Escrow accounts
<BSection 1450.175 Special Accounts>>
a) Escrow Moneys Defined.
1) "Escrow moneys" means all moneys, promissory notes or any other
type or manner of legal tender or financial consideration
deposited with any person for the benefit of the parties to the
transaction. A transaction exists once an accepted real estate
contract is signed or lease agreed to by the parties. Escrow
moneys include without limitation earnest moneys and security
deposits, except those security deposits in which the person
holding the security deposit is also the sole owner of the
property being leased or sold and for which the security deposit
is being held.
2) Pursuant to the terms of a written agreement between a licensee
and a client, such as a property management agreement, rent
moneys paid to a licensee for transmittal to the licensee's
client (e.g., the owner) shall not be considered to be "escrow
moneys". In addition, other moneys held in a custodial account by
a licensee for transmittal to licensee's client, pursuant to the
terms of a written agreement, such as a contract for deed, shall
not be subject to these escrow rules.
3) Earnest money constitutes escrow moneys whether in the form of
personal checks, cashier's checks, money orders, cash, or any
other forms of legal tender.
b) Escrow Accounts. Pursuant to Section 20-20(h)(8) of the Act,
sponsoring brokers who accept escrow moneys shall maintain and deposit
in a special account (hereinafter referred to as an escrow account),
separate and apart from personal or other business accounts, all
escrow moneys entrusted to them while acting as the real estate
brokers, escrow agents, or as the temporary custodians of the funds of
others.
1) Such escrow account shall be non-interest bearing, unless the
character of the deposit is such that payment of interest thereon
is otherwise required by law or unless the principals to the
transaction specifically require, in writing, that the deposit be
placed in an interest bearing account.
2) If an interest bearing account is required, the recipient of the
interest shall be specifically indicated, in writing, by the
principals of the transaction.
3) A sponsoring broker may maintain more than one escrow account.
4) An escrow account need not be maintained by a sponsoring broker
who does not receive escrow moneys entrusted to him or her while
acting as a real estate broker, or as escrow agent, or as
temporary custodian of the funds of others.
5) Every escrow account, whether interest bearing or non-interest
bearing, shall be maintained at a federally insured depository.
6) Commingling Prohibited. Each sponsoring broker shall deposit
only escrow moneys received in connection with any real estate
transaction in an escrow account. The sponsoring broker shall
not deposit personal funds in an escrow account, except he or she
may deposit from his or her own personal funds, and keep in any
escrow account, an amount sufficient to avoid incurring service
charges relating to the escrow account. The sum shall be
specifically documented as being for service charges and the
sponsoring broker shall have proof available that the amount of
his or her own funds in the escrow account does not exceed the
minimum amount required by the depository to maintain the account
without incurring service charges. Transfer of funds as provided
for in subsection(i)(4) of this Section shall not constitute
commingling.
c) The sponsoring broker shall provide a receipt to the payor of any cash
constituting escrow funds and shall retain a copy of the receipt.
d) Time of Deposit of Escrow Moneys. All escrow moneys accepted by a
sponsoring broker shall be placed in the sponsoring broker's escrow
account not later than the next business day following the
transaction. A transaction exists once an accepted real estate
contract is signed or lease agreed to by the parties. If such funds
are received on a day prior to a bank holiday or any other day on
which the bank or savings and loan association is closed, such funds
shall then be deposited on the next business day upon which the
depository is open.
e) A sponsoring broker serving as escrow agent shall notify all
principals in writing if a principal fails to tender escrow moneys,
when a principal's payment as escrow moneys is dishonored by the
financial institution on which it was drawn, or when there appears on
the face of the governing contract to be a deficiency in the amount on
deposit.
f) Maintenance of Escrow Moneys on Deposit in Escrow Account. The
sponsoring broker shall keep all escrow moneys on deposit in an escrow
account until a transaction is consummated or terminated, except to
the extent that such escrow moneys, or any part thereof, shall be
disbursed according to the provisions set forth in subsection (g).
g) Disbursement of Escrow Moneys. Pursuant to Section 20-20(h)(8) of the
Act, the sponsoring broker shall disburse escrow moneys according to
the following requirements, however, a sponsoring broker may not
disburse funds until they have been honored by the payor's depository.
1) The sponsoring broker must disburse escrow moneys upon
consummation or termination of the transaction. Such
disbursement must be according to the terms of the contract and
must be made not earlier than the day the transaction is
consummated or terminated and not later than the next business
day following the sponsoring broker's receipt of notice of the
consummation or termination, or otherwise in accordance with the
written direction of all principals to the transaction.
A) Commissions and/or fees earned by a sponsoring broker in any
transaction shall be disbursed by that broker from the funds
deposited in an escrow account no earlier than the day the
transaction is consummated or terminated and not later than
the next business day after the transaction is consummated
or terminated, or otherwise in accordance with the written
direction of all principals to the transaction.
B) Authorized disbursements are those which are made on behalf
of, and at the written direction of, all principals to the
transaction.
C) A sponsoring broker shall not withhold, for any period of
time, an authorized disbursement of escrow moneys due to any
claim for a commission or compensation to any licensee.
2) Pursuant to Section 20-20(h)(8)(i) of the Act, if prior to the
consummation or termination of the transaction, the sponsoring
broker receives written direction from all of the principals to
the transaction or their duly authorized agents agreeing to a
disbursement of the escrow moneys, that broker must disburse the
escrow moneys according to the written directions. Such
disbursement must be made not later than the next business day
following the sponsoring broker's receipt of the last required
written direction.
3) The sponsoring broker may release escrow moneys pursuant to
Section 20-20(h)(8)(ii) of the Act which allows a sponsoring
broker to disburse escrow moneys prior to the consummation or
termination of the transaction in accordance with directions
providing for the release, payment, or distribution of escrow
moneys contained in any written contract signed by the principals
to the transaction or their duly authorized agents. In any such
case the terms of the contract concerning the release of the
escrow moneys shall be adhered to by the sponsoring broker.
4) Pursuant to Section 20-20(h)(8)(iii) of the Act and
notwithstanding any other requirements or responsibilities in
this Part, if the sponsoring broker receives an order from a
court of competent jurisdiction providing for the disbursement of
the escrow moneys, that broker must disburse the escrow moneys
according to the terms of the order.
h) Disputes Regarding Escrow Moneys. In the event of a dispute over the
return or forfeiture of any escrow moneys held by the sponsoring
broker or if a sponsoring broker has knowledge that any party to a
transaction contests or disagrees with an anticipated disbursement of
escrow moneys held by that broker, he or she shall continue to hold
the deposit in his or her escrow account:
1) until he or she has a written release from all parties or their
duly authorized agents consenting to the disposition, in which
case the escrow moneys must be disbursed according to the terms
of the written direction no later than the next business day
after the sponsoring broker's receipt of the last required
written release;
2) until a civil action is filed, by either the sponsoring broker or
one of the parties, to determine its disposition, at which time
payment may be made into court;
3) until the funds are turned over to the State Treasurer or such
other appropriate State agency or officer designated pursuant to
the Act or the Uniform Disposition of Unclaimed Property Act [765
ILCS 1025], because of inactivity of the account or inability to
locate the parties, or inability of the parties to reach a
resolution.
If an interpleader action is filed by the sponsoring broker, and the
broker is authorized by real estate contract to withdraw from the
escrow account those amounts as may be necessary to reimburse the
sponsoring broker for costs and reasonable attorney's fees associated
with that action, excluding costs and attorney's fees associated with
that broker's attempt to collect a commission or fee.
i) Escrow Records. Each sponsoring broker who accepts earnest money
shall maintain, in his or her office or place of business, a
bookkeeping system in accordance with sound accounting principles, and
without limiting the foregoing, such system shall consist of at least
the following escrow records as further described below:
1) Journal. A journal shall be maintained for each escrow account.
Such journal shall show the chronological sequence in which funds
are received and disbursed by the sponsoring broker.
A) For funds received, such journal shall include the date, the
name of the party who delivers such funds to the sponsoring
broker, the name of the person on whose behalf such funds
are delivered to that broker and the amount of such funds so
delivered.
B) For fund disbursement, such journal shall include the date,
the payee, the check number and the amount disbursed.
C) A running balance shall be shown after each entry (receipt
or disbursement).
2) Ledger. A ledger shall be maintained for each transaction. The
ledger shall show the receipt and the disbursement of funds
affecting a single particular transaction such as between buyer
and seller, or landlord and tenant, or the respective parties to
any other relationship. The ledger shall include the names of
all parties to a transaction, the amount of such funds received
by the sponsoring broker and the date of such receipt. The
ledger shall show, in connection with the disbursements of such
funds, the date thereof, the payee, the check number and the
amount disbursed. The ledger shall segregate one transaction
from another transaction. There shall be a separate ledger or
separate section of each ledger, as the broker shall elect, for
each of the various kinds of real estate transactions (e.g.,
lease). If the ledger is computer generated from the same data
entry from which the journal is generated, the sponsoring broker
must maintain copies of the bank deposit slips, bank
disbursements slips, or other bank receipts, to account for the
data on the ledger.
3) Monthly Reconciliation Statement. Each sponsoring broker shall
reconcile, within ten days after receipt of the monthly bank
statement, each escrow account maintained by such broker except
where there has been no transactional activity during the
previous month. Such reconciliation shall include a written work
sheet comparing the balances as shown on the bank or savings and
loan association statement, the journal and the ledger,
respectively, in order to insure agreement between the escrow
account and the journal and the ledger entries with respect to
such escrow account. Each such reconciliation shall be kept for
at least 5 years from the last day of the month covered by such
reconciliation.
4) If escrow moneys are transferred from an escrow account to
another account for disbursement, the sponsoring broker must
maintain a copy of all records reflecting a disbursement from the
other account.
5) Master Escrow Account Log. Each sponsoring broker shall maintain
a Master Escrow Account Log identifying all escrow bank account
numbers, and the name and address of the bank where the escrow
accounts are located. The Master Escrow Account Log must
specifically include all bank account numbers opened for
individual transactions, even if such account numbers fall under
another umbrella account number.
6) A sponsoring broker may employ a more sophisticated bookkeeping
system based on sound accounting principles, including a system
of electronic data processing equipment. However, any such
system must contain or produce printed records containing the
information required by this Section, although it need not be in
the same format as provided for in this Section.
7) OBRE shall have available for distribution, on request, samples
of an approved journal, ledger, monthly reconciliation statement,
and Master Escrow Account Log.
8) Pursuant to Section 20-20(h)(9) of the Act, the sponsoring broker
shall make available to the real estate enforcement personnel of
the OBRE during normal business hours all escrow records and
related documents maintained in connection with the practice of
real estate within 24 hours after a request.
9) Copies of all Escrow Money Instruments. Except as otherwise
provided by law, the broker shall retain copies of all escrow
money instruments received from a principal as part of a
transaction, including copies of all personal checks, cashier's
checks, certified checks, money orders, promissory notes, or
other financial instruments. The broker shall also retain copies
and/or documentation of all disbursements or transfers into or
out of an escrow account.
10) Escrow records shall be retained for 5 years. The escrow records
for the immediate prior 2 years shall be maintained in the office
location and the balance of the records can be maintained at
another location.
11) If escrow records are lost, stolen, or destroyed due to fire,
flood or any other circumstances, the broker must report such
loss to the OBRE enforcement division within 30 days by signature
restricted delivery. The broker must also immediately obtain
copies of monthly bank statements, deposit and disbursement
receipts, and any other available records, to reconstruct such
loss of escrow records.
12) A sponsoring broker may delegate the bookkeeping duties under
this Part to another person, including a managing broker, a
bookkeeper, certified public accountant, unlicensed assistant,
licensed assistant, or sponsored licensee. However, compliance
with the bookkeeping duties remain the responsibility of the
sponsoring broker. The sponsoring broker is ultimately
responsible for the proper administration of the escrow account
pursuant to this Part.
j) Sponsored Licensees. Sponsoring brokers shall institute office
policies to ensure that the sponsored licensees tender escrow moneys
received in compliance with this Part. Sponsored licensees, whether
salespersons, brokers, or leasing agents, may not maintain their own
escrow accounts.
k) Branch Offices. Branch offices may maintain escrow accounts in
compliance with this Part or may transmit all escrow moneys received
to the main office, but not to another branch office, for compliance
with this Part.
1) If the branch office does maintain escrow accounts, all of the
requirements of this Part apply, including maintaining all
required escrow records, and submitting to OBRE all required
escrow forms.
2) If the branch office does not maintain escrow accounts but
instead transmits all escrow moneys received to the main office,
all escrow moneys must be transmitted by the branch office to the
main office not later than the next business day following the
transaction. A transaction exists once an agreement has been
reached and an accepted real estate contract signed or lease
agreed to by the parties. Even if the branch office transmits
all escrow moneys received to the main office, the branch office
must maintain records showing the date the escrow moneys were
transferred to the main office. The funds received at the main
office from a branch office shall be placed in the sponsoring
broker's escrow account not later than the next business day
following receipt of such funds from the branch office.
l) Escrow Requirements for Property Management Activities. Security
deposits shall be maintained in an escrow account for the duration of
the lease, unless the tenant waives this requirement in writing. Such
waiver, if included in the lease, shall appear in bold print.
m) Notification to OBRE of Identity of Escrow Accounts. Consent to Audit
All Accounts.
1) Each sponsoring broker shall, at the time of the original
application for licensure and at the time of renewal of
licensure, on forms provided by OBRE, file with OBRE the name of
the banks, savings and loan associations, or other recognized
depositories in which each escrow account is maintained, and the
name of each account, and the names of the persons authorized to
withdraw funds from such accounts, and shall, as a condition of
licensure, consent on such form to the examination and audit of
all escrow accounts, notwithstanding whether the account is
identified on the form, by OBRE.
2) A new form shall be executed by the sponsoring broker and filed
with OBRE within 10 days after the time of a change of
depository, method of doing business, or persons authorized to
make withdrawal. A new form shall also be executed each time a
new escrow account is opened. However, a new form shall not be
required each time a new escrow account is opened for an
individual transaction and where such account falls under an
umbrella account which has already been identified in a prior
form. The identity of each of these individual escrow accounts,
however, must be included in the Master Escrow Account Log
pursuant to subsection (i)(5) of this Section.
n) Violations. Any licensee who violates any of the provisions of this
Part may be deemed to have endangered the public interest pursuant to
Section 20(h)(12) of the Act and may be subject to a temporary
suspension pursuant to Section 20-65 of the Act.