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One of the most significant new laws passed by The Maryland General Assembly became effective on October 1, 2016, amending Section 14-116(a) and (b) of the Real Property Article of the Maryland Code concerning disclosure of private water and sewer charges.  Existing law requires the builder of a new home to disclose to a purchaser the projected cost of water and sewer charges that may become the responsibility of the purchaser.  This disclosure, although mandated, is not based on actual costs but rather is projected based on the estimated cost.

In the new law, that disclosure requirement was expanded to the resale of residential real estate that is subject to a private deferred water and sewer charge.  Usually, these private charges are established and noted in a declaration or covenant recorded in the land records.  A number of newly built subdivisions have private sewer and/or water systems.  Depending on the sewer category, many builders were prevented from proceeding with the construction of their subdivisions due to sometimes significant delays in the expected date for the availability of public systems.  In order to circumvent the delay, the developers created their own private systems to serve the community.

Typically, the developer will create a separate Limited Liability Company or Corporation to advance funds for the systems, and have the homeowners repay the cost over a period of 20-25 years. The homeowner will generally receive a bill annually for their pro-rata share of the cost of installation of the sewer and water systems and the maintenance thereof.  Annual fees range from around one thousand to several thousand dollars.

Now, Maryland law requires a seller of residential real estate that is subject to a private water and sewer charge to disclose the existence and amount of the charge to the purchaser of their home.  If the disclosure is not made prior to closing, the purchaser has the right to rescind the contract in writing and obtain a refund of any deposit.  If the seller provides the disclosure after contract but before settlement, the purchaser has 5 days after receipt of the disclosure to give written notice cancelling the contract, otherwise the right of rescission expires.   If the existence of a deferred charge is not discovered until after closing, the seller is liable for payment in full of any outstanding amounts due to the private utility provider.  The cost could run into the tens of thousands of dollars.

Although the law places the burden on the seller to make the disclosure, many sellers never actually understood the meaning of their fees or their disclosure obligations.  They may have received a bill annually and paid it without realizing the true nature of the cost or they confuse it with their homeowner’s association fees.  Real estate agents need to be diligent in assisting their sellers to understand and disclose these fees if they exist.  Notwithstanding the fact that the law obligates the sellers to disclose, sellers are certain to rely on their agents for guidance and direction.  The concern is that failure to advise of the seller’s disclosure obligation could result in liability for the Realtors.

CONTACT

Matthew D. Alegi
Danielle M. Dolch
David M. Kochanski
Marc D. Lipman

MORE INFORMATION

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 settlements@shulmanrogers.com.

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.