Report Title:

Time Sharing; Release of Funds in Escrow Prior to Closing

Description:

Allows an escrow agent to release purchasers' funds to a developer prior to closing if the developer secures the funds with a bond or letter of credit.

THE SENATE

S.B. NO.

826

TWENTY-SECOND LEGISLATURE, 2003

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to time sharing.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. Section 514E-17, Hawaii Revised Statutes, is amended to read as follows:

"514E-17 Release of purchaser's funds, notes, and contracts from escrow without a closing. A purchaser's funds, negotiable instruments, and purchase money contracts may be released from escrow without a closing as follows:

(1) If a purchaser or developer gives a valid notice of cancellation of the contract pursuant to section 514E-8, all of the purchaser's funds and any negotiable instruments and purchase money contracts made by the purchaser shall be returned to the purchaser within fifteen days after the notice of cancellation is received.

(2) If a purchaser or developer properly terminates a contract pursuant to its terms, or if a developer or prospective purchaser terminates a reservation agreement, all of the purchaser's funds and any negotiable instruments and purchase money contracts made by the purchaser or prospective purchaser shall be delivered in accordance with the contract or reservation agreement.

(3) If the purchaser defaults in the performance of the purchaser's obligations under the contract, all of the purchaser's funds and any negotiable instruments or purchase money contracts made by the purchaser under the contract shall be delivered in accordance with the contract.

(4) If purchaser's funds are to be used for construction the funds may be disbursed by the escrow agent from time to time to pay for:

(A) Construction costs of the buildings and improvements in proportion to the valuation of the work completed by the contractor in accordance with the contract documents, as certified by a registered architect or engineer and approved for payment by the construction lender;

(B) Architectural, engineering, and interior design service fees in proportion to the services performed within each phase of services, as approved by the construction lender;

(C) The costs of purchasing furnishings and fixtures for the time share units, as approved by the construction lender; and

(D) Finance and legal fees, and other incidental expenses of constructing the time share units or developing the time share plan as approved by the construction lender;

provided that no such disbursements shall be made unless the developer first deposits with the director (i) a copy of the executed construction contract, (ii) a copy of executed performance and labor and material payment bonds in an amount which is not less than one hundred per cent of the cost of construction and covering any changes to the contract which do not in the aggregate increase the amount of the construction contract by more than ten per cent, (iii) a verified statement showing all costs involved in completing the project, and (iv) satisfactory evidence acceptable to the director of funds sufficient to cover the total costs of constructing, furnishing, and completing the project from purchaser's funds, equity funds, interim or permanent loan commitments or other sources.

(5) (A) The escrow agent may release purchasers' funds to the developer prior to closing if each of the following conditions are satisfied:

(i) The developer shall deliver to the escrow agent a bond in favor of the escrow agent;

(ii) The bond shall assure payment to the escrow agent of the sums required to refund a purchaser's funds, up to the penal amount of the bond, if the purchaser is entitled to a refund prior to closing; and

(iii) The bond shall be issued by a bonding or surety company authorized to do business in the State;

(B) The escrow agent shall not release a purchaser's funds to the developer pursuant to subparagraph (A) unless the remaining balance payable under the bond at the time of the release is equal to or exceeds the sum of:

(i) The amount of the purchaser's funds to be released; and

(ii) The aggregate amount of purchasers' funds previously released to the developer for sales that have not yet closed as of the date of the release; and

(C) If the developer fails to deliver to the escrow agent a new bond or a document extending the term of the existing bond, at least thirty days prior to the expiration date of the existing bond, the escrow agent shall make a claim on the bond. The amount of the claim shall be equal to the sum of the purchasers' funds previously released to the developer for sales that have not yet closed.

(6) (A) The escrow agent may release purchasers' funds to the developer prior to closing if each of the following conditions are satisfied:

(i) The developer shall deliver to the escrow agent a letter of credit that authorizes the escrow agent to draw upon the letter of credit to refund a purchaser's funds if the purchaser is entitled to a refund prior to closing; and

(ii) The letter of credit shall be issued by a federally insured bank, savings bank, credit union, or other recognized financial institution;

(B) The escrow agent shall not release a purchaser's funds to the developer pursuant to subparagraph (A) unless the amount that remains undrawn under the letter of credit as of the time of the release is equal to or exceeds the sum of:

(i) The amount of the purchaser's funds to be released; and

(ii) The aggregate amount of purchasers' funds previously released to the developer for sales that have not yet closed as of the date of the release; and

(C) If the developer fails to deliver to the escrow agent a new letter of credit or a document extending the term of the existing letter of credit, at least thirty days prior to the expiration date of the existing letter of credit, the escrow agent shall draw upon the letter of credit. The amount to be drawn shall be equal to the sum of the purchasers' funds previously released to the developer for sales that have not yet closed."

SECTION 2. New statutory material is underscored.

SECTION 3. This Act shall take effect upon its approval.

INTRODUCED BY:

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