Escrow, escrow, come get your unspent funds

LACONIA — The city has inadvertently held some land developers' money in escrow for decades, members of the planning board learned during their meeting on Feb. 3. 

Planning Director Rob Mora and Assistant Director Tyler Carmichael told members of the city’s Planning Board they’d reviewed the department’s site plan and subdivision regulations, and authored a potential amendment to rework the way escrow funds, paid by developers and held by the city, would be used and organized. 

“This is kind of the beginning of a much larger topic of conversation. As you know, we’ve recently hired a new project manager, and he and I have been meeting regularly to review our current site plan and subdivision regulations,” Carmichael said, noting they’d last been updated in 2009, then 2015. “They’re a bit outdated.”

The planning department is working internally to update and modernize those regulations, incorporating changes in state law over the years.

“The two items that we’re bringing before you today are something that needs to be fixed right now, when it comes to our internal process of how we’re dealing with escrow, when it comes to site security and third-party review,” Carmichael said.

For site security specifically, the city must offer both performance bonds and cash in escrow, which meets state legal requirements. They’re working in house with legal counsel to update the city’s escrow agreement, too.

“That would be an agreement between city staff and the developer of, ‘We’re going to take your money and hold it in escrow,’ and it outlines that process, and at which point we can use the money,” he said.

For example, if a developer begins, but doesn't finish, a project, and public works or the water department has occasion to do work on a given lot to ensure stability to neighboring properties, the city could use the money held in escrow, or the performance bond, to make the required fixes.

“I started as the director two years ago this month, actually, and we’ve been working on this escrow report that we get every month from finance. It is exceptionally long, and there are items on there that we’ve been holding in escrow for 30 years,” Mora said. “There is no section in the site plan and subdivision regulations that discusses off-site exactions, and there’s a legal requirement that if you accept an off-site money in lieu of improvements, you are required to return the money to them after six years. And we have been holding people’s money for 30 years.”

Escrow is typically a contractual arrangement in which a third party receives and disburses money for transacting parties, with disbursement dependent on certain conditions agreed upon.

Planning Board Chair Charlie St. Clair asked Mora if any developers had ever reached out to inquire about money held in escrow for extended periods of time. 

“No, and that’s part of the problem, as well,” Mora said. “The other part of that is, some of these people have passed away. Businesses have gone bankrupt, and it's now surfing through history, trying to find when the legal entity that provided us the money, who it fell to, where it is, did they go bankrupt? And doing all this research to return this money to them.” 

In one example Mora offered during the meeting, they spent many hours researching one particular case, and contacted a man in Florida who was due $28,000. The retired developer had forgotten. 

The proposed amendment explains it plainly that the money must be returned after six years.

“The current escrow agreement we have is literally a paragraph long,” he said.  

St. Clair asked why the city would still have the money after six years, when it should hypothetically be spent.

It's not always so simple. Monies held in escrow, even for a particular purpose, like the construction of sidewalks, are restricted in use — the city must use them for the exact expressed purpose on the same parcel of land.  

“You’re supposed to take that money and use it for the sidewalk, but if the department never puts the sidewalk in ... ” Mora said.

“You have to use it for that specific site, so if you don’t ever put a sidewalk in there, even though you’ve taken the money for it, and you don’t put the sidewalk in, you have to give that money back to them.”  

Planning board members approved the escrow changes unanimously. 

“Which is also why we have a requirement, when you do a site plan or a subdivision, you have the sidewalk requirement,” he said. “Which is also why, when we did our impact fee study, we said, ‘Hey, can you incorporate sidewalks into this so we can expand with sidewalks as we develop?’ So there’s a lot of things that kind of go with this.

“We’re trying to fix a problem that we need to fix,” Mora said.