New York Escrow, Commingling and Record Rules

Commingling means mixing protected money or property with the broker's own. Conversion means taking unauthorized ownership or control of another person's money or using it for an improper purpose. A broker can commingle without yet spending the money, but using escrow money to pay the broker's bills can be both commingling and conversion.

Official source map

Title 19 NYCRR section 175.1 controls a broker's handling of a principal's money. Section 175.2 requires an accounting and remittance within a reasonable time. Section 175.3 connects tenant security held by a broker to General Obligations Law section 7-103. Section 175.21 covers broker supervision and listing and transaction records involving salespersons. Section 175.23 specifies three-year records for covered residential sales. Real Property Law section 441-c supplies the disciplinary authority. Sources were checked on August 27, 2026.

Escrow is a responsibility, not ownership

In a real estate transaction, escrow describes money or property held by a neutral holder under instructions until stated conditions determine where it goes. The holder does not become the beneficial owner merely by receiving the money.

Common examples include:

• a buyer's contract deposit
• an earnest money or good-faith deposit
• a tenant's security deposit held by a broker or managing agent
• rent collected for an owner before remittance
• money held for a stated transaction purpose

Not every New York transaction deposit is held by the real estate broker. A seller's attorney or another agreed escrow agent may hold the contract down payment. The exam question should tell you who received the money and in what capacity. Apply the duties to that role rather than assuming the broker holds every deposit.

The core rule in section 175.1

Section 175.1 contains six connected duties:

1. Do not mix the principal's money or other property with the broker's own.
2. Maintain a separate special bank account used exclusively for principal money.
3. Deposit the money within three business days.
4. Until deposit, safeguard it in a secure location against loss or misappropriation.
5. Use a federally insured bank account, not another fund, investment or depository.
6. Do not keep accrued interest for the broker's benefit except when all parties consent to applying it against earned commission.

Read the timing carefully. “Within three business days” does not mean whenever the next closing occurs, at the end of the month or after the check clears. The safeguarding duty applies during the short period before deposit.

Who controls the escrow account?

The regulation places the account duty on the real estate broker. A salesperson works for and under the supervision of the associated broker and does not operate a personal transaction escrow account.

If a salesperson receives a deposit in connection with brokerage activity, the salesperson should promptly deliver it to the sponsoring broker under the broker's instructions. Department administrative decisions have treated a salesperson's retention of customer deposits outside the broker's control as untrustworthy or incompetent conduct.

The salesperson should not improvise

A salesperson should not:

• place the check in a personal account
• hold cash in a desk until the transaction is accepted
• give the money directly to a party without broker direction
• convert a deposit into a brokerage fee
• refund or release disputed money independently
• create a separate account under the salesperson's own name

The safe exam answer is to deliver funds to the supervising broker and follow the written transaction and escrow instructions.

When is a broker required to maintain an escrow account?

Section 175.1 says a broker must maintain the separate account for principal money. Department administrative decisions clarify the practical point: a broker who receives and holds escrow funds needs the account, but a broker who never receives or holds such funds is not required to keep an unused escrow account open at all times.

This distinction prevents two opposite errors:

• A broker cannot avoid the account by saying deposits are rare after accepting a principal's money.
• A broker is not required to maintain an empty account when the brokerage does not receive or hold escrow funds.

The three-business-day deposit rule

The broker must deposit principal money into the separate special account within three business days. Count business days, not calendar days.

Example

A broker receives a buyer's deposit on Friday. Assuming Monday is not a bank holiday, Monday is the first business day, Tuesday the second and Wednesday the third. The money must be deposited no later than Wednesday.

The exact counting can change when a legal holiday or other nonbusiness day intervenes. The point tested is the three-business-day deadline and the duty to safeguard the money before deposit.

What if the check is payable to someone else?

The name on the check and the written escrow arrangement matter. A broker should not alter an instrument, deposit money without authority or treat another party's check as brokerage revenue. The broker should follow the contract, obtain proper direction and document delivery or deposit.

What commingling means

Commingling occurs when a broker mixes a principal's money or property with the broker's own money or property. The violation concerns loss of separation, not whether the broker intended to steal.

Examples include:

• depositing a buyer's contract deposit into the brokerage operating account
• placing collected rent in the same account used for payroll and advertising bills
• putting brokerage commissions into the special principal-money account before they are earned and authorized for withdrawal
• depositing a client's cash into a personal account, even if the broker plans to move a matching amount later

The separate special account may hold protected funds for more than one principal if the account and records preserve each person's ownership and the applicable instructions. Section 175.1 requires separation from the broker's own money, not necessarily a different bank account for every transaction.

What conversion means

Conversion is unauthorized control over another person's property that interferes with the owner's rights. In escrow fact patterns, it usually involves using, withholding or treating protected money as if it belonged to the broker or salesperson.

Examples include:

• paying office rent from a client's deposit
• withdrawing one transaction's money to cover a shortage in another
• keeping a refundable deposit as a commission without authority
• refusing to turn over money after the person entitled to it has been established
• borrowing escrow money with the intention of replacing it later

An intention to repay does not make the use authorized. The duty protects the money while it is entrusted to the licensee.

Commingling and conversion compared

For an exam scenario, identify each act separately. Depositing into the wrong account can establish commingling. A later unauthorized withdrawal can add conversion.

Escrow money is not an advance commission

A broker does not earn a commission merely because a deposit enters the broker's custody. The right to commission depends on the brokerage agreement and applicable law. The right to a contract deposit depends on the sale contract and the parties' rights.

Those are separate ledgers and separate legal questions.

Section 175.1 allows accrued interest to be applied to and deducted from an earned commission only with the consent of all parties. That narrow interest rule does not allow the broker to relabel principal as commission.

What happens when the parties dispute the deposit?

A disagreement between buyer and seller does not turn the escrow holder into the judge of the contract. The broker should read the written escrow instructions and avoid releasing money merely because one claimant demands it.

Depending on the agreement and facts, lawful disposition may rest on:

• joint written instructions from the people whose interests are affected
• a contract provision that clearly authorizes the release
• a court order or judgment
• an arbitration award where the parties agreed to arbitration
• another legally valid direction to the escrow holder

The broker should keep the money protected while competing claims remain unresolved. Specific disputes belong with the parties' attorneys because contract language and procedural law can control the result.

Avoid confusing cancellation with entitlement

When a transaction ends, that fact alone may not answer who receives the deposit. The reason for termination, any contingency, the parties' performance, written notices and the contract's escrow clause can matter.

The exam-friendly rule is to preserve the money and follow authority. Do not let the broker make a self-interested distribution.

Accounting and remittance under section 175.2

Section 175.2 requires a broker, within a reasonable time, to render an account to the client and remit money collected for the client that was not spent for the client's account.

An accounting should make it possible to trace:

• what money was received
• from whom and for whom it was received
• the date and transaction involved
• where it was deposited
• any authorized payment or application
• the remaining balance
• when and to whom the balance was remitted

“Reasonable time” depends on the facts, but it is not permission to delay for the broker's convenience. Once entitlement and instructions are clear, unexplained retention creates risk.

Tenant security deposits require a separate analysis

When a person licensed or acting as a real estate broker has custody or control of tenant security money, section 175.3 requires compliance with General Obligations Law section 7-103, including required interest treatment.

Section 7-103 says rental security remains the tenant's money, is held in trust and may not be mixed with the recipient's personal money or become the recipient's asset.

Bank notice and interest

When the recipient deposits tenant security in a banking organization, written notice must be given to the tenant stating:

• the name of the banking organization
• the bank's address
• the amount deposited

The bank must have a place of business in New York. If the account bears interest, the holder may retain an administration amount equal to one percent per year on the security deposit, and the remaining interest belongs to the tenant and is either held in trust or paid annually.

For property containing six or more family dwelling units, section 7-103 requires an interest-bearing account at the prevailing rate for comparable deposits in the area.

Do not merge two different rules

The broker escrow regulation and the tenant-security statute overlap when a broker controls tenant security, but they are not identical:

Use the rule tied to the money in the question. Do not transfer the tenant-security interest rule to every purchase deposit.

Federally insured account means exactly that

Section 175.1 does not allow principal money to be placed in another depository, fund or investment. The money belongs in a federally insured bank account.

That excludes using client money for:

• stocks or investment funds
• digital assets
• the broker's safe as long-term storage
• a nonbank payment wallet as the holding account
• an investment selected because it might earn a better return

The rule prioritizes custody and availability over investment return.

Interest belongs to the appropriate party

Accrued interest on principal money cannot be kept by or for the broker's benefit, except to the extent all parties consent to its application against earned commission.

Three details matter:

1. The commission must already be earned under the governing arrangement.
2. All parties must consent.
3. Only the agreed amount may be applied and deducted.

Tenant security has its own statutory interest allocation, discussed above. Identify the type of funds before applying an interest answer.

Required residential transaction records

Section 175.23 requires a licensed broker to keep paper or electronic records for three years for each transaction effected through the office involving the sale of covered residential real property.

The covered property is real property used, occupied or intended to be used or occupied wholly or partly as a home or residence and improved by:

• a one-to-four-family dwelling
• a condominium apartment
• a cooperative apartment

The rule does not cover unimproved land on which such a dwelling will later be constructed.

What the record must contain

The required record includes:

1. names and addresses of seller and buyer
2. a broker-prepared purchase contract or binder, or, when the broker did not prepare the contract, the purchase price and deposit amount if the broker collected it
3. the commission paid to the broker
4. the broker's gross profit if the broker bought the property for resale
5. documents required by Article 12-A
6. the listing agreement, commission agreement or buyer-broker agreement

The regulation recognizes that a broker may not receive every document in some transactions. In that circumstance, the broker is not found to have violated section 175.23 merely because the unavailable document was not provided to the broker.

The three-year rule is a floor for the listed records

The specific Department rule establishes a three-year retention period for its covered residential transaction records. Other laws, contracts, tax rules, litigation holds, fair housing records and brokerage policies can require different or longer retention.

Do not turn “three years” into a universal answer for every document a brokerage creates.

Salesperson and broker records under section 175.21

The broker and salesperson must keep written records of listings obtained by the salesperson and sales and other transactions effected by or with the salesperson's help during the association. The records must clearly identify the transactions and state their dates.

These records also support a later broker-license application because the salesperson must submit experience records to the Department. Informal memory, calendar fragments or commission statements may not establish the full history.

Strong escrow controls versus stated legal minimums

Some controls are sound brokerage practice even when the cited regulation does not prescribe their exact format or frequency. A careful broker commonly uses:

• a separate ledger for each client or transaction
• numbered receipts and deposit records
• copies or images of checks
• written escrow instructions
• bank statements and deposit confirmations
• documented authorization for every disbursement
• regular three-way reconciliation of bank balance, account ledger and client ledgers
• restricted access and separation of approval duties
• a prompt process for investigating shortages or stale items

These controls help prove compliance and detect mistakes. Do not present a particular software system, reconciliation interval or form as a statewide statutory requirement unless an applicable rule actually says so.

How to analyze an escrow question

Use this five-step method:

Step 1: identify the owner of the money

Is it a buyer's deposit, tenant security, rent for an owner, broker commission or brokerage operating money?

Step 2: identify the holder and capacity

Did a broker, salesperson, attorney, landlord, managing agent or another escrow agent receive it?

Step 3: identify the instruction

What do the contract, escrow clause, lease or client direction say about custody and release?

Step 4: trace the money

Was it safeguarded, deposited into the correct account within the required time and kept available for the lawful owner?

Step 5: separate the possible violations

Ask whether the facts show late deposit, commingling, conversion, failure to account, improper interest, missing records or inadequate broker supervision.

Worked exam scenarios

Scenario 1: deposit in the operating account

A broker receives a buyer's $8,000 deposit and places it in the office operating account. The money remains untouched.

The broker has commingled principal money with brokerage money. Spending is not required for commingling.

Scenario 2: temporary use for payroll

A broker withdraws escrow money to cover payroll and replaces it two days later.

The replacement does not erase the unauthorized use. The facts support conversion and commingling.

Scenario 3: check in the desk drawer

A salesperson receives a tenant deposit on Monday and keeps it locked in a desk until the following week without telling the broker.

The salesperson should have delivered the funds promptly to the supervising broker. The broker's section 175.1 deadline is deposit within three business days, with secure safeguarding until deposit.

Scenario 4: disputed buyer deposit

The buyer demands a refund after cancelling. The seller claims default and demands the same money. The broker chooses the seller because the seller is the broker's client.

Agency loyalty does not authorize the broker to decide competing escrow ownership for the client's benefit. Preserve the funds and follow the escrow agreement and legally valid direction.

Scenario 5: interest credited as commission

A broker keeps accrued interest and credits it toward commission. Only the seller agreed.

Section 175.1 requires consent of all parties for the interest to be applied against earned commission. One party's approval is insufficient.

Scenario 6: tenant security in a six-unit building

A managing broker controls a tenant's security deposit for an apartment in a six-family property and places it in a non-interest-bearing account.

General Obligations Law section 7-103 requires an interest-bearing account for property containing six or more family dwelling units. Section 175.3 makes noncompliance grounds for Department action against the broker.

Scenario 7: incomplete residential file

A broker keeps only a closing date and commission total for a condominium sale.

Section 175.23 requires additional information and agreements, subject to its protection when a document was not provided to the broker. The broker should maintain the complete covered record for three years.

Scenario 8: principal money placed in an investment fund

A broker keeps a client's deposit separate from operating money but places it in a low-risk investment fund.

Separation alone is not enough. Section 175.1 permits only a federally insured bank account, not another fund or investment.

Common misconceptions

“Commingling requires proof that the broker spent the money”

No. Improper mixing is the core problem. Spending or unauthorized control may add conversion.

“A salesperson can hold a deposit until the broker decides whether to accept the deal”

No. A salesperson does not independently retain transaction deposits. The money must move promptly into the supervising broker's controlled process.

“Every broker must keep an empty escrow account open”

Department decisions distinguish brokers who receive and hold funds from those who do not. The account is required when needed for principal money.

“All escrow interest belongs to the broker”

No. Section 175.1 restricts broker benefit from accrued interest, and tenant security has its own statutory allocation.

“A failed closing automatically means the buyer receives the deposit”

No. Entitlement depends on the contract and facts. The escrow holder should not decide a dispute based only on one party's demand.

“Three years is the retention period for every brokerage record”

No. Section 175.23's three-year rule applies to specified records for covered residential sales. Other requirements can apply elsewhere.

“Keeping enough total money in escrow is enough”

No. The records must preserve the ownership and authorized disposition of each principal's money. One client's funds cannot cover another client's shortage.

Frequently asked questions

How quickly must a New York real estate broker deposit escrow money?

Section 175.1 requires principal money to be deposited into the separate special bank account within three business days. It must be safeguarded securely before deposit.

Where must New York broker escrow money be deposited?

It must be placed in a separate special account used exclusively for principal money at a federally insured bank. It may not be placed in another depository, fund or investment.

What is commingling in New York real estate?

Commingling is mixing a principal's money or property with the broker's own funds or property, such as putting a buyer's deposit into the brokerage operating account.

What is conversion in a real estate escrow account?

Conversion is unauthorized control or use of another person's money that interferes with the owner's rights. Paying office expenses with a client deposit is a clear example.

Can a New York salesperson keep a buyer or tenant deposit?

Not independently. The salesperson should promptly deliver the funds to the sponsoring broker and follow the broker's supervised escrow procedure.

Can a broker release a disputed deposit to the broker's client?

Not merely because the client asks. The broker should preserve the money and follow the escrow agreement, joint written direction, court order, valid arbitration result or other lawful authority that resolves disposition.

Can a broker keep interest earned on escrow funds?

Under section 175.1, accrued interest cannot benefit the broker except when all parties consent to applying it against earned commission. Tenant security is governed by the separate interest rules in General Obligations Law section 7-103.

Must tenant security deposits earn interest in New York?

Section 7-103 requires an interest-bearing account when the rental property contains six or more family dwelling units. The statute also governs notice, trust treatment and allocation of interest.

How long must New York brokers retain residential transaction records?

Section 175.23 requires three years for the specified records of covered one-to-four-family, condominium and cooperative sales effected through the broker's office. Other records may have different retention rules.

What records show proper escrow handling?

The law requires the applicable transaction records, and a traceable file should also connect receipt, deposit, ledger allocation, authorization and disbursement. Brokerage controls may require more detail than section 175.23 lists.

What to study next

Review sponsoring broker supervision, listings and compensation and changing sponsoring brokers and license records. Then open the License Law and Regulations study hub, the Property Management study hub and the free practice sampler to apply custody and record rules to scenarios.

Sources and verification notes

The rules and statutes below were checked on August 27, 2026. The article labels office-control recommendations separately from express regulatory requirements. Escrow entitlement can depend on contract language and case-specific facts, so a live dispute should be handled with the parties' attorneys and current legal authority.

1. New York State Department of State, Real Estate License Law. Current Article 12-A and Title 19 NYCRR text, including sections 175.1, 175.2, 175.3, 175.21 and 175.23.
2. New York Real Property Law section 441-c. Department discipline for statutory violations, fraud, untrustworthiness and incompetency.
3. New York Real Property Law section 442-k. Regulatory authority over commingling, client accounts, property management and transaction records.
4. New York General Obligations Law section 7-103. Trust, bank notice and interest treatment for tenant security and rental advances.
5. Department of State decision in Vuksanaj. Official administrative explanation of when a broker needs an escrow account and why section 175.1 protects owners of entrusted funds.
6. Department of State decision in Hearl. Official decision distinguishing protected escrow custody, commingling and conversion.
7. Department of State decision in Brice. Official decision addressing a salesperson's receipt and retention of customer deposits outside the broker's escrow process.

This article provides general educational guidance. It does not reproduce live examination content or provide legal advice.