Releasing DRE Bonds

Filing bonds on subdivisions are one of those requirements that you can’t often avoid, without delaying getting your project to market.  Subdividers under a Final Public Report must be diligent to ensure compliance with the DRE process when releasing bonds. An early or “illegal” release creates a material change to your development, necessitating an Amended Public Report filing.

Each Bond is accompanied by a Security Agreement (Escrow Instruction), which recites the conditions for proper release.  Listed below are examples of common bonds required by DRE, along with the requirements for proper release of each.

Department of Real Estate (DRE) Bond Release Requirements:

  • Completion of Common Areas – Release of this bond requires recordation of a Notice of Completion (NOC) covering the listed improvements.
    • Subdivider must provide a “Demand” to Escrow for the return of the security confirming that the improvements are completed free of all liens
      • the lien period under the NOC must be expired OR
      • the HOA must be insured lien-free title
      • Escrow provides a copy of the Demand to the HOA
      • the HOA is allowed 40 days to object to the Demand
      • after 40 days, with no objections from the HOA, the Bond can be released back to the Subdivider
  • Assessment Guarantee – The amount of this bond covers six months’ but the bond is usually in place longer than six months.
    • The basic condition for release of this bond is that 80% of the homes must be sold and closed escrow.
      • The Subdivider provides a Demand to Escrow stating the following:
        • 80% of the lots/units have been sold and closed; AND
        • Confirming that the Subdivider is current in their assessment obligations for unsold homes/lots/units
      • Escrow verifies the 80% close, and forwards the Demand to the HOA
      • the HOA is allowed 40 days to object to the Demand
      • after 40 days, with no objections from the HOA, the Bond can be released back to the Subdivider
  • Subsidy Guarantee If a subsidy arrangement was approved as a part of the Public Report filing, the Subsidy Agreement dictates the term and amount of the Subsidy.  This is also the basis for the bond.  In order to release that bond, you need the following:
    • The Subdivider provides a Demand to Escrow stating the following:
      • The terms of the Subsidy Agreement have been fulfilled AND
      • Confirming that the Subdivider is current in their assessment obligation for unsold homes/lots/units
    • The HOA is allowed 40 days to object to the Demand
    • After 40 days, with no objections from the HOA, the Bond can be released back to the Subdivider
  • Reserve BondIf the common area was retained by the Subdivider and deeded to the HOA in a later phase, the Subdivider would need to file a bond to assure payment of the Reserves. The release provisions for the Reserves bonds are the same as for a Subsidy shown above.

For additional information or copies of the Security Agreement forms, please contact our office.  Any of our Consultants would be happy to assist you with filing bonds or setting up a reserve fund.

Hi, I'm Scott
President

I'd love to learn more about your new development or project. Use the link below to request a proposal.

Latest

Stay up to date.

Sign up our newsletter for latest article and news.
Housing Shortage

Challenges Facing Homebuilders in Meeting Demand for New Homes

In the quest to address the current housing crisis, homebuilders are facing substantial hurdles that hinder their ability to meet the rising demand for new homes. Despite the expectation that new construction would alleviate the shortage and stabilize home prices, builders are grappling with their own set of challenges that are stalling their progress.

Read More »
Borrowing from Reserves

Borrowing from Reserves: The Right Way

Budgeting is a critical aspect of managing a homeowner’s association. It helps ensure that the community’s financial needs are met while maintaining financial stability. However, some common budget mistakes can hinder the smooth operation of an HOA. One such mistake is borrowing from reserves. In this blog, we will discuss the potential pitfalls of borrowing from reserves and explore the legal implications of this practice.

Read More »

California’s Insurance Landscape: The Legacy of the Ruoff Case

In the state of California, it’s no secret that we face a dynamic and challenging insurance landscape. Insurance has become a hot topic, with community associations, condominium developments, and homeowners’ associations facing increasing challenges in securing adequate coverage and the limited number of providers in the state.

Read More »
Overcoming Resistance to HOA Budget Contributions

Overcoming Resistance to HOA Budget Contributions

In every Homeowners Association board, there’s often one member who passionately opposes any increase to the budget. Regardless of justifications, this individual consistently votes against it. We were contacted by a Condominium Association that had never conducted a reserve study in its 18-year history.

Read More »
Schedule a Call
Discuss your project or needs with someone from the California Builder Services team.