Do Realtors Need Title Companies for Trust Accounting?

Did you know that mishandling client funds is one of the fastest ways for real estate professionals to face audits, fines, or license discipline? It’s true! Trust accounting rules are strict, and even small mistakes can create serious problems for brokers and agents alike.

That’s why many realtors ask an important question early in a transaction: Do you need a title company to manage trust accounts and escrow funds, or can this be handled in-house? And the answer depends on several factors, including how funds are held and who is responsible.

In this article, we’ll break down what trust accounting means for Tennessee realtors, how title companies manage escrow funds, and how working with a title company can help reduce risk and liability.

What Trust Accounting Means for Tennessee Realtors

In Tennessee real estate, trust accounting refers to how money belonging to others is handled during a transaction.

This usually includes earnest money deposits, security deposits, or any funds received in connection with buying or selling a property. These funds are not income for the brokerage, so they must be kept separate from operating accounts.

Tennessee law places this responsibility on the principal broker. If a brokerage holds client funds, those funds must be deposited into a properly designated escrow or trustee account and tracked with clear, accurate records. Affiliate brokers do not manage separate trust accounts and instead turn funds over to their principal broker according to company procedures.

Why Trust Accounting Mistakes Put Realtors at Risk

Trust accounting errors often happen unintentionally, but the consequences can still be serious. Common mistakes include depositing funds late, mixing client money with business funds, or disbursing money without proper documentation or written instructions.

For those in Tennessee, commingling funds is prohibited, and poor recordkeeping can quickly raise red flags during an audit or complaint review. Even disputes between buyers and sellers can become complicated when funds are not handled correctly, especially if the brokerage is holding the money.

These situations can expose brokers to fines, disciplinary action, or legal disputes, which is why many real estate professionals look for ways to reduce their exposure early in the transaction.

How Title Companies Manage Escrow and Client Funds

In many cases, the purchase contract designates a title company to hold earnest money and manage escrow funds. When this happens, the title company acts as a neutral third party responsible for receiving, tracking, and disbursing funds according to the contract and closing instructions.

The title company maintains detailed records, confirms receipt of funds, and ensures money is disbursed correctly at closing or in the event of a dispute. This structure removes the day-to-day handling of trust funds from the brokerage and places it with a party whose role is focused entirely on closing accuracy and compliance.

Tennessee Compliance Rules Realtors Can’t Ignore

Tennessee real estate regulations clearly define how trust funds must be handled, leaving very little room for error. Since audits, complaints, and disputes often come down to these exact details, understanding and following the state’s escrow requirements plays an important role in protecting both your clients and your real estate license.

Here’s what you should know:

• Separate escrow or trustee accounts: Trust funds must be deposited into a designated account used only for client money and never mixed with operating or personal funds.
• Prompt deposit of trust funds: Earnest money and other client funds must be deposited within the timeframe required by Tennessee regulations and the purchase contract.
• Required recordkeeping: Accurate records showing receipt, deposit, and disbursement of trust funds must be maintained for at least three years.
• Authorized disbursement only: Trust funds may only be released according to the contract terms or with written authorization from all parties involved.
• Defined dispute procedures: When disputes occur, funds must be held or handled through approved procedures, such as interpleader, following Tennessee’s required timelines.

Because audits, complaints, and disputes often focus on these exact details, understanding and following Tennessee’s escrow requirements is essential for protecting both your clients and your license.

How Working With a Title Company Reduces Liability

While using a title company as the escrow holder does not eliminate responsibility entirely, it can significantly reduce risk. Title companies are structured to manage funds, track transactions, and follow disbursement rules as part of their core services.

This arrangement helps limit exposure to commingling issues, recordkeeping errors, and timing mistakes. It also creates a clear separation between brokerage operations and client funds, which can be especially helpful if questions or disputes arise later.

For many realtors, working with a title company offers peace of mind by placing escrow management in experienced hands.

Choosing the Right Tennessee Title Company for Trust Accounting

Not all title companies operate the same way, so choosing the right partner matters. A strong title company should have clear procedures for receiving and confirming funds, secure handling of escrow accounts, and transparent communication throughout the transaction.

Local experience is also important. A Tennessee-based title company understands state regulations, common transaction structures, and how to keep closings moving without unnecessary delays.

If you’re working in the Clarksville area, partnering with a trusted title company can make a meaningful difference. Learn more about how Nest supports transactions through our title services in Clarksville and how we help realtors close with confidence.