- October 06, 2016
- All Maryland Issuing Offices
- UNDERWRITING - Front Foot Benefit Assessments
Note: This Bulletin updates and amends part 1.) of Bulletin MD2012003
Maryland underwriters get frequent inquires about the topic of “front foot benefit assessments” (“FFBAs”) also called “front foot benefits" (explained below). Recent Maryland case law has shed some important light on this subject, and all Maryland agents should be familiar with Stewart Title’s requirements in this area.
Stewart underwriting requirements regarding FFBAs:
Effective immediately, you should adhere to the following underwriting requirements for Maryland properties that might be affected by FFBAs:
- For Purchase/Sale Transactions:
As always, it is required to search for any declarations, including those involving FFBAs, and to list these documents as exceptions to title in Schedule B-2. The FFBA provider should be contacted to make sure all charges are current and accounted for.
- b. For Refinance Transactions:
If a full title search has not been performed, you should except to unknown FFBAs by using the exceptions below:
- In the Title Commitment:
Schedule: B-II exceptions:
2. Taxes or special assessments which are not shown as existing liens by the public records, or which are not due and payable as of the date of the policy anticipated by this Commitment. Possible future tax levies and/or front foot benefit charges, liens, assessments or encumbrances, public charges, and/or the balance thereof for existing or proposed improvements which may have been levied or assessed, or which may be levied or assessed, but which are not yet due and payable to the State, County, Municipality, Metropolitan District, Commission, individual or corporate assessor.
- In the Lender’s Policy:
Schedule: B exceptions:
9. Taxes (State, County and Municipal) and other charges (including but not limited to assessments by any State, County, Municipality, Metropolitan District or Commission) subsequent to June 30, ______. In addition this policy of title insurance does not insure against presently assessed and payable but unpaid front foot benefit charges, and possible future tax levies and/or front benefit assessments, nor against such public charges and assessments, or the balance thereof for existing or proposed improvements, which may have been levied or assessed, or to be levied or assessed, but which are not yet due and payable to the State, County, Municipality, Metropolitan District, Commission, individual or corporate assessor.
NOTE: If the lender refuses to permit this exception to its loan policy, please contact your Maryland underwriter. You may have to perform a full search as to the existence of an FFBA declaration in order to remove this exception.
On August 31, 2016, the Maryland Court of Special Appeals (Maryland’s second-highest court) rendered its decision in Select Portfolio Servicing, Inc. v. Saddlebrook West Utility Company, LLC, et al., No. 1911, September Term, 2013. A link to that case can be found here:
Without going into major detail, the Court decided that the Declaration of Deferred Water and Sewer Charges recorded in favor of the FFBA utility company imposed a lien from the time the declaration was recorded. It also held that adherence to the requirements of the MCLA was not required in order to impose the lien.
Although the case will almost certainly be appealed, an appeal must be granted certiorari (to be more fully informed) by the Maryland Court of Appeals. Even if accepted for review, it could take quite some time for a final decision on the FFBA issue, and there is no guarantee that the Court of Special Appeals’ decision will be overturned. Until a new or amended Bulletin is issued, you should follow the requirements set forth above.
1. What is an FFBA?
An FFBA is a Maryland-specific term for charges imposed against real property for water and sewer services. Typically, FFBAs are imposed by existing local governments, including water/sewer districts, or by private developers who enter into agreements with local governments or water/sanitary districts in order to develop infrastructure for new subdivisions. The costs related to the new infrastructure are usually assessed once a year on affected properties, for periods of 20-40 years. Assessments can be billed directly to the homeowner, or as part of the county’s yearly real property tax bill.
Costs for FFBA’s can range from a couple of hundred dollars per year to eight hundred dollars or more.
Example: Lot 1, Block 3 in Green Tree Subdivision is assessed a yearly FFBA of $400 for 20 years. Total FFBAs for this property are $8,000.
When the costs of the project have been fully paid off, the assessments should disappear.
2. How are FFBAs created, and how do I know if a property is affected by an FFBA?
A “Declaration of Deferred Water and Sewer Charges” (“Declaration”), or similar document, is recorded in the Land Records of the relevant county in order to create the FFBA. The declaration describes the affected properties, and states the monthly charges affecting each property.
Since most Declarations are less than 30-40 years old, they can, in theory, be discovered by an abstractor when completing a Maryland-standard 60-year search. In practice, however, it can be difficult to identify FFBA documents. They are often recorded as declarations of Deferred Water and Sewer Charges, or included as part of the regular declaration of covenants affecting the subdivision. Unless all documents included in the abstract are carefully read, the FFBA provisions can easily be missed.
3. The problem with FFBAs:
Although the initial conveyance deeds from the developer to a new property owner in affected subdivisions typically make reference to the existence of an FFBA, it is common for such references to be omitted in subsequent deeds. In most closings in which FFBA requirements are missed by the title company, a full search has not been done back to the developer to look for a deed reference or a declaration imposing FFBAs.
Further, many refinance title searches are done on the basis of a one or two-owner search. If the original deed into the present owner fails to reference an FFBA, these charges are never picked up by the new title company.
4. Enforcing FFBAs - the MCLA:
Until recently, the law was unclear as to exactly how unpaid FFBAs can be enforced against an offending property owner. It was generally assumed that an FFBA lien could be imposed and enforced in accordance with the Maryland Contract Lien Act (“MCLA”), as found in MD Real Property § 14-201, et seq. This is the same statute that governs liens imposed by homeowners associations and condo associations.
Under the MCLA, it is necessary to provide written notice to the homeowner, and for the lienor to file a Statement of Lien in the Land Records. In other words, the lien doesn’t exist until the provisions of the MCLA have been met. Notice of the lien is readily visible in any title search.
As always, please contact a Maryland underwriter if you require additional information about this subject.
If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.
For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.
- Bulletins Replaced:
- Related Bulletins:
- MD2012003 Maryland Specific Title Issues
- Underwriting Manual:
- Exceptions Manual: