Committee advances bill letting condo developers use up to 10% of buyers’ deposits for construction, with surety protections

The House Commerce Committee on Monday voted to advance House Bill 871, amended to set conditions under which residential condominium developers may access a portion of buyers' deposits for construction costs.

Chairman Rutter, the bill sponsor, described the measure as allowing a developer to use a portion of a buyer’s deposit for actual construction expenses provided protections are in place. “This bill would allow residential condo developers to, use a portion of the buyer's deposit for construction cost,” Rutter said. “To ensure full transparency, buyers must provide written acknowledgment by acknowledging this provision in the contract.”

Under the language presented to the committee, a deposit up to 10% of the purchase price may be held in an escrow account and a developer may access that portion if it is secured by a surety bond or letter of credit. The sponsor said a portion exceeding 10% could be placed in a separate escrow account and used only for actual construction costs.

Committee members asked repeated questions about how the bill interacts with lenders and mortgage financing. The sponsor clarified the bill governs the contractual relationship between buyer and developer and does not change the legal requirements imposed by lenders: “This does not affect that relationship. What this is doing is affecting the deposit the buyer who's depositing the funds with the builder,” the sponsor said, and added that evidence of accessible equity could help developers secure construction financing.

Members also raised consumer-protection concerns about the risk to buyers if a project fails after a developer has used deposit funds. Representative Clemons and others pressed the sponsor on whether the surety mechanism would reliably return funds to purchasers. Proponents said the surety requirement provides stronger protection than relying on an insolvent developer’s ability to repay individuals directly.

After debate the committee adopted an amendment (drafting code 3950) and voted 19–4 to send HB 871, as amended, to Calendar and Rules.

Votes and next steps: HB 871 passed the Commerce Committee 19 ayes, 4 nos and will go to Calendar and Rules for further consideration.

— Article compiled from remarks by Chairman Rutter, Representative Hardaway and committee proceedings recorded in the House Commerce Committee transcript.