We have written before about the prudence of every auctioneer having a trust (also known as an “escrow”) account for depositing client funds. In fact, there is no reason for any auctioneer to not have a trust/escrow account.
That previous writing is here: https://mikebrandlyauctioneer.wordpress.com/2012/06/23/auctioneer-trust-accounts/. Today, we look at my home state of Ohio as an example of how states can and do regulate trust/escrow accounts.
Ohio’s auctioneer licensing law is made up of Ohio Revised Code 4707 and Ohio Administrative Code 901:8-2. Such applicable laws/rules concerning trust/escrow accounts are as follows:
4707.024 Deposit of auction proceeds in escrow or trust account – disbursement. (A) Not later than seventy-two hours after the end of an auction, a person licensed under this chapter shall deposit in one or more trust or escrow accounts all money received from the sale of an owner’s or consignee’s personal property at auction unless the licensee pays the money to the owner or consignee immediately after the end of the auction. (B) For purposes of this section, a person licensed under this chapter shall designate a trust or escrow account that contains an owner’s or consignee’s money as “client trust account” or with words of similar meaning. In addition, a trust or escrow account only shall contain money received from the sale of personal property at auction that has not been disbursed and money for expenses regarding the auction, including commission and advertisement fees, that are specifically delineated in the auction contract. (C) Except for the payment of money to the owner or consignee immediately after the end of the auction, a person licensed under this chapter shall pay the owner or consignee with money from the client’s trust or escrow account. In addition, the licensee may pay expenses, including commission and advertisement fees, that are specifically delineated in the auction contract with money from the trust or escrow account. Money in the trust or escrow account shall not be disbursed for any purpose that is inconsistent with this section. In addition, the money shall not be commingled with the licensee’s personal or business money. In administering the trust or escrow account, the licensee shall keep detailed records that show deposits, withdrawals, and interest accrued, if applicable. Unless otherwise agreed to by the parties in the auction contract or by the direction of a court of law, all money deposited into a trust or escrow account shall be disbursed to the seller not later than fifteen days after the auction. (D) Money from the sale of personal property at auction may be deposited in an interest bearing account if the parties to the auction contract specifically agree to such a deposit. Interest earned in the account shall be credited to the seller unless otherwise agreed to by the parties in the auction listing contract. The interest credited to the account may remain in the account for a period of sixty days after the seller receives the money from the account. The interest money then shall be disbursed according to the terms of the auction contract. (E) All money received in connection with the sale of real property at auction shall be deposited in a broker’s special or trust bank account in a depository located in this state that is described in division (A)(26) of section 4735.18 of the Revised Code.
4707.15 Disciplinary actions. The department of agriculture may deny, refuse to renew, suspend, or revoke the license of any auction firm, auctioneer, apprentice auctioneer, or special auctioneer for any of the following causes: (E) Failing to account for or remit, within a reasonable time, any money or property belonging to others that comes into the licensee’s possession, and for commingling funds of others with the licensee’s own, or failing to keep funds of others in an escrow or trust account, except that in the case of a transaction involving real estate, such funds shall be maintained in accordance with division (A)(26) of section 4735.18 of the Revised Code;
As can be seen from ORC 4707.024 and ORC 4707.15, Ohio auctioneers are to disburse to their sellers any personal property net proceeds immediately after the end of the auction, or deposit those funds into a trust/escrow account within 72 hours following the end of the auction. Further, unless the contract stipulates otherwise, those net proceeds are to then be disbursed to sellers within 15 days.
An all-too-common issue in Ohio (and throughout the United States) is that auctioneers pay their license renewals (and other general business expenses) from their trust/escrow accounts, instead of from one of their personal or business accounts.
Such a license renewal check or the like from a trust account in Ohio is prima facie evidence of commingling, which is cause for possible license suspension, revocation or other penalty. For those unfamiliar with commingling or conversion, we wrote about such topics here: https://mikebrandlyauctioneer.wordpress.com/2013/05/21/auctioneers-cant-commingle-nor-convert/
Every auctioneer in the United States — in an auctioneer license state — should carefully review any license law pertaining to trust/escrow accounts. Secondly, even if you as an auctioneer operate in a non-license state, it is a great idea to utilize a trust/escrow account for client funds and further detail how client funds will be managed in that written contract with your seller.
Mike Brandly, Auctioneer, CAI, CAS, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College, Executive Director of The Ohio Auction School, an Instructor at the National Auctioneers Association’s Designation Academy and America’s Auction Academy. He is faculty at the Certified Auctioneers Institute held at Indiana University and is approved by the The Supreme Court of Ohio for attorney education.
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