Leasing License Practice Exam

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What action is prohibited with regard to escrow accounts?

Overdrafting
Commingling
Accruing interest
Depositing checks

The correct answer is: Commingling

Commingling is the act of mixing personal or business funds with those of clients, which is strictly prohibited for escrow accounts. Escrow accounts are designed to hold funds on behalf of clients for specific purposes, often in relation to real estate transactions. Keeping these funds separate ensures that they are safeguarded and used solely for their intended purpose, such as covering property taxes or homeowners insurance. By keeping client funds distinct from the licensee's personal or business funds, the integrity of the escrow account is maintained and the trust of clients is protected. This requirement is vital to ensure accountability and avoid any potential conflicts of interest or misuse of funds. Overdrafting, accruing interest, and depositing checks may involve other regulations but do not inherently compromise the essential purpose of an escrow account in the same way commingling does. Each of these actions has its guidelines, but commingling fundamentally undermines the purpose of maintaining a separated fiduciary relationship with client funds.