Disclaimer: The information gathered here is deemed reliable as of the date of publication. For additional information on this topic contact Evelyn Miller, Partner, at 202-753-7400.

Maryland residential real estate sellers must provide private deferred water and sewer assessment disclosures to buyers before the sales contract is signed to avoid monetary penalties, closing delays, or rescinded offers.

What are deferred water and sewer assessments in Maryland?

A developer initially experiences private deferred water and sewer assessments when the builder (and not the public utility company) installs public water and sewer lines to the residential property. These fees, also called front foot benefit charges, help repay the costs of connecting the residences to the public water and/or sewer systems.

The housing developer and the private utility company enter into an agreement called a “Declaration of Deferred Water and Sewer Charges” to specify which properties are subject to the assessment charges. This agreement gets recorded as a lien. As such, each purchaser of a designated property is subject to the lien and must pay the assessment charges according to the agreement’s payment schedule for as long as they own the home.

The private deferred water and sewage assessment fee is a contractual agreement between the lienholder and individual property owners and is not a requirement by the county in which the home is located.

Typically private deferred water and sewer assessments have an annual rate payable over 15 months to 30 years with amounts ranging from $500 to $2,000 per year. This charge may be unattractive to prospective buyers, but failing to disclose these fees in the sales contract is against the law and can result in substantial consequences.

Why must a seller disclose a private deferred water and sewer assessment?

The fee for the private deferred water and sewage assessment is a material fact that needs to be disclosed to the residential buyer. The Maryland statute requires that the seller disclose this fee in the sales contract when applicable, and failure to disclose gives the buyer the right to terminate the contract or make the seller pay all or part of the remaining assessment amount.

What are the private water and sewer assessment requirements?

A seller must disclose the private water and sewage assessment fee to buyers early in the sales contract, as seen in Section 14-117 of the Real Property Article.

For example, you may find the following notice in the sales contract for a residential property that is served by public water and sewage companies for which deferred charges have been agreed upon by recorded covenant:

NOTICE REQUIRED BY MARYLAND LAW REGARDING DEFERRED WATER AND SEWER CHARGES

This property is subject to a fee or assessment that purports to cover or defray the cost of installing or maintaining during construction all or part of the public water or wastewater facilities constructed by the developer. This fee or assessment is $___, payable annually in (___month___) until (___date___) to (___name and address___) (hereafter called “lienholder”).

There may be a right of prepayment or a discount for early prepayment, which may be ascertained by contacting the lienholder. This fee or assessment is a contractual obligation between the lienholder and each owner of this property and is not in any way a fee or assessment imposed by the county in which the property is located.

The Maryland Association of Realtors® (MAR) and the Greater Capitol Area Association of Realtors® (GCAAR) have addenda that align with the updated statutory requirements.

The MAR “Notice and Disclosure of Deferred Water and Sewage Charges” form requires the seller to disclose the assessment amount, payment schedule, date of the final payment, and the lienholder’s name and address. The seller and buyer acknowledge the seller’s obligation to disclose the deferred water and sewage assessment in paragraph 17 of the MAR “Residential Contract of Sale.” The parties acknowledge the inclusion of the MAR Notice Addendum in paragraph 18 of the contract.

The GCAAR “Regulations, Easements and Assessments (REA) Disclosure and Addendum” provides comparable disclosure requirements in paragraph 9.

What is a buyer’s right if a Maryland seller does not disclose the preferred water and sewage assessment fee?

If the seller provides written notice of the private deferred water and sewage lien after the sales contract was signed, then the buyer has five days to rescind their contract in writing without liability or penalty. When the buyer rescinds their contract, they are entitled to a full refund of all deposits made on that contract. (Reference: Md. Code. Ann., Sec. 14-117(b)(3)(i)(3))

What happens if a Maryland seller discloses the deferred water and sewage assessment fees after settlement?

If the seller was charged a private deferred water and sewage charge and failed to disclose until after the settlement, then the buyer can compel the seller to pay the full amount of any undisclosed assessment fee. While Sec. 14-117 of the code entitles the buyer to monetary penalties from the seller if they fail to disclose, the buyer could experience difficulties collecting the money.

How can Maryland real estate agents help buyers and sellers with the private deferred water and sewages assessment fees?

Before listing a property, real estate agents need to ask sellers if they pay fees to a private utility company annually, quarterly, or monthly because a property tax bill will not necessarily show this deferred water and sewage charge. If the seller does pay a deferred water and sewage fee, it needs to be disclosed to the buyers after an offer is made.

If you are an agent representing a Maryland buyer, then ask for all disclosures before making an offer. Once an offer is made, you need to closely review the sales contract with your buyers before signing the agreement to ensure all fees, including the deferred sewage and water charge, is known.