Disciplinary actions include censure, fines, license suspension, or revocation.
Before you read
Test yourself first: 5 questions
Question 1 of 5
A Michigan salesperson deposits an earnest money check into their personal checking account instead of the broker's trust account. This conduct is best described as:
Answer: B. Mixing client or third-party funds with personal funds is commingling (and depositing into a personal account can constitute conversion). Michigan license law prohibits this; trust money must be held in the broker's designated trust/escrow account. It is a state license-law violation subject to LARA discipline regardless of later intent or buyer consent.
Question 2 of 5
Which of the following actions would most likely be considered prohibited conduct under Michigan license law?
Answer: A. Substantial misrepresentation is a classic prohibited act and grounds for discipline. Disclosing material defects, properly handling trust funds, and promptly presenting offers are all required, proper behaviors, not violations.
Question 3 of 5
Before LARA may revoke or suspend a Michigan real estate license, the licensee is generally entitled to:
Answer: B. Administrative due process requires notice and an opportunity to be heard before a license is suspended or revoked, consistent with the Administrative Procedures Act. Discipline is administrative, not a federal jury matter, and no fee refund is part of the process.
Question 4 of 5
A Michigan broker takes a client's earnest-money deposit held in the trust account and uses it to pay the brokerage's monthly rent. This act is best described as:
Answer: B. Conversion is the unauthorized use of trust funds for the broker's own benefit. Using clients' escrowed deposits to pay business expenses is conversion, a serious violation that can lead to license discipline and criminal liability. It goes beyond commingling because the funds are actually taken and spent.
Question 5 of 5
In Michigan, the practice of mixing client trust funds with the broker's own business or personal funds is prohibited and is known as what?
Answer: B. Commingling is the improper mixing of client or escrow funds with the broker's own operating or personal funds. Michigan brokers must keep trust funds in a separate account; commingling is a violation that can lead to discipline of the license.
Keep the streak going with more questions like these, each with a full rationale.
Must-know rules
- LARA investigates complaints and enforces the Occupational Code.
- Disciplinary actions include censure, fines, license suspension, or revocation.
- Violations include fraud, misrepresentation, commingling, and dishonest dealing.
- Licensees are entitled to notice and a hearing before discipline is final.
- Michigan maintains a Real Estate Recovery Fund for consumers.
- The Recovery Fund pays unsatisfied court judgments against licensees for fraud or conversion.
- Recovery payments are subject to statutory limits per transaction and per licensee.
- A licensee whose conduct triggers a fund payout can face license suspension until repaid.
Michigan License Discipline, Penalties & Recovery Fund: FAQs
Is Michigan License Discipline, Penalties & Recovery Fund on the real estate exam?
Yes. State License Law is a scored domain on the Michigan real estate licensing exam, and this topic appears in the state license-law portion.
Is this cheat sheet free?
Yes — every page on Cinna RE's resource library is free to read, print and share. The app adds practice questions, mock exams and a readiness score.
Does Michigan test this differently?
Michigan applies its own license law on top of the national portion. This page covers the Michigan rules specifically, which is what the state section of your exam tests.
