Trust Funds
A property management company collects first and last month's rent plus a security deposit from a new tenant. Which portion(s) must go into a trust account?
AOnly the security deposit
BAll of it — security deposit, advance rents, and prepaid rents are all client funds✓ Correct
COnly the advance rent
DNone of it if the management agreement does not require it
Explanation
All tenant funds collected by a property manager — including security deposits, advance rents, and prepaid rents — are client funds that must be held in the trust account.
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Key Terms to Know
Lien
A financial claim against a property that serves as security for a debt or obligation, giving the creditor the right to foreclose if unpaid.
EscrowA neutral third-party arrangement where funds, documents, and instructions are held until all conditions of a real estate transaction are satisfied.
Deed of TrustA security instrument used in many states instead of a mortgage, involving three parties: borrower (trustor), lender (beneficiary), and a neutral trustee.
Closing CostsFees and expenses paid by the buyer and/or seller at the closing of a real estate transaction, in addition to the property's purchase price.
State-Specific Concepts
Trust Account Rules
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