In the context of real estate, conversion and commingling are two distinct concepts related to handling and managing funds, particularly those entrusted to a real estate professional or agent. Let’s explore the differences between conversion and commingling:
- Conversion:
Definition: Conversion refers to the improper use or misappropriation of funds that have been entrusted to a real estate professional.
Example: If a real estate agent uses client funds for personal expenses or diverts the money for purposes other than what it was intended for (such as a property purchase or earnest money deposit), it is considered conversion.
Legal Consequences: Conversion is a serious breach of fiduciary duty and is illegal. Real estate professionals have a duty to handle client funds with the utmost care and in accordance with the law.
- Commingling:
Definition: Commingling occurs when a real estate professional mixes client funds with their own personal funds or with the funds of the real estate brokerage.
Example: If an agent deposits client funds into their personal bank account or combines it with the brokerage’s operating funds, it is considered commingling.
Legal Consequences: Commingling is generally prohibited because it can lead to confusion about the ownership of funds and creates the risk of misappropriation. Real estate professionals are typically required to keep client funds separate in designated trust accounts.
