HANDLING OF PURCHASERS’ DEPOSIT MONEY
HANDLING OF PURCHASERS’ DEPOSIT MONEY somebodyHANDLING OF PURCHASERS’ DEPOSIT MONEY
Common to all types of subdivision filings are the requirements for the handling of the purchasers’ deposit
money as set forth in Sections 11013, 11013.1, 11013.2 and 11013.4 of the Code.
Blanket Encumbrance
A blanket encumbrance exists when more than one lot, unit, or interest in a subdivision is made security for the
payment of a trust deed note or other lien or encumbrance.
When, as is usually the case, there is no agreement for unconditional release of individual parcels from a
blanket encumbrance, the owner or subdivider must comply with one of the following conditions:
1. Impoundment of the purchase money, in an escrow depository acceptable to the Commissioner, until a
proper release is obtained from the blanket encumbrance or one of the parties defaults and there is a
determination as to disposition of the money or the owner or subdivider orders the return of the money to
the purchaser or lessee.
2. Title is placed in trust, under an agreement acceptable to the Commissioner, until a proper release from the
blanket encumbrance is obtained and the trustee conveys title to the purchaser. This alternative is no longer
considered practical by the subdivision industry.
3. The subdivider furnishes a bond to the State of California in an amount and subject to such terms as the
Commissioner may approve. The bond must provide for the return of purchase money if a proper release
from the blanket encumbrance is not obtained.
The Commissioner may approve other methods which protect purchasers’ payments until receipt of title or
other interest contracted for.
No Blanket Encumbrance
Even if a subdivision is not subject to a blanket encumbrance, the deposit money of the purchaser must be
impounded in an escrow or trust account unless the subdivider elects an acceptable alternative method.
The most common alternative to impounding is an acceptable bond to the State of California to assure return of
the deposit money if the seller does not deliver title within the time specified in the contract. Note that a bond
cannot be used to secure reservation deposits taken under a preliminary public report or with deposit money
taken under a conditional public report.
As in the case of a subdivision subject to a blanket encumbrance, the Commissioner is given discretionary
power to approve alternative plans submitted by subdividers which assure adequate protection of purchasers’
deposits.
Impound Requirements - Real Property Sale Contracts
A real property sales contract is defined in Section 2985 of the California Civil Code as an agreement wherein
one party agrees to convey title to real property to another party upon the satisfaction of specified conditions
and which does not with certain exceptions require conveyance of title within one year from the date of
formation of the contract.
When lots in a subdivision are to be sold using contracts of sale, the subdivider will usually convey the
subdivision in trust as detailed in Commissioner’s Regulation 2791.9. This is an acceptable alternative under
Section 11013.2(d) or Section 11013.4(f) of the Code.