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
- Subdivider must provide a “Demand” to Escrow for the return of the security confirming that the improvements are completed free of all liens
- 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
- The Subdivider provides a Demand to Escrow stating the following:
- The basic condition for release of this bond is that 80% of the homes must be sold and closed escrow.
- 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
- The Subdivider provides a Demand to Escrow stating the following:
- Reserve Bond – If 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.
