HOUSE BILL 871
By Rudder
SENATE BILL 1079
By Johnson
SB1079
001283
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AN ACT to amend Tennessee Code Annotated, Title 66,
relative to the use of escrow funds for
condominium projects.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:
SECTION 1. Tennessee Code Annotated, Section 66-27-506, is amended by deleting
the section and substituting:
(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
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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) lnterpleaded 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
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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 (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.
SECTION 2. This act takes effect July 1, 2025, the public welfare requiring it, and
applies to contracts or agreements entered into or amended on or after that date.