HB 4876 amends Section 82.158 of the Texas Property Code to allow condominium developers, under specified conditions, to withdraw certain purchaser deposits from escrow before closing to pay actual development and construction costs for the condominium project. Under current law, purchaser deposits generally must remain in escrow until closing, purchaser default, or declarant default. The bill creates a limited exception that permits early access to escrowed funds if the purchase contract or reservation agreement clearly discloses this possibility in bold or underlined text and the developer obtains and maintains a surety bond or insurance policy protecting the purchaser.
The bill establishes safeguards governing the use of withdrawn escrow funds. It limits expenditures to actual development and construction costs, including items such as demolition, site preparation, permitting, engineering, surveying, and other project-related expenses. It expressly prohibits the use of purchaser deposits for sales commissions, advertising, marketing, financing costs, attorney fees, accounting fees, insurance costs, or similar overhead expenses. Deposits withdrawn under the bill must still ultimately be credited toward the purchaser’s purchase price at closing, delivered to the developer in the event of purchaser default, or refunded if the developer defaults under the purchase agreement.
To protect purchasers, the bill requires developers to secure a surety bond or insurance policy issued by a Texas-licensed insurer in an amount sufficient to cover any escrow funds withdrawn. The developer may not withdraw more than the amount covered by the bond or insurance. If a purchaser obtains a final judgment requiring return of the deposit, the bond or insurance must be payable to the purchaser. The bill also clarifies that the escrow agent is not responsible for monitoring construction progress or the developer’s use of withdrawn funds and is not liable for releasing funds in accordance with the statute.
The Committee Substitute for HB 4876 retains the original bill’s core policy of allowing condominium developers to access certain purchaser deposits held in escrow before closing, but it adds substantially more consumer protections, clarifies permissible uses of the funds, and more precisely defines the circumstances under which withdrawals may occur.
The most significant change is that the Committee Substitute strengthens disclosure requirements and narrows the circumstances under which escrow funds may be withdrawn. While the originally filed bill required only that a purchase contract provide that deposits could be used for construction costs, the Committee Substitute expands this to both purchase contracts and reservation agreements and requires the disclosure to appear in bold or underlined type. It also allows withdrawals only when development or construction of improvements begins, rather than simply when construction begins, broadening the qualifying project activities while requiring clearer notice to purchasers.
The Committee Substitute also substantially expands and clarifies the authorized and prohibited uses of escrowed funds. The originally filed bill permitted withdrawals only for "actual building and construction costs" without further explanation. The substitute replaces this with a detailed definition of "actual development and construction costs," expressly including expenses such as demolition, site clearing, permit fees, impact fees, utility reservation fees, and architectural, engineering, surveying, and consulting services directly related to the project. At the same time, it expressly prohibits the use of purchaser deposits for sales commissions, advertising, marketing, promotional expenses, financing costs, attorney fees, accounting fees, and insurance costs, providing significantly greater statutory guidance regarding permissible expenditures.
Finally, the Committee Substitute adds additional protections for purchasers after escrow funds are withdrawn. Unlike the originally filed bill, it expressly provides that withdrawn deposits must ultimately be applied as a credit toward the purchase price at closing, paid to the developer only upon purchaser default, or refunded to the purchaser if the developer defaults under the purchase agreement. These provisions clarify the ultimate disposition of purchaser deposits and preserve the purchaser's financial interest even when escrow funds have been used during project development. The provisions governing the required surety bond or insurance, the limitation on withdrawals to the amount of available coverage, the liability protections for escrow agents, and the effective date remain substantially unchanged between the two versions.
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Rep. Stan Lambert
