The legal definition of conversion is the act of using property or funds with which one has been entrusted for purposes other than those for which the property was intended to be used by those who entrusted it.
The meaning of conversion in real estate is multifaceted. Real estate conversion can mean different things, and occur under a number of different circumstances. The most common type of real estate conversion is when a real estate agent is entrusted with funds to be deposited in a trust for use in repairing or improving a property. If the agent withdraws funds from the trust to make personal purchases, he has committed the crime of real estate conversion.
At first glance, this can seem fairly innocuous. As long as the real estate agent replaces the money he “borrowed” from the account with his own money, it should be fine, right? Unfortunately, this is not the case. If the realtor puts his own money back into the account, he has actually committed another serious offense: commingling.
Another example of real estate conversion might be the removal of property from a home listed on the market. If an agent removes furniture, decorations, appliances or any other property from the home for his or her own personal use, he has committed conversion.
In general, real estate conversion can be avoided by carefully keeping all client accounts separate from personal or corporate accounts, and always using the funds in client accounts for their stated purpose.
The consequences for committing conversion or commingling can be severe and life-altering. Both offenses are ethical and legal violations of the trust shared between a real estate agent and their client. Committing conversion or commingling can constitute grounds for the revocation of your realtors permit at the very least.
In many jurisdictions, commingling and conversion also bear heavy legal penalties ranging from large fines to jail time. With this in mind, it is crucial to avoid committing either of these infractions at all costs.