Tennessee Real Estate License Exam Practice Question
A broker maintains a trust or escrow account. A $10,000 earnest money deposit is received from a buyer and deposited in the account. Several weeks later and prior to closing, the broker withdraws $7,000 from the account and puts it in an operating account. This transaction is
Correct Answer: C
Rationale: Withdrawing earnest money from a trust or escrow account for personal use constitutes illegal conversion of funds, as it misappropriates client money intended for a specific purpose.
Option A is incorrect; a broker cannot withdraw funds simply because they expect a commission.
Option B is misleading; while there may be regulatory implications, the primary issue is the misappropriation of funds rather than a direct violation of banking regulations.
Option D is also wrong; informing the seller does not legitimize the broker's unauthorized access to the earnest money, which is meant to secure the transaction.
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