We would like to start this Legal Hotline question with an announcement that MAR General Counsel Mike McDonagh has accepted a position as CEO of the Massachusetts Association of Subcontractors, effective September 1. MAR will be on the hunt for a new led counsel and we will rely on Catherine and Justin until a replacement is found. And here is your update:
Q: I’ve heard that the Board is really cracking down on escrow accounts; what are some of the main things to watch out for?
A: Three of the most common escrow account pitfalls our members encounter are:
- Commingling of Funds. Funds cannot be transferred from the escrow account to an operating account until the transaction has closed. We often hear of members who preemptively transfer funds from their escrow to their operating account so that they can bring a check for the co-broker at closing. Even if it is a near certainty that the transaction will close as scheduled, this is an impermissible commingling of funds. There is nothing in 254 CMR 3.10(a) that would prohibit the disbursement of funds directly from the escrow account after the closing has occurred.
- Having Non-Broker Signatories. The Board interprets 254 CMR 3.10(a) as allowing for only brokers to keep and maintain escrow accounts. Neither salespeople nor unlicensed individuals, such as a bookkeeper, may have check signing authority.
- Escrow Accounting: The broker is responsible for keeping a proper account of the escrow account. This requires not only tracking all deposits and distributions, but also maintaining copies of each check deposited into and withdrawn from the escrow account for a period of three (3) years from the date of issuance. The check register must be kept for a period of ten (10) years.