Property Management Accounting: Protecting Your Assets

Transcription

1 Property Management Accounting: Protecting Your Assets Agenda: Introductions Goals and Takeaways TREC Rules and Regulations TREC Enforcement Accounting Basics Question and Answer Worth Ross, RPM,MPM Local Dwelling

2 Property Management Accounting: Protecting Your Assets Goals and Objectives: Learn to Protect Your Assets by: Understand Trust Account Basics Understand TREC Rules for Trust Accounts Learn what to do and what not to do Learn Accounting for all stakeholders: Owner, Renter, and You

3 TREC Rules and Regulations Property Management Webinar Series TRUST ACCOUNTS Instructed by Tom Morgan, Vice President of Legal Affairs Edra Anderson, Associate Counsel May 19, 2010

4 But What Is a Trust Account? How do you even define trust account? Where can I get one? Do I have to have a trust account as a PM? Are salespersons allowed to maintain trust accounts? What exactly goes into a trust account? If the account earns interest, can I keep it?

5 Trust Accounts Unmasked Black s Law Dictionary defines client trust accounts as a bank account, usually interest bearing, in which a [real estate licensee] deposits money belonging to a client TREC Rules states in (a) that for the purposes of this section, "trust account" includes any trust, escrow, custodial, property management account, or other account in which a licensee holds money on behalf of another person.

6 Commingling As a real estate licensee, any time you hold money that belongs to another, you must keep that money in a trust account or risk a charge of commingling TOC (b)(10) [TREC] may suspend or revoke a license issued under this chapter or take other disciplinary action authorized by this chapter if the license holder, while acting as a broker or salesperson commingles money that belongs to another person with the license holder's own money

7 Trust Accounts Unmasked Bottom Line: If you have money belonging to someone else in one of your accounts, it is considered by TREC to be a trust account ***Defining an account as a trust account implicates numerous other provisions of TREC Rules and TRELA (TOC 1101)***

8 Whose Money Is It? At any given time, property managers (PMs) may have money in their possession that falls into three categories 1. PM Money 2. Owner Money 3. Tenant Money

9 When Use of Trust Accounts is Required TREC Rule (f): If escrow or other money belonging to another is held by a licensee, it must be maintained in a trust account. Placing such money in a licensee's operating account constitutes commingling. If security deposits are held by licensee in a property management context (as may be dictated by your PM agreement), they must be held in a trust account. (TAC (g))

10 When Use of Trust Accounts is Required Oftentimes, PMs will require owners to provide money to be used for repairs and other issues that may occur during management of property Must be maintained in a trust account Best practice: Never use one owner s money to pay for repairs on another owner s property Best practice: Maintain a strict office policy preventing you from spending money in excess of actual owner cash on hand

11 The Rules Associated with Trust Accounts 1. Trust accounts must always be in the broker s name TAC 535.2(c) A broker is responsible for the proper handling of escrow monies placed with the broker, although the broker may authorize other persons to sign checks for the broker. TAC (f) A salesperson may not maintain an escrow account or act as an escrow agent. Any money received by a real estate salesperson which is to be held in trust pursuant to a real estate transaction or management agreement must be delivered to the salesperson's sponsoring broker to be deposited in accordance with the agreement of the principals in the transaction.

12 The Rules Associated with Trust Accounts 2. Trust accounts must always be identified as such TAC (h) If a broker maintains a trust or escrow account, that account must be identified as such.

13 The Rules Associated with Trust Accounts 3. Trust accounts may be savings accounts and are otherwise not defined by statute or rule TAC (e) It is permissible for a broker to establish a savings account as an escrow account, provided said funds may be withdrawn at the appropriate time for disbursal TAC (j) If money held in trust by a broker is held in a noninterest bearing account, the broker is not liable for interest or for charges on the funds unless there is an agreement to the contrary.

14 The Rules Associated with Trust Accounts 4. Trust accounts may be interest bearing and broker may retain interest so long as client agrees TAC (e) In the absence of an agreement to the contrary signed by the person depositing the funds with the broker, any interest earned on a savings account must be distributed to the person or persons who are the equitable owners of the funds during the time the interest is earned.

15 The Rules Associated with Trust Accounts 5. Any money that becomes property of broker must be removed from the trust account within 30 days of acquiring the ownership interest TAC (g) If a licensee acquires ownership of money in the licensee's trust account that was originally held in trust for another, such money must be removed from the trust account within a reasonable time. "Reasonable time" in this context means within 30 days after the licensee acquires ownership of the money.

16 The Rules Associated with Trust Accounts 6. Brokers are strictly prohibited from commingling money that belongs to the broker with money they are holding that belongs to someone else TOC (b)(10) [TREC] may suspend or revoke a license issued under this chapter or take other disciplinary action authorized by this chapter if the license holder, while acting as a broker or salesperson commingles money that belongs to another person with the license holder's own money TAC (h) (h) Paying operating expenses or making withdrawals from a broker's trust account for any purpose other than proper disbursement of money held in trust is prima facie evidence of commingling money held in trust with the broker's own funds.

17 What This Means for You Any property manager must have at least one trust account Must be in the broker s name and identified as such May be any type of account, including interest bearing Need to set office policy as to whether or not individual properties should have separate accounts Best Practice: Have separate trust accounts for security deposit funds and owner cash funds

18 What This Means for You Be sure your operating expenses are kept completely separate from any funds you are holding in trust for an owner Payroll, office expenses, commissions, etc. all belong in your operating account Security deposits, owner cash (e.g. for property repairs), after expenses rent payments, etc. all belong in a trust account Establish an office policy dictating how and when you will transfer owner money (typically from rents) to owner accounts and money that becomes yours to your operating account (typically interest)

19 What This Means for You Always be prepared to provide an accurate accounting of any money you hold in trust Anytime the person for whom you are holding the money asks for the money, you must provide an accounting (or remit if required) to the person within 30 days Be sure any accounting software you use in your office is able to segregate various property accounts, security deposits and owner funds

20 What This Means for You Be sure your Property Management Agreements and other paperwork are kept in strict order If owner agrees to you earning and keeping interest on trust accounts, be sure your agreement says so If you require owners to furnish cash for you to keep on hand, have that provision in your agreement Always be able to demonstrate what money you have in trust and to whom it belongs (if requested by TREC, the owner, or a tenant)

21 In Case You Missed It Maintenance of at least one trust account as a property manager is unavoidable Commingling of broker money with trust money is strictly forbidden Brokers are ultimately responsible for trust money and trust accounts Stay up to date and informed about current statute and rules to maintain a compliant operation

22 TREC Enforcement License: XXXXXX Real Estate Broker (LUBBOCK) Date: 4/2012 Consumer Complaint: Broker used security deposits collected from tenants to pay for repairs to the property he managed, did not make timely payments for the insurance policy on the properties he managed causing the policy to lapse, and failed to return security deposits to the property owner upon termination of the property management agreement. Action: Agreed revocation of broker license

23 TREC Enforcement License: XXXXXXX Real Estate Broker (DALLAS) Date: 2/1202 Consumer Complaint: Broker, while under a property management agreement, leased property on terms not authorized by the owner, failed to follow owner s instructions and took actions against owner s interests including returning rents and security deposit back to tenant without authority. Action: Agreed voluntary surrender of broker license.

24 TREC Enforcement License: XXXXXXX Salesperson (EASTLAND) 3/ 2012 Consumer Complaint: Salesperson failed to properly account for and remit money received by the licensee in trust, comingled money belonging to others with the licensee s own money and, performing property management as a salesperson without associating with or going through the sponsoring broker. Action: Agreed 1 year suspension of salesperson, Administrative penalty of $2,400.

25 TREC Enforcement License: XXXXXX Salesperson (HOUSTON) 3/2012 Consumer Complaint: Salesperson failed to properly account for or remit money that is received by the license holder and that belongs to another person. Action: Agreed 34 month suspension of salesperson license, Administrative penalty of $2,000

26 Statement Gary Owner 1000 Seven Bail Rd Midland, TX Owner s Statement 3710 Live Oak Dallas, TX Best Manager 1001 First Ave Dallas, TX /10 Funds From Owner Check # /25 Smoke Detectors Installed /25 Texas ReKey 3 Doors to Code 175 2/25 Cadet Carpet Carpet Cleaning /1 Rent from Tenant Check # /1 Leasing Fee Best Manager /1 Balance 50 3/10 Please Remit $200 to bring the account to the required $250 minimum balance Tenants Sally and Steve Renter: $1,500 Security Deposit 2/25/2012 $500 Pet Deposit 2/25/2012

27 Statement Sally and Steve Renter 3710 Live Oak Dallas, TX Tenant Statement 3710 Live Oak Dallas, TX Best Manager 1001 First Ave Dallas, TX /1 Rent from Tenant Check# /1 Transferred to Owner s Account /1 Balance Due 0 4/1 Rent from Tenant Check# /1 Transferred to Owner s Account /1 Balance Due 0 Tenants Sally and Steve Renter: $1,500 Security Deposit 2/25/2012 $500 Pet Deposit 2/25/2012

28 Statement Sally and Steve Renter 3710 Live Oak Dallas, TX Security Deposit Statement 3710 Live Oak Dallas, TX Best Manager 1001 First Ave Dallas, TX /15/2011 Security Deposit from Tenant Check# /15/2011 Pet Deposit from Tenant Check# /15/2011 Total Balance /05/2012 Carpet Cleaning for Pet Stains (Credit Owner) 200 3/05/2012 Broken Towel Rod (Credit Owner) 50 3/05/2012 Broken Window (Credit Owner) 60 3/25/2012 Return Balance to Tenant Check# /25/2012 Balance 0

29 Property Management Accounting: Protecting Your Assets Question and Answer Worth Ross, RPM,MPM Local Dwelling

30 Property Management Accounting: Protecting Your Assets Thank You for Participating! Look for more classes coming soon Worth Ross, RPM,MPM Local Dwelling