§ 42-103ss — Deposit of funds. Release of funds. Closing agent and developer agreement. Disputes relating to funds. Financial assurance in lieu of funds.

(a) A developer or closing agent of a time share plan shall deposit in an escrow or trust account in a federally insured depository one hundred per cent of all funds received during the purchaser's cancellation period. For transactions involving the sale of time share interests in time share properties located in this state, such deposits shall be held in escrow as set forth in subsection (b) of this section. (b) Any broker accepting moneys paid or advanced by the purchaser, lessee, prospective purchaser or prospective lessee in respect to the sale or lease of any time share interest shall comply with the following: (1) Deposit any such moneys, in accordance with section 20-324k , in an escrow account acceptable to the commissioner, in a bank doing business in this state; and (2) Maintain such moneys in such escrow account until: (A) A proper and valid release is obtained therefor; (B) Either party has defaulted under the contract or agreement and the commissioner or the court has made a determination as to the disposition of such money, or the seller or lessor orders the return of such money to such purchaser or lessee; or (C) The time limits for revoking the contract or agreement, as set forth in section 42-103pp , have expired. (c) A closing agent owes the purchaser a fiduciary duty. (d) The closing agent and the developer shall execute an agreement that includes a statement providing that: (1) Funds may be disbursed to the developer from the escrow or trust account by the agent only: (A) After the purchaser's cancellation period has expired; and (B) As provided by the purchase contract, subject to sections 42-103cc to 42-103ddd , inclusive; and (2) If the purchaser cancels the purchase contract as provided by the contract, the funds shall be paid to (A) the purchaser, or (B) the developer if the purchaser's funds have been refunded previously by the developer; and (3) If a developer contracts to sell a time share interest and the construction of the building in which the time share interest is located has not been completed when the cancellation period expires, the developer shall continue to maintain all funds received from the purchaser under the purchase agreement in the escrow or trust account until construction of the building is completed. The documentation required for evidence of completion of construction includes: (A) A certificate of occupancy; (B) A certificate of substantial completion; (C) Evidence of a public safety inspection from a government agency in the applicable jurisdiction; or (D) Any other evidence acceptable to the commissioner. (e) The funds or property constituting the escrow or trust deposit may be released from escrow only in accordance with this section. (f) If the purchaser cancels the purchase contract as provided by the contract, the funds shall be paid to (1) the purchaser, or (2) the developer if the purchaser's funds have been refunded previously by the developer. (g) If the purchaser defaults in the performance of obligations under the terms of the purchase contract, the funds shall be paid to the developer. (h) If the developer defaults in the performance of obligations under the purchase contract, the funds shall be paid to the purchaser. (i) If the funds of the purchaser have not been disbursed previously as provided in subsections (e) to (h), inclusive, of this section, the funds may be disbursed to the developer by the agent if acceptable evidence of completion of construction is provided. (j) If there is a dispute relating to the funds in the escrow or trust account, the agent shall maintain the funds in the account until (1) the agent receives written directions agreed to and signed by all parties, or (2) a civil action relating to the disputed funds is filed. (k) If a civil action is filed, the closing agent shall maintain or deposit the funds as directed by the court in which the action is filed. (l) In lieu of the deposit of funds in an escrow or trust account as required by this section, the commissioner may accept from the developer a surety bond, irrevocable letter of credit or other form of financial assurance, including financial assurance posted in another state or jurisdiction. (m) The amount of the financial assurance provided under subsection (l) of this section shall be in an amount equal to or greater than the amount of funds that would otherwise be placed in an escrow or trust account under subsection (a) of this section. (n) The amount of the financial assurance provided under this section for time share property under construction shall be no less than: (1) The amount equal to or more than the amount of funds that would otherwise be placed in an escrow or trust account under subsection (a) of this section; or (2) The amount necessary to assure completion of all accommodations promised to be completed along with all furniture, fixtures and any other promised improvements as portrayed in the time share instruments or time share disclosure statement. The surety bond shall provide for the reduction of the bond amount as work is completed, provided such bond reductions have been approved by the commissioner. In the event the developer is considering future additional phases, the amount need not include the cost of completion of those phases so long as they have not been promised as part of the time share instruments. (o) The type of surety bond provided under this section may include, but not be limited to, a completion of construction bond or escrow bond. (p) The closing agent or developer shall make documents related to the escrow or trust account or the financial assurance provided available to the commissioner upon the commissioner's request. (q) Excluding any encumbrance placed against a purchaser's time share interest securing the purchaser's payment of purchase money financing for the purchase, a developer shall not be entitled to the release of any escrowed funds until such developer has provided evidence satisfactory to the commissioner of one of the following: (1) That the time share interest, together with any other property or rights to property appurtenant to the time share interest, including any amenities represented to the purchaser as being part of the time share plan, are free and clear of any of the claims of the developer, any owner of the underlying fee, a mortgagee, judgment creditor, or other lienor or person having an interest in or lien or encumbrance against the time share interest or appurtenant property or property rights; (2) That the developer, any owner of the underlying fee, a mortgagee, judgment creditor, or other lienor or person having an interest in or lien or encumbrance against the time share interest or appurtenant property or property rights, including any amenities represented to the purchaser as being part of the time share plan, has recorded a subordination and notice to creditors document in the jurisdiction in which the time share interest is located. The subordination document shall expressly provide that the interest holder's right, lien or encumbrance shall not adversely affect, and shall be subordinate to, the rights of the owners of the time share interests in the time share plan regardless of the date of purchase, from and after the effective date of the subordination document; (3) That the developer, any owner of the underlying fee, a mortgagee, judgment creditor, or other lienor or person having an interest in or lien or encumbrance against the time share interest or appurtenant property or property rights, including any amenities represented to the purchaser as being part of the time share plan, has transferred the subject accommodations or amenities or all use rights therein to a nonprofit organization or an owners' association, which purpose is to hold the subject accommodations or amenities for the use and benefit of the purchasers of the time share plan and which shall act as a fiduciary to the purchasers, provided the developer has transferred control of such organization or association to the purchasers or does not exercise such developer's voting rights in such organization or association with respect to the subject accommodations or amenities. Prior to the transfer, any lien or encumbrance against the accommodation or facility shall be made subject to a subordination and notice to creditors document pursuant to subdivision (2) of this subsection; or (4) Alternative arrangements have been made that are adequate to protect the rights of the purchasers of the time share interests and are approved by the commissioner.

Legislative History

(P.A. 09-156, S. 17.) History: P.A. 09-156 effective January 1, 2010.