Developer Subdivision Reservation Deposits

Before transferring or negotiating to transfer any subdivision or part of a subdivision, a developer is required to apply for registration with the real estate commission (commission). Current law requires that, with permission from the commission, any reservation fees that a developer receives from prospective purchasers while the developer's registration application is pending must be held in trust by a third party and be fully refundable.

If the subdivision is a time share estate, t he bill requires that, after the commission has approved a developer's registration application, any earnest money received by the developer from a prospective purchaser must be held in trust by an independent third party. The bill creates an exception to this requirement for earnest money deposits received from an accredited investor. A developer may use funds from an accredited investor's deposit for development purposes only if the purchase contract or other written disclosure clearly sets forth:

• To whom the funds will be delivered;
• When the delivery will occur;
• How the funds will be used; and
• Any restrictions on the use of the funds.

(Note: Italicized words indicate new material added to the original summary; dashes through words indicate deletions from the original summary.)

(Note: This summary applies to the reengrossed version of this bill as introduced in the second house.)