Bill Text: CA SB1462 | 2023-2024 | Regular Session | Introduced
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Subdivisions: disbursements of deposits.
Spectrum: Partisan Bill (Democrat 3-0)
Status: (Introduced) 2024-05-16 - May 16 hearing: Held in committee and under submission. [SB1462 Detail]
Download: California-2023-SB1462-Introduced.html
Bill Title: Subdivisions: disbursements of deposits.
Spectrum: Partisan Bill (Democrat 3-0)
Status: (Introduced) 2024-05-16 - May 16 hearing: Held in committee and under submission. [SB1462 Detail]
Download: California-2023-SB1462-Introduced.html
CALIFORNIA LEGISLATURE—
2023–2024 REGULAR SESSION
Senate Bill
No. 1462
| Introduced by Senator Glazer (Coauthors: Senators Allen and Cortese) |
February 16, 2024 |
An act to add Sections 11013.7 and 11013.8 to the Business and Professions Code, relating to subdivisions.
LEGISLATIVE COUNSEL'S DIGEST
SB 1462, as introduced, Glazer.
Subdivisions: disbursements of deposits.
Existing law regulates the sale of subdivided lands and prescribes definitions for this purpose. Existing law defines a subdivision to include, among other things, condominium projects and planned developments, as specified, and other common interest developments. Existing law requires a person who intends to offer subdivided lands for sale or lease to file with the Department of Real Estate an application for a public report, as specified. Existing law prescribes various restrictions on the sale or lease of lots in a subdivision. In certain instances, existing law permits lots to be sold or leased only if the money paid or advanced by a purchaser or lessee is placed into an escrow account or a bond furnished for the purpose of protecting purchasers or lessees.
This bill would permit a purchaser’s deposit that is held in escrow pursuant to a
binding sales contract for a lot or parcel within a subdivision to be disbursed before closing to pay for project construction costs, as specified. If a unit within a subdivision is conveyed or leased before the completion of construction of the building or buildings for the purpose of financing the construction, the bill would require all moneys from the sale of the units, as specified, to be deposited by the developer under an escrow agreement into a federally insured, interest-bearing account, as specified. The bill would permit the disbursement of a purchaser’s deposit before closing and the conveyance or leasing of any unit before completion of construction if specified conditions are met, including, among other things, that the developer has submitted to the Department of Real Estate a project budget showing all costs required to be paid in order to complete the project, as specified. If a purchaser’s funds are to be disbursed before the completion of construction of the project, the bill would require
the developer to submit specified information to the Department of Real Estate. The bill would permit the disbursement of a purchaser’s deposit before closing and the disbursement of moneys from the conveyance or leasing of units before completion of construction to pay any cost set forth in the project budget, as specified. The bill would require a specified notice to be prominently displayed in the developer’s public report for the project if a purchaser’s deposit is to be disbursed before closing or if moneys from the conveyance or leasing of units before completion of construction are to be disbursed to pay for project costs. The bill would require the Department of Real Estate to complete a review required by these provisions within 30 days of receipt of the document to be reviewed.
Digest Key
Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NOBill Text
The people of the State of California do enact as follows:
SECTION 1.
Section 11013.7 is added to the Business and Professions Code, to read:11013.7.
(a) Subject to the conditions set forth in this section, a purchaser’s deposit that is held in escrow pursuant to a binding sales contract for a lot or parcel within a subdivision may be disbursed before closing to pay for project construction costs, including, in the case of a conversion, for any repair necessary to cure a violation of any county zoning and building ordinance and code, for architectural, engineering, finance, and legal fees, and for any other incidental expense of the project.(b) The disbursement of a purchaser’s deposit before closing may be permitted only if all of the following conditions are met:
(1) The Department of Real Estate has issued an effective date
for the developer’s preliminary public report for the project.
(2) The developer has recorded the project’s declaration and bylaws.
(3) The developer has submitted to the Department of Real Estate both of the following:
(A) A project budget showing all costs that are required to be paid in order to complete the project, including lease payments, real property taxes, construction costs, architectural, engineering and legal fees, and financing costs.
(B) Evidence satisfactory to the Department of Real Estate of the availability of sufficient funds to pay all costs required to be paid in order to complete the project. Those funds may include purchaser funds, equity funds, interim or permanent loan commitments, and other sources of funds.
(c) If a purchaser’s funds are to be disbursed before the completion of construction of the project, the developer shall submit to the Department of Real Estate all of the following:
(1) A copy of the executed construction contract.
(2) A copy of the building permit for the project.
(3) (A) Satisfactory evidence of security for the completion of construction, which evidence may include any of the following, in forms and content approved by the Department of Real Estate:
(i) A completion or performance bond issued by a surety licensed in this state in an amount equal to 100 percent of the cost of construction or percent of construction remaining.
(ii) A completion or performance bond issued by a surety or other qualified financial institution in an amount equal to 100 percent of the cost of construction.
(iii) An irrevocable letter of credit issued by a federally insured financial institution in an amount equal to 100 percent of the cost of construction.
(iv) Other substantially similar instrument, guaranty, or security approved by the Department of Real Estate.
(B) (i) A completion or performance bond issued by a surety or other qualified financial institution, an irrevocable letter of credit, and any alternatives shall contain a provision that the Department of Real Estate shall be notified in writing before any payment is made to beneficiaries of the bond.
(ii) Adequate disclosures shall be made in the developer’s preliminary and final public report concerning the developer’s use of a completion or performance bond issued by a qualified financial institution instead of a surety, and the impact of any restrictions on the developer’s use of purchaser’s funds.
(d) (1) A purchaser’s deposit may be disbursed before closing only to pay any cost set forth in the project budget submitted pursuant to subparagraph (A) of paragraph (3) of subdivision (b) that is approved for payment by the project lender or an otherwise qualified, financially disinterested person.
(2) A purchaser’s deposit may be disbursed before closing to pay construction costs of the material and work completed by the contractor, as certified by a licensed architect or engineer.
(e) If a purchaser’s deposit is to be disbursed before closing, the following notice shall be prominently displayed in the developer’s preliminary and final public report for the project:
“Important Notice Regarding Your Deposits: Deposits that you make under your sales contract for the purchase of the unit may be disbursed before closing of your purchase to pay for project costs, construction costs, project architectural, engineering, finance, and legal fees, and other incidental expenses of the project. While the developer has submitted satisfactory evidence that the project should be completed, it is possible that the project may not be completed. If your deposits are disbursed to pay project costs and the project is not completed, there is a risk that your deposits will not be refunded to you. You should carefully consider this risk in deciding whether to proceed with your purchase.”
(f) The Department of Real Estate shall complete a review required by this section within 30 days of receipt of the document to be reviewed.
(g) The Department of Real Estate may charge a fee to complete a review required by this section, but the fee shall not exceed the reasonable costs of conducting the review.
SEC. 2.
Section 11013.8 is added to the Business and Professions Code, to read:11013.8.
(a) (1) Subject to the conditions set forth in this section, if a unit within a subdivision is conveyed or leased before the completion of construction of the building or buildings for the purpose of financing the construction, all moneys from the sale of the units, including any payments made on loan commitments from lending institutions, shall be deposited by the developer under an escrow arrangement into a federally insured, interest-bearing account designated solely for that purpose, at a financial institution authorized to do business in this state.(2) Any disbursements from the escrow account may be made to pay for project construction costs, including, in the case of a conversion, for repairs necessary to cure
violations of county zoning and building ordinances and codes, for architectural, engineering, finance, and legal fees, and for other incidental expenses of the project.
(b) The conveyance or leasing of any unit before completion of construction shall be permitted only if all of the following conditions are met:
(1) The Department of Real Estate has issued an effective date for the developer’s preliminary and final public report for the project.
(2) The developer has recorded the project’s declaration and bylaws.
(3) The developer has submitted to the Department of Real Estate all of the following:
(A) A project budget showing all costs required to be paid in order to complete the
project, including real property taxes, construction costs, architectural, engineering and legal fees, and financing costs.
(B) Evidence satisfactory to the Department of Real Estate of the availability of sufficient funds to pay all costs required to be paid in order to complete the project, that may include purchaser funds, equity funds, interim or permanent loan commitments, and other sources of funds.
(C) A copy of the executed construction contract.
(D) A copy of the building permit for the project.
(E) (i) Satisfactory evidence of security for the completion of construction, that may include any of the following, in forms and content approved by the Department of Real Estate:
(I) A completion or performance bond issued by a surety licensed in this state in an amount equal to 100 percent of the cost of construction.
(II) A completion or performance bond issued by a qualified surety in an amount equal to 100 percent of the cost of construction.
(III) An irrevocable letter of credit issued by a federally insured financial institution in an amount equal to 100 percent of the cost of construction.
(IV) Other substantially similar instrument or security approved by the Department of Real Estate.
(ii) A completion or performance bond issued by a surety or other qualified financial institution, an irrevocable letter of credit, and any alternatives shall contain a provision
that the Department of Real Estate shall be notified in writing before any payment is made to beneficiaries of the bond.
(iii) Adequate disclosures shall be made in the developer’s preliminary and final public report concerning the developer’s use of a completion or performance bond issued by a qualified financial institution instead of a surety, and the impact of any restrictions on the developer’s use of purchaser’s funds.
(c) (1) Moneys from the conveyance or leasing of units before completion of construction may be disbursed only to pay costs set forth in the project budget submitted pursuant to subparagraph (A) of paragraph (3) of subdivision (b) that are approved for payment by the project lender or an otherwise qualified, financially disinterested person.
(2) Moneys as described in
paragraph (1) may be disbursed to pay construction costs of the material and work completed by the contractor, as certified by a licensed architect or engineer.
(3) The balance of any purchase price may be disbursed to the developer only upon completion of construction of the project and the satisfaction of any mechanics’ lien.
(d) If moneys from the conveyance or leasing of units before completion of construction are to be disbursed to pay for project costs, the following notice shall be prominently displayed in the developer’s preliminary and final public report for the project:
“Important Notice Regarding Your Funds: Payments that you make under your sales contract for the purchase of the unit may be disbursed before closing of your purchase to pay for project costs, including construction costs, project architectural, engineering,
finance, and legal fees, and other incidental expenses of the project. While the developer has submitted satisfactory evidence that the project should be completed, it is possible that the project may not be completed. If your payments are disbursed to pay project costs and the project is not completed, there is a risk that your payments will not be refunded to you. You should carefully consider this risk in deciding whether to proceed with your purchase.”
(e) The Department of Real Estate shall complete a review required by this section within 30 days of receipt of the document to be reviewed.
(f) The Department of Real Estate may charge a fee to complete a review required by this section, but the fee shall not exceed the reasonable costs of conducting the review.
