Final Text
Part V
Standards of Practice and Conduct
18VAC135-20-155. Grounds for disciplinary action.
The board has the power to fine any licensee or certificate
holder and to suspend or revoke any license or certificate issued under the provisions
of Chapter 21 (§ 54.1-2100 et seq.) of Title 54.1 of the Code of Virginia and
this chapter in accordance with subdivision A 7 of § 54.1-201 and
§ 54.1-202 of the Code of Virginia and the provisions of the
Administrative Process Act, Chapter 40 (§ 2.2-4000 et seq.) of Title 2.2
of the Code of Virginia, where the licensee or certificate holder has been
found to have violated or cooperated with others in violating any provision of
Chapters 1 (§ 54.1-100 et seq.), 2 (§ 54.1-200 et seq.), 3 (§ 54.1-300 et
seq.), and 21 (§ 54.1-2100 et seq.) of Title 54.1 of the Code of Virginia,
Chapter 27.3 (§ 55-525.16 et seq.) of Title 55 10 (§ 55.1-1000 et
seq.) of Title 55.1 of the Code of Virginia, or any regulation of the
board. Any licensee failing to comply with the provisions of Chapter 21 (§
54.1-2100 et seq.) of Title 54.1 of the Code of Virginia or the regulations of
the Real Estate Board in performing any acts covered by §§ 54.1-2100 and
54.1-2101 of the Code of Virginia may be charged with a violation, regardless
of whether those acts are in the licensee's personal capacity or in his
capacity as a real estate licensee.
18VAC135-20-180. Maintenance and management of escrow accounts.
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 § 55-248.4 § 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 him
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 which 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 which 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 which 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 § 55-248.4 § 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 shall be placed in an 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. 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 or supervising broker is holding escrow funds for the owner of real property and such property is foreclosed upon by a lender, the principal broker or supervising broker 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 there is in effect at the date of the foreclosure sale a
real estate purchase contract to buy the property foreclosed upon and the real
estate purchase 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 or supervising broker 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 13.2 (§ 55-248.2 et
seq.) of Title 55 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 there is in effect at the date of the foreclosure sale
a tenant in a residential dwelling unit foreclosed upon 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: prepaid rent or escrow fund advances.
Unless otherwise agreed in writing by all principals to the transaction, all
prepaid 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 and remain in that account until paid in accordance with
the terms of the lease and the property management agreement, as applicable,
except the prepaid rent, which shall be treated in accordance with the prepaid
rent provision of the Virginia Residential Landlord and Tenant Act, Chapter 13.2
(§ 55-248.2 et seq.) of Title 55 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 there is in effect at the date of the foreclosure sale a written property management agreement between the licensee and the 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, etc.) 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 or accounts
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 or
accounts 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.