Peter Lohmann explains what happens when a bank freezes a property manager's operating account during an enforcement action. Banks treat frozen funds as belonging to the manager's tax ID, forcing lengthy court battles to prove the money belongs to clients. Proper trust-account structuring with separate tax IDs protects client funds from being frozen.
you can go to the bank and say, hey, this isn't my money, this belongs to my clients. And the banks say, I have no idea what you're talking about. It's under your tax ID. Go talk to the court. And that could take months or years to resolve. In the meantime, your owners are screaming. They call the Division of Real Estate. Division of Real Estate comes in, says, what the hell's going on here? They yank your license. Now you're done. And, you know, this is the stuff that keeps property managers up at night, or it should. And so what you're describing is like, hey, if we set this up correctly, if the bank got a letter like that, they would say, okay, no problem, I'll freeze their operating account. But this other account over here, it's not in their tax ID. It's not their money. We have all these other tax IDs on file for whose money it is. And at that point, you could at least have a clean resolution to the trust money. Obviously, you're not having a great day with regard to the enforcement action in your corporate account, right? But at least your clients will be made whole. And the division is going to come in and say, yeah, we don't love that you're the subject of enforcement action, but at least you've handled your client's funds appropriately.
