The Colorado Real Estate Commission’s (Commission) reorganized rules in Chapter 5 set forth the requirements for setting up trust and escrow accounts for real estate brokers. Rule 5.2 specifically states that “All Money Belonging to Others” must be deposited in one or more accounts that are separate from monies belonging to the broker or brokerage firm. The fiduciary nature of these trust and escrow accounts must be identified in the deposit agreement and signature cards with a recognized depository (the banking institution).
What is the Confusion?
Where the confusion may come in is how to title these accounts so that they are compliant with the Commission and that “All Money Belonging to Others” is protected for the consumer.
Oftentimes an account may be set up that is simply labeled for instance, “property management escrow account” or “trust account”. An account titled in this manner may not in fact be a “true” trust or escrow account recognized by the Commission. A properly established trust or escrow account must meet certain statutory conditions and be correctly titled in the bank’s depository agreement and signature cards.
The Commission has a statutory and rule compliant Notice of Escrow or Trust Account document that one should use to present to your banking institution when setting up these types of accounts.
Signature Card Example
Also, an example of how to title the escrow or trust account signature cards can be found below. The signature card example shows the difference in titling a standard business ownership account versus the required language for the compliant trust or escrow account. This specific language is necessary for the creation of a fiduciary/escrow relationship.
To make sure that you are establishing a compliant trust or escrow account with the banking institution, you should sit down with one of the bank’s officers and verify with them that your account is established as a fiduciary/trust account for the purpose of holding monies for others.
Original Article – DORA