California trust account rules for property managers

A property manager collecting rents and deposits is holding other people’s money, and California treats it that way. Trust funds must go into a designated trust account with the broker as a signatory, the records must track every beneficiary separately, and the books must reconcile monthly. None of this is advisory. It is the part of a DRE examination where findings turn into accusations, because a shortage in a trust account is not a bookkeeping error — it is someone else’s missing money. B&P 10145

The three-business-day rule

Trust funds must be deposited — into the trust account or into escrow — within three business days of receipt. Weekends and legal holidays do not count. The clock starts when the funds are received, not when someone gets around to logging them, which is why operations that batch their deposits weekly are out of compliance every single week without noticing. Reg 2832

The narrow exception: a check may be held uncashed under written instruction from its maker — and then the written instruction itself becomes the record an examiner asks for. Holding a check without that instruction on file is not an exception; it is a finding. Reg 2832(a)

Three numbers that must agree

Monthly reconciliation is not the bank statement matching the checkbook. California requires a separate record for each beneficiary — each owner, each tenant deposit — and the reconciliation compares three totals: the bank balance, the account’s control record, and the sum of the separate beneficiary records. Reg 2831, 2831.1, 2831.2

• A shortage means beneficiary money is not all there — the most serious finding a trust examination produces.
• An overage is also a finding, not a cushion. Unidentified funds in a trust account raise commingling questions. Reg 2835
• A variance with a written, dated explanation — a deposit in transit, an outstanding check — is ordinary. A variance with no explanation is where audits go badly.

Where operations actually fail

Almost never through theft. Through drift. The bookkeeper leaves and the reconciliation slips a month, then a quarter. Deposits get batched for convenience. The beneficiary ledgers exist in the property management software but nobody sums them against the bank. Each item is small; together they are exactly the pattern a DRE examiner is trained to find, and by the time an audit letter arrives the cost of reconstruction is far larger than the cost of doing it monthly would have been.

What broker supervision of trust funds looks like

The responsible broker’s duty covers the trust account whether or not the broker looks at it — which is the argument for a broker who looks at it. Real supervision means the deposit clock is checked against receipts, the three-way reconciliation is reviewed and signed by the broker every period, unexplained variances stop the sign-off until they are explained, and all of it leaves a record that can be produced on demand. B&P 10148, 10159.2