Builders, AG differ over escrow rule for buyer-paid upgrades as committee hears bill to clarify deposits

Senator Howard Pearl (District 17) presented Senate Bill 26 to clarify when funds paid by buyers for upgrades or personalized items in new home construction must be held in escrow. The bill would allow funds dedicated to upgrades — for example, a buyer’s paid premium tile or custom fixtures — to be paid directly to a builder for use in the construction process instead of being treated as escrow deposits in subdivisions or condominium registrations above statutory unit thresholds.

Senator Pearl described a recent change in the Attorney General’s office interpretation that treats upgrade payments as deposits that must be held in escrow in subdivisions of 15 or more single‑family homes or condominiums of 10 or more units. He said builders now face three problems when upgrade funds are treated as escrow: builders must (1) absorb prepayment costs if buyers back out, (2) carry costs for materials ordered but not paid to suppliers, and (3) limit buyer choices to avoid that financial risk, which could raise prices or reduce options.

Alex Monastero of the New Hampshire Home Builders Association supported the bill as a fix to the AG interpretation, saying the association has worked with the AG to craft language that would enable upgrade dollars to be treated separately from earnest‑money escrow. Home builders said that in practice they often must prepay suppliers for long‑lead items (for example, specialty tile) and that escrow rules as interpreted prevent them from using buyer funds for those purchases.

JR Davis, assistant attorney general in the Consumer Protection Bureau, explained the office’s current position: under RSA 356‑A (land sales) and RSA 356‑B (condominiums), statute historically required deposits to be held in escrow pending closing. The proposed bill adds a definition of deposits and distinguishes earnest‑money from other prepayments; as drafted, Davis warned, those new definitions (sections 1 and 3) conflict with sections that would let the Attorney General approve prepayments (sections 2 and 4). “If the committee decides to do anything to recommend to the legislature, the legislature just needs to be aware that any change that it’s made is going to have less consumer protection,” Davis said, and suggested deleting sections 1 and 3 to avoid internal inconsistency and preserve the AG’s authority to impose conditions on approvals.

Committee members asked whether the proposed language would simply enable negotiation between buyer and builder and whether the purchaser would be made aware of nonrefundable risks. Builder witnesses and the AG said disclosure could be part of an agreed addendum; Davis emphasized the AG’s concern if a builder takes money and fails to pay a supplier — in that case, the builder would have little “skin in the game” and consumer protection would be reduced. The AG recommended any nonrefundability provision should exclude seller/builder breaches and that if monies are not yet paid to a supplier at the time of a seller breach, the builder should not retain funds.

The Home Builders Association offered a draft adjustment — replacing the statutory word “deposit” with “prepayment” in key lines — to narrow the change and address AG concerns; the committee said it would form a subcommittee to sort language and invited the Attorney General’s office to participate. The hearing was closed with direction to follow up in subcommittee.

No formal committee vote was recorded during the hearing.