LEGAL HOTLINE: Interest Bearing Escrow Accounts for Deposits to Purchase

LEGAL HOTLINE: Understanding the Laws Regarding Interest Bearing Escrow Accounts for Deposits to Purchase

Security deposits for rentals have to be held in an interest bearing account.

Does it also hold true for deposits on a purchase?

Answer: No. There is no obligation for an escrow agent to hold deposit funds for a purchase in an interest-bearing account; there is also nothing that prohibits an escrow agent from doing so. If you do decide to hold escrow funds in an interest-bearing account, keep in mind that the interest belongs to the person (or persons) who the funds belong to.

Some Realtors® acting as escrow agents have asked whether it is permissible for interest earned to be

paid to them if they receive permission from all parties to the transaction. On its face, this appears permissible, but, you may in fact run afoul of rules prohibiting the commingling of escrow funds and operating funds.

Article 8 of the Realtor® Code of Ethics states: “REALTORS® shall keep in a special account in an appropriate financial institution, separated from their own funds, monies coming into their possession in trust for other persons, such as escrows, trust funds, clients’ monies, and other like items.”

If you do decide to hold monies in an interest-bearing escrow account, you must ensure that the interest earned is properly accounted for either and the consummation or termination of the transaction. The difficulties that may arise with the use of an interest-bearing account, coupled with interest rates below 1% annually, mean it may be wise to steer clear of interest-bearing escrow accounts.



The REALTOR® Legal Hotline offers authorized callers access to staff attorneys who can assist members with questions about current state and federal laws and regulations, permissible business practices, and important court rulings affecting real estate practitioners.  To take advantage of the Legal Hotline service, a member’s designated broker must first complete and sign an Authorization Form and return to the MAR Legal Department.  Once approved as an authorized caller, MAR members may access the Hotline by calling 800-370-LEGAL (5342), sending an e-mail to, or faxing questions to 781-890-4919.  The hours of operation are Monday-Friday, from 9 a.m. to 1 p.m.