts the clock — a check received Monday must be handled by end of day Thursday (Tuesday = Day 1, Wednesday = Day 2, Thursday = Day 3). The rule applies regardless of the size of the deposit, the identity of the parties, or the nature of the underlying transaction, as long as the broker has "accepted" trust funds belonging to others.

Stricter next-business-day rule under CCR §2832(e) for broker-controlled escrow. When a broker acts as the escrow holder in a real estate purchase or sale, exchange, or loan transaction — i.e., broker-controlled escrow rather than deposit with a neutral escrow depository — CCR §2832(e) shortens the deposit deadline to the NEXT BUSINESS DAY following receipt. The narrower window reflects the higher fiduciary exposure when the broker holds the escrow role in addition to acting as the licensed real estate professional. Brokers who perform broker-controlled escrows should build the next-business-day cadence into their operating procedures rather than defaulting to the general three-business-day rule.

The uncashed check exception under CCR §2832(c)

CCR §2832(c) provides one narrow exception to the three-business-day rule. A check received from an offeror in connection with an offer to purchase or lease real property may be held UNCASHED by the broker until acceptance of the offer if the following conditions are BOTH met:

Condition 1 — check non-negotiable OR written instructions. The check by its terms is not negotiable by the broker (e.g., made payable to "escrow" rather than the broker) OR the offeror has given written instructions that the check shall not be deposited or cashed until acceptance of the offer.

Condition 2 — offeree informed. The offeree (typically the seller) is informed, before or at the time the offer is presented for acceptance, that the check is being held uncashed.

Both conditions must be satisfied. If the offer is subsequently accepted, the check must be deposited within three business days of acceptance unless the parties expressly agree otherwise in writing. Only if the offeror and offeree both agree in writing may the offeror's check be given directly to the offeree. And critically, all or part of an offeror's purchase money deposit may NOT be refunded by an agent or subagent of the seller without the express written permission of the offeree — even where the offer failed or the buyer withdrew.

Trust account setup requirements

A compliant trust account under §10145 and §2832 must meet four requirements:

Titled in the broker's name (or licensed fictitious name) as trustee. The account must not be in the broker's personal name and must clearly designate the broker as trustee. Fictitious names are acceptable if the broker holds a license bearing that fictitious name.

At a California bank or recognized depository. Located in California and eligible to receive trust funds. Out-of-state trust accounts are permitted only in specific loan-servicing contexts for federally-insured depositories, per §10145 exceptions.

Non-interest-bearing (with narrow exceptions). Under §2832(b), the trust account may not be an account for which prior written notice can be required by law or regulation as a condition of withdrawal. Interest-bearing accounts are permitted only under narrow §10145(d) exceptions requiring written client consent and account terms compliant with statute.

Segregated from broker business or personal funds. No commingling of broker-owned funds with trust funds. A limited exception permits the broker to maintain a small documented amount of broker funds in the trust account to cover monthly bank charges; DRE guidance commonly references a nominal buffer, but excess or undocumented broker funds can create a commingling finding.

Recordkeeping under §§2831 and 2831.1

CCR §2831 requires the broker to maintain a Bank Account Record (also called the columnar record) showing every trust fund deposit and disbursement chronologically, with the identity of the beneficiary, the source, and the running balance. CCR §2831.1 requires Separate Beneficiary Records for each principal — a subsidiary ledger showing each principal's individual funds within the account, the deposits attributable to that principal, and the disbursements from that principal's balance. Every disbursement must be identifiable to a specific beneficiary; unidentified disbursements cause shortages.

Three-way reconciliation is the industry standard: the total of individual Separate Beneficiary Record balances must equal the Bank Account Record balance, which must equal the bank statement balance. Reconciliation is required at least monthly and is one of the first documents DRE auditors request. Trust-fund records should be retained for at least 3 years under B&P §10148 — generally from closing for completed transactions, from the listing date if the transaction is not consummated, or from the relevant transaction/activity date in non-listing trust-fund contexts (property management, loan servicing, broker-controlled escrow). Retention runs from transaction completion, not receipt date.

Under CCR §2834, withdrawals from the trust account may be made only by (1) the broker who is a signatory on the account, (2) a corporate officer who is a signatory of a broker corporation, or (3) an unlicensed employee of the broker if specifically authorized in writing by the broker AND covered by a fidelity bond at least equal to the maximum amount of trust funds to which the employee has access. Salespersons generally are NOT authorized to make withdrawals from the broker's trust account.

Shortage, overage, and consent requirements

A trust fund shortage occurs when the account balance is LESS than the total aggregate liability to all beneficiaries. Under CCR §2832.1, the broker must obtain the written consent of every principal who is an owner of the funds in the account before ANY disbursement that will reduce the balance below the aggregate trust fund liability. This means the broker cannot cover one principal's shortage with another principal's funds; each disbursement must be evaluated against the individual and aggregate liability.

A trust fund overage occurs when the account balance EXCEEDS the aggregate liability. Overages typically arise from earned commissions left in the account beyond 25 days, from broker funds inadvertently deposited, or from unclaimed principal balances. Under B&P §10176(e), an overage that reflects commingling of broker and trust funds is grounds for discipline. Overages must be reconciled and, where they represent broker-owned funds, removed from the trust account.

Any trust fund discrepancy — shortage or overage — is a serious violation. DRE license revocation is a documented consequence of trust fund shortages discovered during audit.

DRE audit process

The DRE conducts regular audits of broker trust fund handling, focusing particularly on property management brokers, brokers who handle broker-controlled escrows, and mortgage loan brokers. Audits examine (1) trust account existence and titling, (2) general three-business-day deposit-rule compliance and next-business-day broker-controlled escrow compliance under CCR §2832(e), (3) recordkeeping under §§2831 and 2831.1, (4) monthly three-way reconciliation, (5) segregation from broker funds, (6) proper handling of the uncashed-check exception, (7) authorized signatories under §2834, and (8) fidelity bond coverage where applicable.

DRE audits frequently identify recordkeeping deficiencies, late deposits, commingling, or shortages. The most common findings are missing or incomplete Separate Beneficiary Records, late deposits (beyond three business days), incomplete monthly reconciliations, commingling of broker funds with trust funds, and unauthorized signatory arrangements. Consequences range from formal citations and required remediation plans through suspension or revocation of the broker's license — and, in cases of theft or willful diversion, referral for criminal prosecution.

For related state-specific frameworks, see our DRE licensing structure guide and our Commissioner disciplinary process guide for the enforcement side of trust fund violations.

Frequently Asked Questions

My salesperson received an earnest money check on Friday afternoon. When does the 3-business-day clock start?

The clock starts when the SALESPERSON receives the funds, not when the broker takes physical custody. Under B&P §10145 and CCR §2832(a), the deposit-within-three-business-days requirement is measured "following receipt of the funds by the broker or by the broker's salesperson." A check received Friday afternoon must be handled by end of day Wednesday of the following week (Monday = Day 1, Tuesday = Day 2, Wednesday = Day 3). The salesperson must immediately deliver the funds to the broker or, if the broker so directs, to the escrow or trust account.

Can I hold a buyer's check uncashed while I present the offer to the seller?

Yes, if BOTH conditions of CCR §2832(c) are satisfied. First, the check must by its terms be non-negotiable by the broker, OR the offeror must give written instructions that the check not be deposited or cashed until acceptance. Second, the offeree (seller) must be informed before or at the time the offer is presented for acceptance that the check is being held uncashed. Both conditions must be met and documented. If the offer is accepted, the check must be deposited within three business days of acceptance unless the parties expressly agree otherwise in writing.

Can I keep a small amount of my own money in the trust account to cover bank fees?

A limited nominal amount is permitted, but the practice must be documented and kept within reasonable bounds to avoid a commingling finding. DRE guidance references a small documented buffer to cover expected bank service charges. Excess or undocumented broker funds beyond a minimal buffer can trigger commingling findings under B&P §10176(e). Best practice: maintain a written policy documenting the buffer amount, review it against actual bank charges quarterly, and remove any excess.

What is the difference between a trust account shortage and commingling?

A trust account SHORTAGE means the account balance is LESS than the total aggregate liability to all beneficiaries — the broker's records show more trust funds owed than the account contains. Shortage is grounds for discipline under B&P §10177(d) and can lead to license revocation. COMMINGLING means broker-owned funds are mixed with trust funds — either broker funds deposited into the trust account, or trust funds deposited into the broker's operating or personal account. Commingling is grounds for discipline under B&P §10176(e). Both are serious violations, and the two often occur together: a broker who commingles by leaving earned commissions in the trust account beyond 25 days may also produce a shortage if the commissions are later disbursed while trust liabilities remain unpaid.

Who is authorized to withdraw funds from the trust account?

Under CCR §2834, only (1) the broker who is a signatory on the trust account, (2) a corporate officer who is a signatory of a broker corporation, or (3) an unlicensed employee of the broker if specifically authorized in writing by the broker AND covered by a fidelity bond in an amount at least equal to the maximum trust funds accessible to the employee. Salespersons generally are NOT authorized to make withdrawals from the broker's trust account — even if the salesperson deposited the funds initially. The withdrawal-authority rule ensures that only accountable parties handle disbursements and that fidelity bond coverage matches any exposure the broker takes on by delegating to an unlicensed employee.

How long must trust fund records be retained?

At least 3 years under B&P §10148 — generally from closing for completed transactions; from the listing date if the transaction is not consummated; or from the relevant transaction or activity date in non-listing trust-fund contexts like property management, loan servicing, or broker-controlled escrow. Records include the Bank Account Record (§2831), the Separate Beneficiary Records (§2831.1), monthly three-way reconciliations, bank statements, cancelled checks, deposit slips, and all supporting documentation for deposits and disbursements. Best practice is to retain records longer than the statutory minimum given the potential for delayed claims and DRE audit lookbacks that can reach beyond the strict retention period.

Bottom Line

California broker trust fund handling is governed by Business and Professions Code §10145 and Commissioner's Regulations CCR §§2830-2832 in Title 10 of the California Code of Regulations. The core rule: trust funds accepted by a broker or the broker's salesperson must be placed into the hands of the funds' owner, into a neutral escrow depository, or into a properly-designated broker trust account within THREE BUSINESS DAYS of receipt under the general rule, with a stricter next-business-day rule for broker-controlled escrow funds under CCR §2832(e). One narrow exception under CCR §2832(c) permits an offeror's deposit check to be held uncashed until acceptance if (a) the check is non-negotiable by the broker OR the offeror gave written instructions to hold it uncashed, AND (b) the offeree is informed before or at the time the offer is presented for acceptance. The trust account must be titled in the broker's name (or licensed fictitious name) as trustee, at a California bank or recognized depository, non-interest-bearing (with narrow exceptions), and segregated from broker business or personal funds. Recordkeeping under §§2831 and 2831.1 requires a Bank Account Record, Separate Beneficiary Records, and monthly three-way reconciliation; records must be retained at least 3 years under B&P §10148 — generally from closing for completed transactions, from the listing date if the transaction is not consummated, or from the relevant transaction or activity date in non-listing trust-fund contexts (property management, loan servicing, broker-controlled escrow). Commingling of broker funds with trust funds is grounds for discipline under B&P §10176(e); trust fund shortage is grounds under §10177(d). Under §2832.1, the written consent of every principal owner is required before any disbursement that would reduce the balance below the aggregate trust fund liability. Withdrawals under CCR §2834 may be made only by the broker signatory, a corporate officer signatory, or a fidelity-bonded authorized unlicensed employee — salespersons generally have NO withdrawal authority. DRE audits examine trust account existence, deposit timeliness, recordkeeping, reconciliation, segregation, uncashed-check exception handling, and signatory arrangements; findings can include citations, remediation plans, license suspension or revocation, and — in willful diversion cases — criminal referral. For related state-specific frameworks, see our DRE licensing structure guide and our Commissioner disciplinary process guide.

Source: California Business and Professions Code §10145 — Trust Fund Handling · California DRE Trust Funds Reference Manual (RE 13) · California DRE Reference Book Chapter 21 — Trust Fund Handling