The mere mention of special assessments can keep new and veteran agents up at night. All too frequently, there is a misconception about what they are and, more importantly, how to address them. With the recent passage of laws further regulating condominiums and condominium associations still contracting for repairs from Hurricane Ian last year, it is no surprise that special assessments have become an even hotter topic for realtors and their customers. Special assessments can originate from local municipalities, Homeowners’ Associations, and Condominium Associations. Which body levies the assessment determines how to handle them during the closing process.
Local Municipalities:
The special assessment levied by the Town of Longboat Key is a prime example of a special assessment levied by a local municipality. The underground utility project, estimated to cost in the neighborhood of $25,000,000, is currently charged to all residents and collected on the yearly tax bill. How you complete section 9(f) of the Far/Bar residential contract determines how these special assessments are paid for going forward. Within section 9(f), there are two options. Box A states, “Seller shall pay installments due prior to Closing, and Buyer shall pay installments due after Closing. Installments prepaid or due for the year of Closing shall be prorated.” When this box is checked, the closing agent prorates it no differently than any other yearly property tax bill.
Conversely, box B states, “Seller shall pay, in full, prior to or at the time of Closing, any assessment(s) allowed by the public body to be prepaid. For any assessment(s) which the public body does not allow prepayment, OPTION (a) shall be deemed selected for such assessment(s).” It is important to do preliminary research prior to going under contract to determine if a special assessment is levied and, if so, how the parties wish to handle continuing payment. However, this section does not apply in any fashion to assessments levied by Homeowners Associations or Condominium Associations.
Condominium Associations:
The Condominium Rider is the controlling document for special assessments levied by condominium associations and is a requirement on condominium transactions. It is important to note that the rider requires the seller to disclose any special assessments levied or discussed by the association in board agendas or meeting minutes within the last twelve months. If the seller does not disclose, the rider requires the seller to pay all unpaid special assessments at closing. If the seller discloses special assessments properly, the parties must negotiate their payment method. The seller may elect to pay the full amount due at closing, or the seller may pay prior to closing, and the buyer shall pay the amounts due after closing. Lastly, in some circumstances, special assessments may be levied after the effective date of the contract, which were not an item on board meeting minutes or agendas. In these instances, the seller again shall pay amounts due prior to closing, and the buyer shall pay amounts due after closing. The seller must perform due diligence regarding any mention of special assessments to avoid any non-disclosure issues.
Homeowners Associations:
Lastly, the Homeowners’ Disclosure controls special assessments levied by the applicable association. Part B(2)(b) references special assessments by stating, “If special or other assessments levied by the Association exist of the Effective Date, or any assessment(s) are levied after the Effective Date and prior to the Closing Date and are due and payable in full prior to Closing Date, then Seller shall pay all such assessment(s) prior to or at Closing; or, if any such assessment(s) may be paid in installments, Seller shall pay all installments which are due before Closing Date, prior to or at Closing, and Buyer OR Seller shall pay installments due after Closing Date.” The Homeowners’ disclosure focuses mainly on the due date of payment when determining which party shall be responsible for its payment. While the Condominium Rider requires the seller to disclose any special assessments mentioned by the applicable board, the Homeowners’ Disclosure contains no such language. However, it would be prudent for sellers to disclose all they know to avoid any issues throughout the transaction process.
As you can see, each special assessment is handled differently in how they are disclosed and ultimately paid. Agents and parties alike must be aware of this fact and complete the requisite portions of the contract appropriately to manage expectations and avoid confusion. As always should you have any questions regarding this topic or any other matter, please get in touch with your local trusted real estate attorney.
