[§514B-93]  Early conveyance to pay project
costs.  (a) Subject to the conditions set forth in subsection (b), if units
are conveyed or leased before the completion of construction of the building or
buildings for the purpose of financing the construction, all moneys from the
sale of the units, including any payments made on loan commitments from lending
institutions, shall be deposited by the developer under an escrow arrangement
into a federally-insured, interest-bearing account designated solely for that
purpose, at a financial institution authorized to do business in the State. 
Disbursements from the escrow account may be made to pay for project
construction costs, including, in the case of a conversion, for repairs
necessary to cure violations of county zoning and building ordinances and
codes, for architectural, engineering, finance, and legal fees, and for other
incidental expenses of the project.



(b)  Conveyance or leasing of units before
completion of construction shall be permitted only if:



(1)  The commission has issued an effective date for
the developer's public report for the project;



(2)  The developer has recorded the project's
declaration and bylaws; and



(3)  The developer has submitted to the commission:



(A)  A project budget showing all costs
required to be paid in order to complete the project, including real property
taxes, construction costs, architectural, engineering and legal fees, and
financing costs;



(B)  Evidence satisfactory to the commission of
the availability of sufficient funds to pay all costs required to be paid in
order to complete the project, that may include purchaser funds, equity funds,
interim or permanent loan commitments, and other sources of funds;



(C)  A copy of the executed construction
contract;



(D)  A copy of the building permit for the
project; and



(E)  Satisfactory evidence of security for the
completion of construction, that may include the following, in forms and
content approved by the commission: a completion or performance bond issued by
a surety licensed in the State in an amount equal to one hundred per cent of
the cost of construction; a completion or performance bond issued by a material
house in an amount equal to one hundred per cent of the cost of construction;
an irrevocable letter of credit issued by a federally-insured financial
institution in an amount equal to one hundred per cent of the cost of
construction; or other substantially similar instrument or security approved by
the commission.  A completion or performance bond issued by a surety or by a
material house, an irrevocable letter of credit, and any alternatives shall
contain a provision that the commission shall be notified in writing before any
payment is made to beneficiaries of the bond.  Adequate disclosures shall be
made in the developer's public report concerning the developer's use of a
completion or performance bond issued by a material house instead of a surety,
and the impact of any restrictions on the developer's use of purchaser's funds.



(c)  Moneys from the conveyance or leasing of
units before completion of construction may be disbursed only to pay costs set
forth in the project budget submitted pursuant to subsection (b)(3)(A) that are
approved for payment by the project lender or an otherwise qualified,
financially disinterested person.  In addition, such moneys may be disbursed to
pay construction costs only in proportion to the valuation of the work
completed by the contractor, as certified by a licensed architect or engineer. 
The balance of any purchase price may be disbursed to the developer only upon
completion of construction of the project and the satisfaction of any
mechanic's and materialman's liens.



(d)  If moneys from the conveyance or leasing
of units before completion of construction are to be disbursed to pay for
project costs, the following notice shall be prominently displayed in the
developer's public report for the project:



 



"Important
Notice Regarding Your Funds:  Payments that you make under your sales
contract for the purchase of the unit may be disbursed upon closing of your
purchase to pay for project costs, including construction costs, project
architectural, engineering, finance, and legal fees, and other incidental
expenses of the project.  While the developer has submitted satisfactory evidence
that the project should be completed, it is possible that the project may not
be completed.  If your payments are disbursed to pay project costs and the
project is not completed, there is a risk that your payments will not be
refunded to you. You should carefully consider this risk in deciding whether to
proceed with your purchase."



 



[L 2005, c 93, pt of §4]