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Rule 8.9 Escrows and Alternatives Assurances
In order to protect the purchaser’s right to refund during the rescission period and during any period in which construction of the timeshare property is not complete and available for occupancy by purchasers, the developer shall provide financial assurances as required by this section.
- A developer of a timeshare plan shall deposit into an escrow account in an acceptable escrow depository all funds that are received in Mississippi during the purchaser’s rescission period. An acceptable escrow depository includes banks, trust companies, saving and loans associations, real estate broker trust accounts at such an institution, title insurers, and underwritten title companies. The handling of these funds shall be in accordance with an executed escrow agreement between an escrow agreement between an escrow agent and the developer. Funds will be handled to assure the following:
- Funds may be disbursed to the developer by the escrow agent from the escrow account or from the broker trust account only after expiration of the purchaser’s rescission period and in accordance with the purchase contract, subject to paragraph 2.
- If a prospective purchaser properly cancels the purchase contract following expiration of the cancellation period pursuant to its terms, the funds shall be paid to the prospective purchaser or paid to the developer if the prospective purchaser’s funds have been previously refunded by the developer.
- If a developer contracts to sell a timeshare interest and the construction of the accommodation in which the timeshare interest being conveyed is located has not been completed, the developer, upon expiration of the rescission period, shall continue to maintain in an escrow account all funds received by or on behalf of the developer from the prospective purchaser under his or her purchase contract. The Commission shall determine the types of documentation which shall be required for evidence of completion, including, but not limited to, a certificate of occupancy, a certificate of substantial completion, or an inspection by the State Fire Marshal or designee or an equivalent public safety inspection by the appropriate agency in the applicable jurisdiction. Unless the developer submits an alternative financial assurance in accordance with paragraph 3, funds shall not be released from escrow until a certificate of occupancy, or its equivalent, has been obtained and the rescission period has passed, and the timeshare interest can be transferred free and clear of blanket encumbrances, including mechanics’ liens. Funds to be released from escrow shall be released as follows:
- If a prospective purchaser properly cancels the purchase contract pursuant to its terms, the funds shall be paid to the prospective purchaser or paid to the developer if the developer has previously refunded the prospective purchaser’s funds.
- If a prospective purchaser defaults in the performance of the prospective purchaser’s obligations under the purchase contract, the funds shall be paid to the developer.
- If the funds of a prospective purchaser have not been previously disbursed in accordance with the provisions of this paragraph 2., they may be disbursed to the developer by the escrow agent upon the issuance of acceptable evidence of completion of construction and closing.
C In lieu of the provisions in paragraphs 1 and 2, the Commission may accept from the developer a surety bond, escrow bond, irrevocable letter of credit, or other financial assurance or arrangement acceptable to the Commission. Any acceptable financial assurances shall be in an amount equal to or in excess of the lesser of
- the funds that would otherwise be place in escrow, or
- in an amount equal to the cost to complete the incomplete property in which the timeshare interest is located. However, in no event shall the amount be less that the amount of funds that would otherwise be placed in escrow pursuant to subparagraph a. of paragraph 1.
- The developer shall provide escrow account or broker trust account information to the Commission and shall execute in writing an authorization consenting to an audit or examination of the account by the Commission. The developer shall make documents related to the escrow or trust account or escrow obligation available to the Commission upon request. The escrow agent or broker shall maintain any disputed funds in the escrow account until either of the following occurs:
- Receipt of written direction agreed to by signature of all parties.
- Deposit of the funds with a court of competent jurisdiction in which a civil action regarding the funds has been filed
- Excluding any encumbrance placed against the purchaser’s timeshare interest securing the purchaser’s payment of purchase money financing for the purchase, the developer shall not be entitled to the release of any funds escrowed under this section J. with respect to each timeshare interest and any other property or rights to property appurtenant to the timeshare interest, including any amenities represented to the purchaser as being part of the timeshare plan, until the developer has provided satisfactory evidence to the Commission of one of the following:
- The timeshare Interest together with any other property or rights to property appurtenant to the timeshare interest, including any amenities represented to the purchaser as being part of the timeshare plan, are free and clear of any of the claims of the developer, any owner of the underlying fee, a mortgagee, judgment creditor, or other lien holder, or any other person having an interest in or lien or encumbrance against the timeshare interest or appurtenant property or property rights.
The developer, any owner of the underlying fee, a mortgagee, judgment creditor, or other lien holder, or any other person having an interest in or lien or encumbrance against the timeshare interest or appurtenant property or property rights, including any amenities represented to the purchaser as being part of the timeshare plan, has recorded a subordination and notice to creditors document in the appropriate public records of the jurisdiction in which the timeshare interest is located. The subordination document shall expressly and effectively provide that the interest holder’s right, lien or encumbrance shall not adversely affect, and shall be subordinate to, the rights of the owners of the timeshare interests in the timeshare plan regardless of the date of purchase.
- The developer, any owner of the underlying fee, a mortgagee, judgment creditor, or other lien holder, or any other person having an interest in or lien or encumbrance against the timeshare interest or appurtenant property or property rights, including any amenities represented to the purchaser as being part of the timeshare plan, has transferred the subject accommodations, amenities, or all use rights in the amenities to a nonprofit organization or owners’ association to be held for the use and benefit of the owners of the timeshare plan, which organization or owners association shall act as a fiduciary to the purchasers, and the developer has transferred control of the entity to the owners or does not exercise its voting rights in the entity with respect to the subject accommodations or amenities: Prior to the transfer, any lien or other encumbrance against the accommodation or facility shall be made subject to a subordination and notice to creditors, instrument pursuant to subparagraph b. or be free and clear of all liens and encumbrances.
- Alternative arrangements have been made which are adequate to protect the rights of the purchasers of the timeshare interests and approved by the Commission.
- Nothing in this section shall prevent a developer from accessing any escrow funds if the developer has complied with paragraph 3 of this section.
- The developer shall notify the Commission of the extent to which an accommodation may become subject to a tax or other lien arising out of claims against other purchasers in the same timeshare plan.
- Developers, sellers, escrow agents, brokers and their employees and agents have a fiduciary duty to purchasers with respect to funds required to be deposited under these rules. Any Mississippi broker or salesperson who fails to comply with rules concerning the establishment of an escrow or broker trust account, deposits of funds, and property into escrow or withdrawal there from, shall be in violation of the Mississippi Real Estate Brokers Act of 1954, as amended, and the Rules and Regulations of the Commission. The failure to establish an escrow or trust account or to place funds therein as required under these rules is prima facie evidence of an intentional and purposeful violation.