Release Date: 11/15/2016
QUESTION: Several months ago, I represented a buyer in a transaction. In the Residential Property and Owners’ Association Disclosure Statement and in paragraph 7(c) of the Offer to Purchase and Contract (form 2-T), the seller disclosed the existence of what the seller characterized as a "proposed" special assessment relating to a county water and sewer project in the neighborhood. The buyer and I assumed that the seller would have to pay for the assessment. Neither my client’s lender nor her closing attorney raised the issue and the transaction closed. My buyer client was very surprised when she recently received an assessment from the county in the amount of $4,000.00. Does she have any recourse against the seller to recover this amount?
ANSWER: The answer depends on whether the assessment you describe was formally approved by the county prior to Settlement. Although sellers are required to pay all confirmed special assessments pursuant to paragraph 8(k) of the Contract, paragraph 6(a) states that buyers take title subject to all proposed special assessments. Both types of assessments are defined in paragraph 1(n) of the Contract. The key distinction between the two is whether the assessment has been approved.
Special assessments can be imposed by governmental authorities or by owners’ associations. Since your situation involves an assessment by a county, we will focus on the assessment-approval process used by governmental authorities. Although the process can vary to some extent, in general, when a county or city decides to finance a project by special assessment, a public hearing is held. If the governing body formally approves the special assessment, a preliminary assessment resolution is adopted and a preliminary assessment roll is prepared. The roll includes the expected amount of the assessment and a list of the parcels to be affected. At this point, even though the assessment amounts are subject to amendment, the special assessment is considered approved. This formal approval by the governmental body is what triggers the seller's obligation to pay the amount that is eventually assessed.
Once the county or city completes its improvement work, and all of the costs of the project are known, another public hearing is held. Following that hearing, the final assessment roll is given to the tax collector for collection. This hearing does NOT need to take place, and the assessment does not need to be "fully payable", in order for the special assessment to be considered "confirmed" under the terms of Standard Form 2-T.
It is important for a buyer to become knowledgeable about the existence and the status of any special assessments affecting a property the buyer is interesting in purchasing, either before making an offer or, if the buyer is under contract, no later than the expiration of the Due Diligence Period. Such knowledge will likely affect the amount the buyer is willing to offer or the buyer’s decision whether to proceed with a transaction that is already under contract.
*This is a revised version of a Q & A that was first posted on 06/11/2013.
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