2007 Regular Session
To: Tourism; Judiciary A
By: Representative Peranich
AN ACT TO PROVIDE CERTAIN REQUIREMENTS REGARDING SALE OR RESERVATION DEPOSITS BEFORE CLOSING ON CONDOMINIUM SALES; TO REQUIRE THE DEVELOPER TO KEEP CERTAIN RECORDS; TO PROVIDE A PENALTY FOR VIOLATIONS; TO REQUIRE AN IMPLIED WARRANTY OF FITNESS AND MERCHANTABILITY FOR CONDOMINIUMS; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. For the purpose of property and casualty insurance risk classification, condominiums shall be classified as residential property.
SECTION 2. (1) If a developer contracts to sell a condominium parcel, and the construction, furnishing, and landscaping of the property submitted or proposed to be submitted to condominium ownership has not been substantially completed in accordance with the plans and specifications and representations made by the developer in the disclosures required by this act, the developer shall pay into an escrow account all payments up to ten percent (10%) of the sale price received by the developer from the buyer towards the sale price. The escrow agent shall give to the purchaser a receipt for the deposit, upon request. In lieu of the foregoing, the escrow agent has the discretion to accept other assurances, including, but not limited to, a surety bond or an irrevocable letter of credit in an amount equal to the escrow requirements of this section. Default determinations and refund of deposits shall be governed by the escrow release provision of this subsection. Funds shall be released from escrow as follows:
(a) If a buyer properly terminates the contract pursuant to its terms, the funds shall be paid to the buyer together with any interest earned.
(b) If the buyer defaults in the performance of his or her obligations under the contract of purchase and sale, the funds shall be paid to the developer together with any interest earned.
(c) If the contract does not provide for the payment of any interest earned on the escrowed funds, interest shall be paid to the developer at the closing of the transaction.
(d) If the funds of a buyer have not been previously disbursed in accordance with the provisions of this subsection, they may be disbursed to the developer by the escrow agent at the closing of the transaction, unless before the disbursement the escrow agent receives from the buyer written notice of a dispute between the buyer and developer.
(2) All payments that are in excess of the ten percent (10%) of the sale price described in subsection (1) and that have been received before completion of construction by the developer from the buyer on a contract for purchase of a condominium parcel shall be held in a special escrow account established as provided in subsection (1) of this section and controlled by an escrow agent and may not be used by the developer before closing the transaction, except as provided in subsection (3) of this section or except in the case of a refund to the buyer. If the money remains in this special account for more than three (3) months and earns interest, the interest shall be paid as provided in subsection (1).
(3) If the contract for sale of the condominium unit so provides, the developer may withdraw escrow funds in excess of ten percent (10%) of the purchase price from the special account required by subsection (2) when the construction of improvements has begun. He or she may use the funds in the actual construction and development of the condominium property in which the unit to be sold is located. However, no part of these funds may be used for salaries, commissions, or expenses of salespersons or for advertising purposes. A contract which permits use of the advance payments for these purposes shall include the following legend conspicuously printed or stamped in boldfaced type on the first page of the contract and immediately above the place for the signature of the buyer: ANY PAYMENT IN EXCESS OF TEN PERCENT (10%) OF THE PURCHASE PRICE MADE TO DEVELOPER BEFORE CLOSING PURSUANT TO THIS CONTRACT MAY BE USED FOR CONSTRUCTION PURPOSES BY THE DEVELOPER.
(4) The term "completion of construction" means the issuance of a certificate of occupancy for the entire building or improvement, or the equivalent authorization issued by the governmental body having jurisdiction, and, in a jurisdiction where no certificate of occupancy or equivalent authorization is issued, it means substantial completion of construction, finishing, and equipping of the building or improvements according to the plans and specifications.
(5) The failure to comply with the provisions of this section renders the contract voidable by the buyer, and, if voided, all sums deposited or advanced under the contract shall be refunded with interest at the highest rate then being paid on savings accounts, excluding certificates of deposit, by savings and loan associations in the area in which the condominium property is located.
(6) If a developer enters into a reservation agreement, the developer shall pay into an escrow account all reservation deposit payments. Reservation deposits shall be payable to the escrow agent, who shall give to the prospective purchaser a receipt for the deposit, acknowledging that the deposit is being held pursuant to the requirements of this subsection. The funds may be placed in either interest-bearing or noninterest-bearing accounts, provided that the funds shall at all reasonable times be available for withdrawal in full by the escrow agent. The developer shall maintain separate records for each condominium or proposed condominium for which deposits are being accepted. Upon written request to the escrow agent by the prospective purchaser or developer, the funds shall be immediately and without qualification refunded in full to the prospective purchaser. Upon such refund, any interest shall be paid to the prospective purchaser, unless otherwise provided in the reservation agreement. A reservation deposit shall not be released directly to the developer except as a down payment on the purchase price simultaneously with or subsequent to the execution of a contract. Upon the execution of a purchase agreement for a unit, any funds paid by the purchaser as a deposit to reserve the unit pursuant to a reservation agreement, and any interest thereon, shall cease to be subject to the provisions of this subsection and shall instead be subject to the provisions of subsections (1) through (5).
(7) Any developer who willfully fails to comply with the provisions of this section concerning establishment of an escrow account, deposits of funds into escrow, and withdrawal of funds from escrow is guilty of a felony. The failure to establish an escrow account or to place funds in an escrow account is prima facie evidence of an intentional and purposeful violation of this section.
(8) An escrow account as required by this section shall be established with a bank, a savings and loan association, an attorney who is a member of The Mississippi Bar, a real estate broker registered under the laws of this state, a title insurer authorized to do business in this state, acting through either its employees or a title insurance agent licensed under the laws of this state, or any financial lending institution having a net worth in excess of Five Million Dollars ($5,000,000.00). The escrow agent shall not be located outside the state unless, pursuant to the escrow agreement, the escrow agent submits to the jurisdiction of the state and the courts of this state for any cause of action arising from the escrow. Every escrow agent shall be independent of the developer, and no developer or any officer, director, affiliate, subsidiary or employee of a developer may serve as escrow agent. Escrow funds may be invested only in securities of the United States or an agency thereof or in accounts in institutions the deposits of which are insured by an agency of the United States.
SECTION 3. (1) The developer shall be deemed to have granted to the purchaser of each unit an implied warranty of fitness and merchantability for the purposes or uses intended as follows:
(a) As to each unit, a warranty for three (3) years commencing with the completion of the building containing the unit.
(b) As to the personal property that is transferred with, or appurtenant to, each unit, a warranty which is for the same period as that provided by the manufacturer of the personal property, commencing with the date of closing of the purchase or the date of possession of the unit, whichever is earlier.
(c) As to all other improvements for the use of unit owners, a three-year warranty commencing with the date of completion of the improvements.
(d) As to all other personal property for the use of unit owners, a warranty which shall be the same as that provided by the manufacturer of the personal property.
(e) As to the roof and structural components of a building or other improvements and as to mechanical, electrical and plumbing elements serving improvements or a building, except mechanical elements serving only one (1) unit, a warranty for a period beginning with the completion of construction of each building or improvement and continuing for three (3) years thereafter or one (1) year after owners other than the developer obtain control of the association, whichever occurs last, but in no event more than five (5) years.
(f) As to all other property which is conveyed with a unit, a warranty to the initial purchaser of each unit for a period of one (1) year from the date of closing of the purchase or the date of possession, whichever occurs first.
(2) The contractor, and all subcontractors and suppliers, grant to the developer and to the purchaser of each unit implied warranties of fitness as to the work performed or materials supplied by them as follows:
(a) For a period of three (3) years from the date of completion of construction of a building or improvement, a warranty as to the roof and structural components of the building or improvement and mechanical and plumbing elements serving a building or an improvement, except mechanical elements serving only one (1) unit.
(b) For a period of one (1) year after completion of all construction, a warranty as to all other improvements and materials.
(3) "Completion of a building or improvement" means the issuance of a certificate of occupancy for the entire building or improvement, or the equivalent authorization issued by the governmental body having jurisdiction, and in jurisdictions where no certificate of occupancy or equivalent authorization is issued, it means substantial completion of construction, finishing and equipping of the building or improvement according to the plans and specifications.
(4) These warranties are conditioned upon routine maintenance being performed, unless the maintenance is an obligation of the developer or a developer-controlled association.
(5) The warranties provided by this section shall inure to the benefit of each owner and his or her successor owners and to the benefit of the developer.
(6) Residential condominiums may be covered by an insured warranty program underwritten by a licensed insurance company registered in this state, provided that such warranty program meets the minimum requirements of this section; to the degree that such warranty program does not meet the minimum requirements of this section, such requirements shall apply.
SECTION 4. This act shall take effect and be in force from and after July 1, 2007.