Who pays special assessments that come due after Settlement?
QUESTION: I represent the seller in a transaction that went under contract using the Offer to Purchase and Contract (form 2-T). The owners association that regulates the development in which the property is located recently imposed an assessment that is payable in equal monthly installments over a period of two years. The existence of the assessment was timely disclosed to the buyer.
The property is about to close and a disagreement has come up over who is responsible for making the monthly assessment payments after the property has closed. The buyer agent says the seller has to pay the entire amount of the assessment at Settlement but it doesn’t sound right to me that the seller is responsible for payments that don’t come due for a year or more after the closing. What’s the answer?
ANSWER: The seller is responsible for paying the entire outstanding balance of the assessment. Paragraph 8(k) of Form 2-T provides that “[t]he Seller shall pay, in full at Settlement, all Special Assessments that are approved prior to Settlement, whether payable in a lump sum or future installments, provided that the amount thereof can be reasonably determined or estimated (emphasis added).” The assessment in question has been approved and its outstanding balance can be determined exactly by simply multiplying the amount of a monthly payment by the number of months remaining on the payment schedule. Thus, according to paragraph 8(k), the seller is responsible for paying the outstanding amount of the assessment at Settlement.
This situation underscores the importance of brokers understanding how the Contract allocates responsibility for payment of Special Assessments. The “Seller Representations” section of the Exclusive Right to Sell Listing Agreement (form 101) includes a representation about the existence or absence of special assessments. In completing this section of the listing agreement, listing agents should educate their seller clients about the meaning of those terms and why it matters, and question the seller carefully regarding the possible existence of any special assessments. If the seller feels that the buyer should be responsible for making payments that come due after Settlement and the buyer agrees, Form 2-T can be amended by an attorney to provide that.
Release Date: 05/16/2017; revised 09/30/2022
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