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