Tennessee · state portion · trust money and records
Tennessee trust money and records rules
Trust money and records are 8 of the 40 state-portion questions, and they are full of numbers: who holds the money, when it goes into the account, how fast earnest money must move after a written request, how long files are kept. Rule 1260-02-.09 covers the money and Rule 1260-02-.40 the records.
Updated Oct 24, 2026 · Not affiliated with any state commission or test provider.
8state-portion questions
21 daysto act on a written request
3 yearsto keep records
What the outline lists
The two PSI areas on this page (state outline, p. 14):
Trust and escrow funds: permissible disbursements, account requirements, commingling and improper use, depositories, interest and non-liquid valuables as earnest money, deposit deadlines.
Documents and records: who keeps records and for how long, what must be kept, handling offers and leaving copies, Commission access to records.
The numbers, with sources
Checked Oct 24, 2026; sources are numbered and listed at the end of the page. Rules of Conduct, chapter 1260-02, revised Sept 2025.
Fact
Detail
Source
Checked
Trust money
An affiliate broker hands trust money to the principal broker immediately; it is deposited promptly on acceptance unless the offer sets a deposit date
Tenn. Comp. R. & Regs. ch. 1260-02, Rules of Conduct (rev. Sept 2025) [1]
Earnest money on request
Disbursed, interpleaded or turned over to an attorney within 21 calendar days of a written request
Tenn. Comp. R. & Regs. ch. 1260-02, Rules of Conduct (rev. Sept 2025) [1]
Record keeping
Transaction records kept 3 years after the transaction closes; electronic records produced within 24 hours of a Commission request
Tenn. Comp. R. & Regs. ch. 1260-02, Rules of Conduct (rev. Sept 2025) [1]
From receipt to deposit
Trust money is money of others that a licensee receives as an agent or facilitator, or holds as a temporary custodian. The path is fixed: an affiliate broker hands trust money to the principal broker immediately; it is deposited promptly on acceptance unless the offer sets a deposit date. The principal broker keeps a separate escrow or trustee account and is responsible at all times for trust money taken in by the firm.
A postdated check is not accepted as trust money unless the offer allows it.
Lease money goes into one or more escrow accounts separate from the sales escrow account.
Commingling, others’ money in an account with personal or business funds, is prohibited.
An interest-bearing account is allowed but not required; the payor must be told in advance and sign an agreement on who gets the interest (Rule 1260-02-.09).
12 trust money and records questions
0 of 12 answered · 0 correct
Question 1 of 12 · Trust money and records · 8 items
A Tennessee firm keeps its transaction files electronically. Who must set up the retention schedule that keeps those records secure and readable for the full retention period?
Answer and explanations
Incorrect: Title companies are outside TREC's jurisdiction, so the rule cannot assign them the firm's schedule.
Incorrect: Affiliates must preserve their transaction records, but the rule gives the firm-wide retention schedule to the principal broker.
Incorrect: A closing attorney keeps their own file but has no duty under TREC's records rule.
Correct: Rule 1260-02-.40(1)(b) requires the principal broker of a firm using electronic records to develop and use a retention schedule that keeps them secure, authentic, accurate and readable.
Question 2 of 12 · Trust money and records · 8 items
A Tennessee sale closed and was consummated on March 1, 2026. Under the license law, until when must its records be kept?
Answer and explanations
Incorrect: The clock runs from consummation of the transaction, not from any listing date.
Incorrect: One year after closing is too soon; the period is three years.
Correct: Records are kept three years following the transaction's consummation, so a March 1, 2026 closing runs to March 1, 2029 (T.C.A. § 62-13-312(b)(6); Rule 1260-02-.40).
Incorrect: Five years overshoots Tennessee's three-year rule.
Question 3 of 12 · Trust money and records · 8 items
In Tennessee, who has the authority to audit a real estate broker's trust account records?
Answer and explanations
Incorrect: The Department of Revenue handles taxes, not license-law trust accounts.
Correct: TREC enforces the trust-account rules of chapter 1260-02 and can inspect firm records; electronic records must be available to its representatives within 24 hours (Rule 1260-02-.40(1)(a)).
Incorrect: FHA insures mortgages and has no role in a broker's escrow account.
Incorrect: A trade association can discipline its members under its bylaws but has no audit power over trust accounts.
Question 4 of 12 · Trust money and records · 8 items
Who is ultimately responsible for the proper handling of trust account funds in a brokerage?
Answer and explanations
Incorrect: The bank holds the deposit but answers to the account owner, not to TREC.
Correct: Rule 1260-02-.09(4) makes principal brokers responsible at all times for trust money accepted by them or their affiliates.
Incorrect: The affiliate must hand trust money over immediately (Rule 1260-02-.09(3)); from then on the principal broker answers for it.
Incorrect: A bookkeeper may keep the ledgers, but the rule puts responsibility on the principal broker.
Question 5 of 12 · Trust money and records · 8 items
What is the proper procedure when the Tennessee Real Estate Commission requests access to transaction files during an investigation?
Answer and explanations
Correct: Commission investigators are entitled to the complete file; electronic records must even be reachable within 24 hours of a request (Rule 1260-02-.40(1)(a)).
Incorrect: The licensee does not choose what is relevant; the investigator reviews the full file.
Incorrect: Redacting a file sent to the Commission withholds part of the record it asked for.
Incorrect: No court order is needed; inspecting licensee records is part of TREC's regulatory role.
Question 6 of 12 · Trust money and records · 8 items
An offer with $5,000 earnest money is accepted, and the offer does not say when the trust money will be deposited. When must it go into the escrow account?
Answer and explanations
Incorrect: Holding the check until closing leaves trust money outside the escrow account for the whole deal.
Incorrect: Loan approval has nothing to do with the deposit rule; acceptance triggers it.
Correct: Rule 1260-02-.09(11) requires deposit promptly upon acceptance unless the offer contains a statement such as “Trust money to be deposited by:”.
Incorrect: Ten business days is invented; only the offer itself can set a later deposit date.
Question 7 of 12 · Trust money and records · 8 items
A Tennessee principal broker holding earnest money receives a written request to disburse it. Absent a compelling reason, how long does the broker have to disburse it, interplead it, or turn it over to an attorney to interplead?
Answer and explanations
Incorrect: Thirty days is longer than the rule allows.
Incorrect: Sixty days is nearly triple the deadline.
Incorrect: Ten business days is shorter than the rule and counted in the wrong kind of day.
Correct: Rule 1260-02-.09(9) sets twenty-one calendar days from receipt of the written request, absent a compelling reason.
Question 8 of 12 · Trust money and records · 8 items
A buyer offers a postdated check as earnest money, and the offer says nothing about postdated checks. May the Tennessee licensee accept it?
Answer and explanations
Correct: Rule 1260-02-.09(10) bars accepting a postdated check for trust money unless the offer provides otherwise.
Incorrect: The exception runs through the offer's terms, not the broker's approval.
Incorrect: The rule has no grace window for postdated checks.
Incorrect: Telling the seller is not what the rule asks; the offer itself must allow it.
Question 9 of 12 · Trust money and records · 8 items
A Tennessee firm handles both sales and rentals. Where must it hold the trust money it receives under its leases?
Answer and explanations
Incorrect: Sales and lease trust money may not share an account; the rule calls for a separate lease account.
Incorrect: Money the firm receives and holds stays the firm's trust responsibility, in its own lease escrow account.
Correct: Rule 1260-02-.09(12) requires trust money relating to leases to be held in one or more escrow accounts separate from the sales escrow account.
Incorrect: Putting trust money in the operating account is commingling, which Rule 1260-02-.09(13) prohibits.
Question 10 of 12 · Trust money and records · 8 items
A Tennessee firm wants to place a buyer's earnest money in an interest-bearing escrow account. What does TREC require?
Answer and explanations
Correct: Rule 1260-02-.09(14)(a) requires telling the payor at contract execution and signing a written agreement on how any interest will be disposed of.
Incorrect: Interest-bearing accounts are neither required nor prohibited under Rule 1260-02-.09(14).
Incorrect: The licensee does not own the money or its interest until properly disbursed (Rule 1260-02-.09(14)(b)).
Incorrect: TREC neither requires nor pre-approves interest-bearing accounts; the rule only sets conditions.
Question 11 of 12 · Trust money and records · 8 items
A seller accepts a buyer's written offer. What must the Tennessee licensee promptly deliver, and to whom?
Answer and explanations
Incorrect: Contracts are not filed with TREC; they stay in the firm's records.
Correct: Rule 1260-02-.08 requires prompt delivery of true executed copies of the accepted offer or counteroffer, signed by the seller, to both purchaser and seller.
Incorrect: The closing attorney will need the contract, but the rule's duty runs to the parties.
Incorrect: Lenders get the contract through the buyer's loan file; the delivery duty is to the parties.
Question 12 of 12 · Trust money and records · 8 items
A seller rejects a written offer. Under TREC rules, what should the licensee ask the seller to do with it?
Answer and explanations
Incorrect: A counteroffer is the seller's choice, not a required response to a rejection.
Correct: Rule 1260-02-.08 directs the licensee to ask the seller to note the rejection on the offer and return it to the offeror or the offeror's agent.
Incorrect: Destroying the offer erases the record the rule wants returned to the buyer side.
Incorrect: Offers are not filed with TREC.
Answer every question to see your score
When trust money may leave the account
The principal broker may disburse on a reasonable reading of the contract that authorizes the escrow, on a separate written agreement signed by everyone with an interest, at closing, when an offer is rejected or withdrawn before acceptance, on filing an interpleader, or on a court order. If someone other than the principal broker is named in the contract to hold the money, the broker’s responsibility ends once that escrow agent receives it.
Deposit timing is not disbursement timing
Two different clocks. Deposit: promptly on acceptance of the offer, unless the offer sets its own deposit date. Earnest money on request:disbursed, interpleaded or turned over to an attorney within 21 calendar days of a written request, absent a compelling reason. Do not answer a deposit question with the written-request deadline.
Records
Licensees keep records of every transaction for 3 years after it closes (T.C.A. § 62-13-312, Rule 1260-02-.40). Electronic recordkeeping is allowed on the conditions in the table above, under a retention schedule the principal broker sets. When a broker acts as closing agent, each customer or client gets copies of the closing documents (Rule 1260-02-.10). Closing math itself is national material: real estate math.
When must an affiliate broker turn over earnest money in Tennessee?
Immediately upon receipt, to the principal broker. The principal broker then deposits it promptly on acceptance of the offer unless the offer sets a date.
How long must Tennessee real estate records be kept?
3 years after the transaction closes.
What happens after a written request for earnest money?
Absent a compelling reason, the principal broker has 21 days from receiving the written request to disburse it, interplead it or hand it to an attorney with instructions to interplead.