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Improvement Bond Act of 1915

SB 1122 – The Real Story of the 2001 Tax Disclosure Law

What are the tax disclosure obligations of Realtors® and Sellers? This article looks at what the 2001 law requires and reveals some very surprising information to help Realtors® and their Sellers fulfill this law!

Senate Bill 1122 passed at the close of 2001 and addressed two special tax assessment disclosure requirements for sellers. One of the requirements simply restated the previously existing Mello-Roos disclosure that has been around for many years. However, the law did add a new requirement for another type of special assessment disclosure:

"...the seller of any real property subject to this section shall make a good faith effort to obtain … a disclosure notice concerning an assessment … from each local agency that levies a special tax pursuant to the Mello-Roos Community Facilities Act, or that collects assessment installments to secure bonds issued pursuant to the Improvement Bond Act of 1915 (Division 10 (commencing with Section 8500) of the Streets and Highways Code), … and shall deliver that notice or those notices to the prospective purchaser, as long as the notices are made available by the local agency." (Section 1102.6b of the Civil Code). [emphasis added]

The actual disclosure duty imposed on the Seller is to make a good faith effort to provide the Buyer information of these assessments on a special statutory form called a “Notice of Special Tax” as long as the notices are made available by the local agency. Cities and Counties vary where this type of information may be made available such as at the local Controller, Finance Department, Treasurer or Tax Assessor. Typically, the local offices have not been set-up to help Sellers as of yet. Once they become more readily available, the “Notice of Special Tax” will contain information about the assessment such as the amount levied, what it is for, escalation possibilities, etc. There is also a section where the Buyer signs to acknowledge receipt. The Notice does grant rescission rights to Buyers if they elect not to purchase the property based on the information contained within it.

Just What is a “1915 Bond”?
There are several laws that exist in California that allow “special assessments” to be levied against a property. The “Improvement Bond Act of 1915” is one of those laws. A 1915 Improvement Bond is a form of public financing usually associated with off-site land improvements, such as streets, curbs, gutters and underground sewer and water infrastructure. A 1915 Bond is similar to a construction loan with a principal balance and an amortization period over which principle and interest is paid for by the property owner.

When a 1915 Improvement Bond special assessment district is activated, an assessment lien is placed against each affected property and a special assessment appears on the property tax bill until the debt is fully paid (this can be up to 40 years!). An important feature of these “bonded” assessment districts is that the lien has priority status. If the special assessment is not paid on time, the home can be foreclosed upon and sold through an accelerated foreclosure process that the issuer has a special right to do. This could occur as soon as 150 days after the bill becomes delinquent. Even though a “special” or “supplemental assessment” may appear on the property tax bill, it is not necessarily a Mello-Roos or “1915” bond assessment subject to a priority lien or a specific disclosure requirement.

If there is a true “1915 type” bond assessment associated with a property, the cash equivalent of the remaining unpaid bond debt may also be added to the sales price for tax assessment purposes. The Board of Equalization, on the other hand, does not generally consider Mello-Roos assessments as a type of bond that should be added to the assessed value of a property.

Breathe Easier, Here’s The Big Secret . . .
Mello-Roos and 1915 Bond assessments are disclosed in the Preliminary Title Report as “liens” against a property. Assessors and state tax agencies recommend that Buyers carefully review the title documents for this information. It may be prudent to direct the Buyer’s attention to this document for this purpose.

FANHD clients now receive the 1915 Bond Act and Mello-Roos "In" vs. "Out" disclosure with every FANHD Comprehensive Report and Industry Standard Report.