Did You Know About Front Foot Benefit Charges?
May 19, 2017
Since October 1, 2016, Maryland law requires sellers to notify purchasers of any private Front Foot Benefit Charges (FFBC) that apply to the property. If the seller fails to disclose, the purchaser can cancel the contract any time before settlement. More significantly, if the charges are not disclosed prior to settlement, the seller can be required to pay the entire balance of the unpaid private FFBCs, which could easily cost tens of thousands of dollars.
FFBCs are generally seen in newer developments; it has become common practice for developers to pass certain infrastructure development costs onto new home purchasers in the form of FFBCs. The disclosure requirement applies only to private FFBCs that are not reflected on the property’s tax bill. Public FFBCs, which are shown as a line item on the property tax bill, are not subject to the new disclosure requirements. When a developer is unable to connect a new subdivision to public water and sewer lines because the property is in a sewer and water category that precludes immediate connection and use, the developer can instead privately construct the connection and pass the cost along to homebuyers on a pro rata basis. Depending on the size of the development and the costs of construction, the annual assessment for a home in a development subject to FFBCs can be hundreds of dollars, if not thousands.
Unfortunately for listing real estate agents, even though disclosure is the obligation of the seller, sellers will most likely rely upon their agent to advise them of the requirement and will, of course, blame the agent if costs are incurred as a result of a failure to properly disclose. Generally, the Declaration of Covenants for an FFBC will require payment to “Utility Services, LLC” or some similarly generic-named entity created by the developer. Since the FFBC is only due once a year, sellers tend to forget about these payments and, even when asked directly, may mistakenly inform their agents that they do not pay an FFBC.
So how are real estate agents to ascertain if private FFBC charges exist in order to properly advise their sellers? Unfortunately, there is no published list of those communities that have private FFBCs; neither the counties nor any private organization collects and maintains this data. If a property is not connected to public water and sewer (in other words, it uses a well and septic system), then it will not be subject to FFBCs. In order to determine whether a home that is connected to public water and sewer is subject to private FFBCs, agents should first consider the age of the community. If construction was completed more than 25 years ago, any FFBCs will already have been paid in full, whether public or private. A vast majority of the neighborhoods that have private FFBCs were developed within the past 15-20 years. Agents should first check the public tax records to determine if there are public FFBCs listed on the tax bill (public FFBCs itemized on the tax bill do not require a separate disclosure). If there are no public charges listed, it is either because they have been fully paid (usually after 23 years) or because any applicable charges are private. If a property in a newer community shows no public FFBC assessment on the tax bill, the prudent agent will make further inquiry as to whether the property is subject to private FFBCs that require disclosure.
If a seller is unable to provide any information regarding FFBCs but the agent thinks that the property may be subject to private FFBCs, the experienced attorneys in our residential real estate department can assist with a comprehensive search of the land records for a Declaration of Covenants or similar recorded document imposing private FFBCs against the property.
For more background on the recent change to Maryland’s FFBC disclosure law, please review our November 11 update detailing the amendments to the Real Property Article of the Maryland Code enacted during last year’s legislative session.
For more information regarding our Residential Real Estate Settlements Group or our general real estate transactions and litigation practice, please contact the Group Chair at 301-230-6574 or firstname.lastname@example.org.
This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.