2792.10. Subsidization by Subdivider.

2792.10. Subsidization by Subdivider.
(a) When the subdivider undertakes to provide goods and/or services to the Association or to pay a portion of a
purchaser’s share of the Association’s financial obligations, the subdivider shall:
(1) Enter into a contract with the Association acceptable in form and content to the Commissioner which shall
specify in detail the obligations which the subdivider will undertake to fulfill and, if applicable, the methods to be
employed in valuing the goods and services furnished under the program, and cover the release and enforcement of
the security referred to in (a) (4), below.

(2) Furnish the Association with an executed copy of the contract, the security referred to in (a) (4), below, and the
escrow instructions referred to in (c), below, within ten days after the closing of the first sale (or lease) of subdivision
interests.
(3) Submit a monthly accounting to the Association and if the subsidy is other than cash, it shall also contain a
description and valuation of the goods and services for the common areas furnished directly by the subdivider or
contracted and paid for by him.



(4) Furnish a bond to the Association as obligee or other device to secure the subdivider’s undertaking to the
Association and the owners under the program. The bond or other device shall be in an amount and subject to terms
and conditions which will assure prompt and faithful performance of the contract. The penal sum of a bond shall
not ordinarily be reduced by reason of the fact that the subdivider has posted a bond or other security device pursuant
to Section 2792.9 of these regulations.

(b) The Commissioner will not ordinarily approve any program in which the subdivider undertakes to provide goods
and/or services to the Association or promises to pay a portion of a purchaser’s share of the Association’s financial
obligations unless it provides for the accumulation by the Association of reserves for replacement and major
maintenance in accordance with accepted property management practices.

(c) The security device referred to in (a) (4) above shall be delivered to a neutral escrow depository acceptable to the
Commissioner along with an executed copy of the contract and instructions to the depositary signed by the subdivider
and the Association covering handling of the security, return of the security to the subdivider, and remittance of the
security to the Association, including the following:

(1) The escrow instructions shall include a procedure under which the security shall be returned to the subdivider
upon the Association’s failure to give the escrow depository within 40 days the Association’s written objection to
return of the security, but only if the subdivider’s demand for return of the security is accompanied by the
subdivider’s written statement that the subdivider has faithfully performed all of the subdivider’s obligations under
the contract.

(2) The escrow instructions shall include a procedure under which all or some specified portion of the security shall
be paid to the Association upon the subdivider’s failure to give the escrow depository within 40 days the
subdivider’s written objection to payment of the security, but only if the Association’s demand for payment of the
security is accompanied by the Association’s written statement that the subdivider has failed to perform the
subdivider’s obligations under the contract.
(3) The escrow instructions shall provide that, in the event the escrow holder receives conflicting instructions from
the subdivider and the Association, the escrow holder is authorized, in its sole discretion, to (1) interplead the
security or (2) retain the security until the security is disposed of in accordance with (i) the joint or mutual
instructions of the subdivider and the Association, (ii) the order of a court of competent jurisdiction or (iii) in
accordance with the final binding decision rendered in an alternative dispute resolution proceeding.

(4) If the security is a letter of credit, the escrow instructions shall include a procedure under which the escrow
depository shall draw upon the letter of credit prior to the expiration of the time for drawing thereupon, or upon the
subdivider’s failure to give the escrow depository within 40 days the subdivider’s written objection to remittance
of the security to the Association.