By Stoel Rives LLP for JDSupra.com
Washington recently enacted SB 5024 (the “Bill”), which allows developers to use earnest money deposits towards construction costs in certain circumstances. The Bill will become effective on July 25, 2021.
Under the new law, if (1) a purchase agreement discloses that earnest money deposits may be used for construction costs, and (2) the developer obtains a surety bond, then the developer may withdraw funds from escrow when construction has begun. The bond must be in an amount adequate to cover the amount of the earnest money deposit withdrawn, and the developer cannot withdraw more than the face amount of the bond. The developer can either obtain an individual bond for each deposit accepted by the developer, or a blanket bond ensuring the return of all deposits received by the developer. Earnest money deposits utilized under the Bill may not exceed five percent of the purchase price.