Tennessee Code Title 66. Property § 66-27-506

Current as of January 02, 2024 | Updated by Findlaw Staff

(a) As used in this section, “actual costs” includes expenditures for construction materials and labor, including demolition and site clearing 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.

(b)(1)(A) For a deposit that is made in connection with the purchase of a unit from a declarant, the amount of such deposit up to the first ten percent (10%) of the purchase price must 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 must be deposited in an institution whose accounts are insured by a governmental agency or instrumentality, or any other lawful escrow or trust account. The declarant may access the funds any time prior to commencement of construction until completion of construction for payment of actual costs in the construction and development of the condominium only if:

(i) 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; or

(ii) 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.

(B) The funds must remain in escrow or the surety bond or irrevocable letter of credit, if applicable, must 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 court of appropriate jurisdiction.

(2) The amount of the deposit in excess of ten percent (10%) of the purchase price, to the extent received after commencement of construction but prior to the completion of construction by the declarant, may 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 the purchase or reservation contract allows for the use of the deposit in such manner; provided, that the funds shall not be used for salaries, commissions, expenses of real estate licensees, or advertising purposes.

(3) A contract that permits the use of the deposit for the purposes described in subdivision (b)(1) or (b)(2) must 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.

(c) A third-party lender has no liability with respect to the use or return of deposits described in subsection (b) or determining whether an appropriate form of security was obtained for the use of the deposited funds unless the 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.

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Cite this article: FindLaw.com - Tennessee Code Title 66. Property § 66-27-506 - last updated January 02, 2024 | https://codes.findlaw.com/tn/title-66-property/tn-code-sect-66-27-506/

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