Vermont House advances bill allowing developers to use deposits when backed by surety bonds

The Vermont House on the afternoon of the floor session advanced H 666, an act that would allow housing developers to use future resident deposits for construction costs provided the deposits are secured by a surety bond.

Member from Brandon, reporting for the House Commerce and Economic Development Committee, said the bill would change current law that requires future resident deposits for units in common interest communities to be held in escrow. "This bill proposes to permit housing developers to finance construction costs with future resident deposits if the developer secures the future resident deposits with a surety bond," the member said, describing the measure as intended to "maintain protections for the future resident while granting developers increased financing flexibility." The member offered as an example that a developer withdrawing $50,000 in deposits would be required to obtain a $50,000 surety bond.

The committee's recommended amendment adds clarity and additional protections, including requiring that the purchase or reservation agreement disclose that deposit funds will be used for construction, that the issuer of the surety bond be disclosed to the future resident, and that deposit withdrawals may be used only for the actual building and construction costs of the named project. The member told colleagues that if residents needed return of deposits they could pursue a claim under the bond or obtain a final judgment against the developer.

The House adopted the committee amendment by voice vote and then ordered third reading. Committee materials and the floor report listed witnesses including the deputy commissioner of insurance at the Department of Financial Regulation, the executive director of the Vermont Housing Finance Agency, a director from the Attorney General's consumer assistance program, the president of the Vermont Bankers Association, insurance and bond executives from Hickok & Boardman Insurance, and representatives of property-insurance trade groups and residential developers.

The committee report was described in the floor report as having passed out of committee "favorably with a vote of 803"; the floor record did not provide a clear numeric tally for that committee vote. The bill's text specifies the act takes effect on passage.

Next steps: H 666 was ordered to third reading, where the full House will consider final passage on a subsequent legislative day.