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Brokerage Standards Manual

III. Trust Account Management

Notification To Council Of Trust Account Shortage

Section 7-5(1) of the Rules prohibits a brokerage from paying an amount out of a trust account if the payment would result in a negative balance in a trust account record or a trust ledger. A brokerage is also prohibited from making a payment out of a trust account if the trust account record or trust ledger is already at a negative balance.

A brokerage is obligated by section 7-5(3) of the Rules to immediately notify the Council of a negative balance in a trust account record or trust ledger if the related managing broker believes that the negative balance will result in a person having a claim for a compensable loss in relation to the brokerage.

In all other circumstances, if the negative balance can be eliminated within 10 days, the brokerage is not obligated to notify the Council, except as an exception reported during the brokerage’s annual financial reporting. However, if the negative balance cannot be eliminated within 10 days, the Council must be notified.

Council interprets a “negative balance” to be a variance between the trust account record or a trust ledger and the reconciled bank account balance. For example, the trust ledger has a balance of $100,000; the reconciled bank account balance has a balance of $95,000; a variance of $5,000, this is a negative balance and a trust shortage.