SB 1079

PURCHASE OR RESERVATION OF A CONDOMINIUM UNIT Present law requires any deposit made in connection with the purchase or reservation of a condominium created after January 1, 2009, and those before January 1, 2009, if electing to be governed by applicable provision s of the Tennessee Condominium Act of 2008 ("unit"") from a declarant to be placed in escrow and held in this state in an account designated solely for that purpose by a licensed title insurance company or agent of the licensed title insurance company, an a ttorney, a licensed real estate broker, or an independent bonded escrow company, and to be deposited in an institution whose accounts are insured by a governmental agency or instrumentality, or any other lawful escrow or trust account, until (i) delivered to the declarant at closing; (ii) delivered to the declarant because of purchaser's default under a contract to purchase the unit; (iii) refunded to the purchaser; (iv) interpleaded into a court of appropriate jurisdiction; or (v) disbursed pursuant to a f inal order of a court of appropriate jurisdiction. CONTRACTS/AGREEMENTS ENTERED INTO OR AMENDED ON OR AFTER JULY 1, 2025 This bill rewrites the above provisions to, instead, require, for contracts or agreements entered into or amended on or after July 1, 2025, for a deposit that is made in connection with the purchase of such a unit from a declarant, the amount of such deposit up to the first 10% of the purchase price to be placed in escrow and held in this state in an account designated solely for such purpose by a licensed title insurance company or agent of the licensed title insurance company, an attorney, a licensed real estate broker, or an independent bonded escrow company, and to be deposited in an institution whose accounts are insured by a gove r nmental agency or instrumentality, or any other lawful escrow or trust account. USE OF FUNDS FOR PAYMENT OF ACTUAL COSTS This bill authorizes the declarant to access the funds any time prior to commencement of construction until completion of constructi on for payment of actual costs in the construction and development of the condominium only if either of the following criteria is met:  A surety bond is issued by a licensed surety company in an amount equivalent to the deposit being requested, ensuring repayment to the buyer if the declarant fails to deliver the unit in a timely manner in accordance with the purchase contract.  An irrevocable letter of credit or other equivalent financial guarantee is provided, payable to the buyer, for the full amount of the deposit held in escrow, if the declarant fails to deliver the unit timely in accordance with the purchase contract. As used in this bill, ""actual costs"" includes expenditures for construction materials and labor, including demolition and site clearin g costs, permit fees, impact fees, utility reservation fees, and architectural, engineering, and surveying fees that directly relate to the construction and development of the condominium project or any easements and rights appurtenant thereto. FUNDS TO R EMAIN IN ESCROW OR SURETY/LETTER OF CREDIT TO REMAIN IN EFFECT This bill requires the funds to remain in escrow, or the surety bond or irrevocable letter of credit, if applicable, to remain in effect, until the funds are (i) delivered to the declarant at closing; (ii) delivered to the declarant because of purchaser's default under a contract to purchase the unit; (iii) refunded to the purchaser; (iv) interpleaded into a court of appropriate jurisdiction; or (v) disbursed pursuant to a final order of a co u rt of appropriate jurisdiction. SEPARATE ESCROW ACCOUNT FOR FUNDS OVER 10% OF PURCHASE PRICE This bill authorizes the amount of the deposit in excess of 10% of the purchase price, to the extent received after commencement of construction but prior to th e completion of construction by the declarant, to be placed in a separate escrow account and used for the actual costs incurred by the declarant in the construction and development of the condominium property in which the unit to be sold is located, if th e purchase or reservation contract allows for the use of the deposit in such manner as long as the funds are not used for salaries, commissions, expenses of real estate licensees, or advertising purposes. REQUIRED LANGUAGE IN CONTRACT This bill requires a contract that permits the use of the deposit for the purposes described in this bill to be initialed by the buyer and include the following language in boldfaced type or capital letters no smaller than the largest type on the first page of the contract: DEPOSITS MADE TO THE DECLARANT UNDER THIS AGREEMENT MAY BE USED FOR CONSTRUCTION PURPOSES BY THE DECLARANT IN ACCORDANCE WITH TENNESSEE CODE ANNOTATED, SECTION 66-27-506. ON MARCH 3, 2025, THE SENATE ADOPTED AMENDMENT #1 AND PASSED SENATE BILL 1079, AS AMENDED. AMENDMENT #1 clarifies that a third-party lender has no liability with respect to the use or return of deposits described in the bill or determining whether an appropriate form of security was obtained for the use of the deposited funds unless t he third-party lender takes ownership or control of the condominium project through foreclosure or other remedy, and only then to the extent of any deposits not already disbursed and expended."