Homeowners’ and condominium associations must be careful how funds are allocated and managed for big renovation projects. Mismanagement of funds for major projects can lead to delays, large assessments, litigation, and possible condemnation of buildings that are not fit for occupancy.
Construction escrow and draw services can safeguard owner and association rights and protect funds that are designated for renovation projects. By securing funds until certain agreed-upon milestones are reached, you can ensure that project funds are properly managed and that both the interests of the association and the property owners are not adversely affected.
How Escrow Services Work for Construction Projects
While you may be more familiar with escrow services during the home-buying process, they are used in other capacities. In the construction and building industry, escrow services allow construction projects to be funded either partially (in stages) or in their entirety and managed by a third-party escrow agent who releases funds as the parties meet specified milestones.
The parties involved in the escrow arrangement enter into an Escrow Agreement, which typically includes the property owner (or association), the contractor, and the escrow agent. The Escrow Agreement establishes the terms and conditions under which the escrow arrangement will operate, specifying the duties and responsibilities of the escrow agent who handles the disbursement of project funds.
As the parties fulfill their obligations at each stage of the project, the escrow agent releases part of the funds to the contractor or subcontractors. The process continues until the contractor has met all contractual terms and the funds are fully disbursed. Utilizing a third-party escrow company to manage the funds for the project also ensures that the association fulfills its duties to the property owners by ensuring transparency and a well-managed and accountable renovation or construction project.
How Escrow Services Protect Your Interests during Homeowners and Condominium Association Projects
Escrow services play a crucial role in protecting the interests of all parties involved in a construction project. By using a construction-specific escrow company like Build Safe Escrow for your association’s project, you can benefit in several ways, including:
1. Ensuring that Project Funds are Securely Held and Managed
Utilizing escrow services for homeowners’ or condominium association projects ensures that funds are securely held and allocated for their intended purpose and managed more efficiently. There is security in knowing that the project funds will not be used for other purposes or run out before the project is completed.
2. Peace of Mind That Work Is Being Paid for on Time
When funds are placed in an escrow account, the escrow agent releases payments to the contractor or subcontractors once they achieve project milestones, as specified in an Escrow Agreement that is signed by all parties. This ensures contractors are paid promptly, allowing them to compensate their subcontractors accordingly.
Property owners and association boards benefit from peace of mind, as they don’t have to worry about payment demands from the contractor or construction liens—the funds are securely reserved and allocated for the project. The burden of making sure that contractors are timely paid and that they are only paid once specific milestones are reached is lifted from the association.
3. Fulfilling Legal Obligations
Florida Statute Section 553.899 was established in May 2022, which creates a mandatory milestone inspection requirement for buildings that surpass a certain age and height threshold. Under this law, residential and commercial properties that are governed by a condominium or cooperative association must complete a mandatory inspection once they are at least 25 years of age (for buildings within three miles of the coastline) or 30 years of age (for buildings that are more than three miles from the coastline). The inspection requirement applies to all condominiums and cooperative buildings three or more stories in height.
Florida’s milestone requirement requires an inspection of the building’s structural integrity, load-bearing walls, and other structural elements, looking for signs of structural deterioration. It is similar to the Miami-Dade and Broward Counties building certification requirements, which also often results in large repair and renovation projects for associations. By working with a neutral third-party with expertise in construction escrow and draw services, associations can fulfill their legal requirements in a safer and more efficient manner.
Even if the project that the association must undertake is not required by a government entity, escrow and draw services still provide a way for project funds to be safeguarded and properly managed, protecting both the association’s interests and those of the property owners.
How Build Safe Escrow Can Help
At Build Safe Escrow, we strive to protect the financial transparency of a construction project. We offer escrow and draw services to protect all parties involved. Over the last ten years, our team has successfully handled hundreds of escrow transactions, working closely with associations and property managers to ensure their renovation projects are efficient and transparent. Our goal is to help contractors, builders, property owners, lenders, and other stakeholders in a construction or renovation project to experience a more secure and streamlined process.
Learn more about how our construction escrow and draw services can help with your next remodel or new construction project by contacting us via our Secure Contract Form or by calling us at (855) 611-3532.
