Provision 9F of the FAR/BAR Residential Contract Should NOT be Ignored
Provision 9F, titled Special Assessments, provides that the Seller is to pay the full amount of liens and/or special assessments imposed on his or her property by a public body. However, if Special Assessments are payable by installments, the Contract provides two options which should be given special attention to. The first option (a), which is defaulted if neither option is selected, requires the Seller to pay installments due prior to Closing and the Buyer to pay installments due after Closing. The second option (b), requires the Seller to pay the assessments in full before or at the time of Closing.
This provision has nothing to do with assessments from condominium or homeowner’s associations, although this is a common misconception. Information regarding assessments for condominiums or homeowner’s associations will be found in the Condominium Rider or Homeowner’s Association Disclosure to the Contract.
In the past, the liens or assessments referred to in 9F were typically for neighborhood improvements such as lighting or street paving; however, with the rise of the Property Assessed Clean Energy Programs (PACE) such as Ygrene, understanding and carefully selecting between option (a) and (b) has become and will continue to become abundantly more important in residential closings.
Through PACE programs such as Ygrene, homeowners can receive loans from their local government to finance energy efficient and hurricane safety improvements, such as installing hurricane impact windows, for up to 20 years. The loans are repaid as a recurring non-ad valorem annual assessment on the borrower’s annual property tax bill and collected by the county tax collector. PACE liens have super-priority status, which is the same as property taxes.
In the instance of an improvement that was financed for 20 years, if provision 9F was ignored and no option was selected, the Buyer could be assuming the payments to pay back the Ygrene loan as an assessment on the Buyer’s property tax bill for the remainder of the 20 year term. I use the term “could” because, in some cases, the Ygrene loan may also be recorded against the property, in which case a prospective purchaser could make an alternate argument by objecting to title and requiring the Seller to satisfy the recorded lien by obtaining an estoppel letter with pay off instructions from the PACE administrator.