ESCROW REGULATIONS

Escrow Moneys, Time of Deposit and Book Keeping Systems

Escrow moneys are defined in the act as all moneys, promissory notes or other type of manner of legal tender or financial consideration deposited with any person for the benefit of the parties to the transaction. This includes earnest money and security deposits. An exception to this definition are security deposits in which the person holding the security deposit is the owner of the property being leased.

All escrow moneys collected by a licensee on behalf of owners pursuant to property management activities must be placed in a special account. These requirements may be in writing by the tenants. Such waiver, if included in the lease, shall appear in print.

Escrow moneys must be put into a special account separate from the operating account. This account must be bearing, unless the principals to the transaction agree in writing that the money is to be placed in an bearing account. This agreement must also state who is entitled to the . All earnest money accounts must be in a insured depository. The broker must file upon licensure and upon each the name of the depository, name and account number of each account, names of persons who can withdraw and authorize examination and audit by the DFPR. A broker may have more than one escrow account. For instance a broker may have an interest bearing and a noninterest bearing account, an account for each deal, or an account for each branch office. If the broker changes depositories or who can money from the account, a new form must be filed with the DFPR within days. Licensees sponsored by another broker cannot have an escrow account. Only brokers can maintain such an account. A broker required to have an escrow account unless the broker receives or is the custodian of the funds of others. An attorney in the transaction will sometimes hold the earnest money.

Earnest money and security deposits must be deposited in the broker's escrow account not later than the business day following acceptance of the contract. A transaction is considered accepted when the contract or lease is signed by the buyer and the seller or the lessor and lessee. In cases where a branch office has its own escrow account, the money must be deposited not later than the business day following the contract's acceptance. Where a branch office does not maintain an escrow account, the branch office must hand deliver or mail the money by the next business day to the main office. The main office must deposit the money by the next business day following the receipt of the money from the main office. The branch office, even if they send all escrow moneys to the main office, must maintain records showing the date the escrow moneys were transferred to the main office

Security deposits must be maintained in an account for the duration of the lease, unless the tenant waives this requirement in writing. Such waiver, if included in the lease, must appear in print.

A broker who acts as an escrow agent must notify all the principals in writing if a principal fails to tender escrow moneys, a principal's escrow money is dishonored by the financial institution on which it is drawn, or when there appears according to the governing contract, to be a deficiency in the amount of deposit.


Consent To Audit Escrow Accounts

Each sponsoring broker must, at the time of the original application for licensure and upon each renewal, file with the DFPR the name of the federally insured institutions in which each escrow account is maintained, the name of the account, the names of the persons authorized to withdraw funds from the account, and give the OBRE consent to examine and audit the accounts. Brokers must notify the DFPR by filing a new form with the DFPR within days of changing the depository, method of doing business, or the persons authorized to withdraw.


Book Keeping System

The broker must maintain an in-office book keeping system for the escrow account. The book keeping system can be of any form. They may be traditional paper systems or computerized systems, but they must be in accordance with sound accounting principles. Computerized book keeping systems must be able to produce printed records containing all of the information required by the DFPR. Each book keeping system must have a , a , and a account log.

The account log must identify all escrow bank account numbers, 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 for individual accounts even if they are under an umbrella account number.

The shows the chronological sequence of deposits and disbursements and on deposits must include the date, the name of the party who delivered the funds, the name of the person on whose behalf the funds were delivered, and the amount of the funds. On disbursements, the journal must record the date, the payee, the check number and the amount disbursed. The journal must indicate a running balance of the account.

While a journal records all deposits and disbursements together, a shows the receipt and disbursement of funds in a single particular transaction. The ledger must show for each transaction the receipt and the disbursement of funds. The ledger will include the name of both parties to the transaction, the amount of the funds received by the broker, the date of the receipt. Disbursements will be identified by the date, the payee, the check number, and the amount disbursed. The ledger must segregate one transaction from another and must identify the unique number or serial number assigned to the respective transaction from the master transactions log. On ledgers generated by computer programs where the same information is used to generate both the journal and the ledger, the broker must maintain copies of the bank deposit slips, disbursement slips, or other bank receipts to account for the data on the ledger.

Within days of receiving the monthly bank statement the broker must reconcile each account. Where there has been no activity in the account, no reconciliation is required. The reconciliation must include a worksheet comparing the balances of the account, the ledger and the journal.
Computerized escrow book keeping systems must be backed up monthly. The monthly reconciliation including its worksheet, must be printed out and maintained by copy. The journal must be printed out monthly and maintained by hard copy.

The only money a broker can have in an escrow account is the amount required by the institution to open or maintain the account. Even the inadvertent mixing of personal or operating funds with the earnest money funds is . Brokers using earnest money deposits for their own personal or business purposes are guilty of . Earnest money cannot be withdrawn any than the day of the transaction and not than the next day following the transaction. Any schedule of withdrawals different than this, must be agreed to by the principals.

In the event of a dispute over the return or the forfeiture of any escrow moneys held by the broker or if the broker should reasonably know the disposition of the money will be contested, the broker should continue to hold the money in the escrow account:
1) until receiving direction from both the parties;
2) until a civil action is filed by either the broker or one of the parties to determine its disposition at which time the money may be paid into the court; or
3) until such funds are turned over to the Illinois Department of Financial Institutions because of inactivity of the account or inability to locate the parties. These funds must be turned over from a written demand for the earnest money or from any oral demand or if no one is making any kind of demand.

In the event of a dispute over the return of escrow moneys, a broker is authorized to withdraw from his special account such amounts as may be provided for by contract and which are necessary to reimburse the broker for the handling of the escrow moneys. The broker can file a civil action called an to determine the appropriate disposition of the escrow moneys.

The earnest money, however, cannot be disbursed by the broker unless the broker has the direction of both parties in the transaction. Even if it is obvious that the buyer has defaulted, the broker does not have the authority to call any performance or lack of performance a default and must continue to hold the earnest money. The buyer and seller, not coming to a mutual agreement on the disposition of the earnest money, the broker can file an interpleader action by paying the money to the clerk of the circuit court.


A broker need not disburse any escrow moneys until the funds have been by the payor's depository. Broker's may not withhold an authorized disbursement of escrow moneys due to any claim for a commission or compensation. If a broker receives written direction from all the principals to the transaction or their duly authorized agents agreeing to a disbursement of earnest moneys, they must disburse the funds not later than the next business day following receipt of the last required written direction.

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PUTTING IT TO WORK
When a licensee becomes an officer or manager of a corporation, limited liability company, partnership or limited partnership licensed under the act, the sponsoring broker must notify the DFPR on properly completed business information form. All changes in managing brokers, branch or principal office must be reported to the DFPR within days.
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Record Keeping

Broker's must retain copies of all escrow money instruments received from a principle 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 must retain copies of all disbursements out of escrow accounts.

If escrow records are lost, stolen, destroyed due to fire, flood or any other circumstances, the broker must report such loss to the DFPR 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 the loss of escrow records.

Escrow records and all transaction records must be retained for at least years. The records for the immediate prior years shall be maintained in the office location and the balance of the records can be maintained at another location. Records kept on site must be made available to DFPR enforcement personnel within hours of the request. Records kept at another location must be made available within days.

Employment agreements with the broker must be maintained for at years after the sponsored licensee is no longer affiliated with the broker. A copy of the employment agreement must be maintained at the branch in which the licensee works. Records reflecting the payment of compensation for the performance of licensed activities must be maintained for years.


FORMS OF OWNERSHIP

Ownership Restrictions
No corporation will be granted a real estate corporation license unless every officer of the corporation who actively participates in the real estate activities of the corporation holds a license as a broker. Licensees holding a salesperson's license is prohibited from being an officer, but an unlicensed person, not engaging in the real estate activities of the corporation, may act as an officer. Every employee who acts as a broker, salesperson, or leasing agent must hold a license as such.
No partnership will be granted a real estate partnership license unless every general partner in the partnership holds a license as a real estate broker. Every employee who acts as a broker, salesperson or leasing agent must hold a license as such.

In a limited liability partnership (LLP), every partner must in the LLP must be licensed as a broker and every employee who acts as a broker, salesperson or leasing agent must hold a license as such.

No limited liability company (LLC) will be granted a license as a real estate limited liability company unless every manager in the LLC holds a license as a broker and unless every member and employee who acts as a broker, salesperson or leasing agent for the LLC holds a license as such.

An individual or group of salespersons and leasing agents are prohibited from owning more than % of the shares of stock or other ownership in a partnership, LLC or corporation.