A. Maintenance of escrow accounts.
1. If money is to be held in escrow, each
firm or sole proprietorship shall maintain in the name by which it is licensed
one or more federally insured separate escrow accounts in a federally insured
depository into which all down payments, earnest money deposits, money received
upon final settlement, application deposits as defined by § 55.1-1200 of
the Code of Virginia, rental payments, rental security deposits, money advanced
by a buyer or seller for the payment of expenses in connection with the closing
of real estate transactions, money advanced by the broker's client or expended
on behalf of the client, or other escrow funds received by the broker or his
associates on behalf of his client or any other person shall be deposited
unless all principals to the transaction have agreed otherwise in writing. The
balance in the escrow accounts shall be sufficient at all times to account for
all funds that are designated to be held by the firm or sole proprietorship.
The principal broker shall be held responsible for these accounts, including
having signatory authority on these accounts. The supervising broker and any
other licensee with escrow account authority may be held responsible for these
accounts. All such accounts, checks, and bank statements shall be labeled
"escrow" and the accounts shall be designated as "escrow" accounts with the
financial institution where such accounts are established.
2. Funds to be deposited in the escrow
account may include moneys that shall ultimately belong to the licensee, but
such moneys shall be separately identified in the escrow account records and
shall be paid to the firm by a check drawn on the escrow account when the funds
become due to the licensee. Funds in an escrow account shall not be paid
directly to the licensees of the firm. The fact that an escrow account contains
money that may ultimately belong to the licensee does not constitute
"commingling of funds" as set forth by subdivision C 2 of this section,
provided that there are periodic withdrawals of said funds at intervals of not
more than six months and that the licensee can at all times accurately identify
the total funds in that account that belong to the licensee and the
firm.
3. If escrow funds are used
to purchase a certificate of deposit, the pledging or hypothecation of such
certificate, or the absence of the original certificate from the direct control
of the principal or supervising broker, shall constitute commingling as
prohibited by subdivision C 2 of this section.
4. Lease transactions: application deposits.
Any application deposit as defined by § 55.1-1200 of the Code of Virginia
paid by a prospective tenant for the purpose of being considered as a tenant
for a dwelling unit to a licensee acting on behalf of a landlord client shall
be placed in escrow by the end of the fifth business banking day following
approval of the rental application by the landlord unless all principals to the
lease transaction have agreed otherwise in writing.
B. Disbursement of funds from escrow
accounts.
1.
a. Purchase transactions. Upon the
ratification of a contract, an earnest money deposit received by the principal
broker or supervising broker or his associates that is to be held in the firm's
escrow account shall be placed in such escrow account by the end of the fifth
business banking day following ratification, unless otherwise agreed to in
writing by the principals to the transaction, and shall remain in that account
until the transaction has been consummated or terminated. If a principal broker
or supervising broker, or an agent of such principal broker or supervising
broker, receives an earnest money deposit that will not be held in the firm's
escrow account, the principal broker or supervising broker shall ensure that
the earnest money deposit is delivered to the escrow agent named in the
contract by the end of the fifth business banking day following receipt of the
deposit, unless otherwise agreed to in writing by the principals to the
transaction. In the event that the transaction is not consummated, the
principal broker or supervising broker shall hold such funds in escrow until
(i) all principals to the transaction have agreed in a written agreement as to
their disposition, upon which the funds shall be returned to the agreed upon
principal as provided in such written agreement; (ii) a court of competent
jurisdiction orders such disbursement of the funds; (iii) the funds are
successfully interpleaded into a court of competent jurisdiction pursuant to
this section; or (iv) the broker releases the funds to the principal to the
transaction who is entitled to receive them in accordance with the clear and
explicit terms of the contract that established the earnest money deposit. At
the option of a broker, written notice may be sent by the broker that release
of such funds shall be made unless a written protest is received from the
principal who is not receiving the funds by such broker within 15 calendar days
of the date of such notice. Notice of a disbursement shall be given to the
parties to the transaction in accordance with the contract, but if the contract
does not specify a method of delivery, one of the following methods complies
with this section:
(i) hand
delivery;
(ii) United States mail,
postage prepaid, provided that the sender retains sufficient proof of mailing,
which may be either a United States postal certificate of mailing or a
certificate of service prepared by the sender confirming such
mailing;
(iii) electronic means,
provided that the sender retains sufficient proof of the electronic delivery,
which may be an electronic receipt of delivery, a confirmation that the notice
was sent by facsimile, or a certificate of service prepared by the sender
confirming the electronic delivery; or
(iv) overnight delivery using a commercial
service or the United States Postal Service. Except as provided in the clear
and explicit terms of the contract, no broker shall be required to make a
determination as to the party entitled to receive the earnest money deposit. A
broker who complies with this section shall be immune from liability to any of
the parties to the contract.
A principal broker or supervising broker holding escrow
funds for a principal to the transaction may seek to have a court of competent
jurisdiction take custody of disputed or unclaimed escrow funds via an
interpleader action pursuant to § 16.1-77 of the Code of Virginia.
If a principal broker, supervising broker, or an agent of
such licensee is holding escrow funds for the owner of real property and such
property is foreclosed upon by a lender, the principal broker, supervising
broker, or agent shall have the right to file an interpleader action pursuant
to § 16.1-77 of the Code of Virginia and otherwise comply with the
provisions of § 54.1-2108.1 of the Code of Virginia.
If a single family residential dwelling unit is foreclosed
upon, and at the date of the foreclosure sale there is a real estate purchase
contract to buy such property and such contract provides that the earnest money
deposit held in escrow by a firm or sole proprietorship shall be paid to a
principal to the contract in the event of a termination of the real estate
purchase contract, the foreclosure shall be deemed a termination of the real
estate purchase contract, and the principal broker, supervising broker, or
agent of the licensee may, absent any default on the part of the purchaser,
disburse the earnest money deposit to the purchaser pursuant to such provisions
of the real estate purchase contract without further consent from or notice to
the principals.
b. Lease transactions: security deposits. Any
security deposit held by a firm or sole proprietorship shall be placed in an
escrow account by the end of the fifth business banking day following receipt,
unless otherwise agreed to in writing by the principals to the transaction.
Each such security deposit shall be treated in accordance with the security
deposit provisions of the Virginia Residential Landlord and Tenant Act, Chapter
12 (§ 55.1-1200 et seq.) of Title 55.1 of the Code of Virginia, unless
exempted therefrom, in which case the terms of the lease or other applicable
law shall control. Notwithstanding anything in this section to the contrary,
unless the landlord has otherwise become entitled to receive the security
deposit or a portion thereof, the security deposit shall not be removed from an
escrow account required by the lease without the written consent of the tenant.
If a single-family residential dwelling unit is foreclosed upon and there is a
tenant in the dwelling unit on the date of the foreclosure sale and the
landlord is holding a security deposit of the tenant, the landlord shall handle
the security deposit in accordance with applicable law, which requires the
holder of the landlord's interest in the dwelling unit at the time of
termination of tenancy to return any security deposit and any accrued interest
that is duly owed to the tenant, whether or not such security deposit is
transferred with the landlord's interest by law or equity, and regardless of
any contractual agreements between the original landlord and his successors in
interest. Nothing in this section shall be construed to prevent the landlord
from making lawful deductions from the security deposit in accordance with
applicable law.
c. Lease
transactions: rent or escrow fund advances. Unless otherwise agreed in writing
by all principals to the transaction, all rent and other money paid to the
licensee in connection with the lease shall be placed in an escrow account by
the end of the fifth business banking day following receipt, regardless of when
received, and remain in that account until paid in accordance with the terms of
the lease and the property management agreement, as applicable, except prepaid
rent, which shall be treated in accordance with the prepaid rent provision of
the Virginia Residential Landlord and Tenant Act, Chapter 12 (§ 55.1-1200
et seq.) of Title 55.1 of the Code of Virginia.
d. Lease transactions: rent payments. If
there is in effect at the date of the foreclosure sale a tenant in a
residential dwelling unit foreclosed upon and the rent is paid to a licensee
acting on behalf of the landlord pursuant to a properly executed property
management agreement, the licensee may collect the rent in accordance with
§ 54.1-2108.1 A 4 of the Code of Virginia.
2.
a.
Purchase transactions. Unless otherwise agreed in writing by all principals to
the transaction, a licensee shall not be entitled to any part of the earnest
money deposit or to any other money paid to the licensee in connection with any
real estate transaction as part of the licensee's commission until the
transaction has been consummated.
b. Lease transactions. Unless otherwise
agreed in writing by the principals to the lease or property management
agreement, as applicable, a licensee shall not be entitled to any part of the
security deposit or to any other money paid to the licensee in connection with
any real estate lease as part of the licensee's commission except in accordance
with the terms of the lease or the property management agreement, as
applicable. Notwithstanding anything in this section to the contrary, unless
the landlord has otherwise become entitled to receive the security deposit or a
portion thereof, the security deposit shall not be removed from an escrow
account required by the lease without the written consent of the tenant. Except
in the event of a foreclosure, if a licensee elects to terminate the property
management agreement with the landlord, the licensee may transfer any funds
held in escrow on behalf of the landlord in accordance with § 54.1-2108.1
B 5 of the Code of Virginia. If a single-family residential dwelling unit is
foreclosed upon, and at the date of the foreclosure sale there is a written
property management agreement between a licensee and a landlord, the property
management agreement shall continue in accordance with § 54.1-2108.1 A 5
of the Code of Virginia.
3. On funds placed in an account bearing
interest, written disclosure in the contract of sale or lease at the time of
contract or lease writing shall be made to the principals to the transaction
regarding the disbursement of interest.
4. A licensee shall not disburse or cause to
be disbursed moneys from an escrow or property management escrow account unless
sufficient money is on deposit in that account to the credit of the individual
client or property involved.
5.
Unless otherwise agreed in writing by all principals to the transaction,
expenses incidental to closing a transaction (e.g., fees for appraisal,
insurance, credit report) shall not be deducted from a deposit or down
payment.
C. Actions
including improper maintenance of escrow funds include:
1. Accepting any note, nonnegotiable
instrument, or anything of value not readily negotiable, as a deposit on a
contract, offer to purchase, or lease without acknowledging its acceptance in
the agreement;
2. Commingling the
funds of any person by a principal or supervising broker or his employees or
associates or any licensee with his own funds, or those of his corporation,
firm, or association;
3. Failure to
deposit escrow funds in an account designated to receive only such funds as
required by subdivision A 1 of this section;
4. Failure to have sufficient balances in an
escrow account at all times for all funds that are designated to be held by the
firm or sole proprietorship as required by this chapter; and
5. Failing as principal broker to report to
the board within three business days instances where the principal broker
reasonably believes the improper conduct of a licensee, independent contractor,
or employee has caused noncompliance with this section.
Notes
18
Va. Admin. Code §
135-20-180
Derived from
VR585-01-1 §5.3, eff. July 15, 1987; amended, Virginia Register Volume 5,
Issue 23, eff. October 1, 1989; Volume 7, Issue 14, eff. May 15, 1991; Volume
8, Issue 13, eff. May 15, 1992; Volume 11, Issue 18, eff. June 28, 1995; Volume
15, Issue 5, eff. January 1, 1999; Volume 19, Issue 12, eff. April 1, 2003;
Volume 24, Issue 11, eff. April 1, 2008; Amended,
Virginia
Register Volume 31, Issue 26, eff. 11/1/2015; Amended,
Virginia
Register Volume 34, Issue 5, eff.
12/1/2017; Amended,
Virginia
Register Volume 35, Issue 03, eff.
11/1/2018; Amended,
Virginia
Register Volume 36, Issue 08, eff.
1/15/2020; Amended,
Virginia
Register Volume 36, Issue 26, eff.
10/1/2020; Amended,
Virginia
Register Volume 38, Issue 02, eff.
11/1/2021; Amended,
Virginia
Register Volume 39, Issue 1, eff.
10/1/2022.
Statutory Authority: §§ 54.1-201 and 54.1-2105
of the Code of Virginia.