William J. Thomas, MBA
Senior Underwriter
Pinnacle Title & Escrow Inc.
Rockville Maryland

Improvement liens and assessments can create many title issues and complications. Practitioners must be vigilant in reviewing all matters appearing of record and in carefully reading the title documents. Additionally, proper exceptions must be included in title insurance binders and policies, so that the title company does not end up paying assessment costs for the unaware buyer.

Most think that utility liens and assessments are easily found in title searches by obtaining a lien certificate. This assumption might be true if the subject property is served by public water and sewer where the assessment is made by the County or local jurisdiction. However, if the property is subject to a private utility assessment, the charge and obligation to pay the assessment may not be so easily identified.

As background, Maryland’s local governments maintained, for many years, a system for separate assessments known as front foot benefit charges in order to pay for needed utility infrastructure. These assessments funded improvements such as water pipes and sewers. Historically, these forms of assessments have been found in the Washington suburbs and a number of Maryland counties and municipalities and were collected on a property owner’s tax bill. In recent years, some of the local governments have demanded payment for the utility infrastructure upfront from the developer. In response to these added costs of development, some developers, instead of passing all such costs immediately onto the buyer, will amortize the cost over time and include covenants in declarations providing for a special assessment that the buyer must pay to a private “utility company” for a number of years. These special assessments also are utilized for improving large areas or for constructing a neighborhood’s sidewalks, street improvements, facilities (recreation, transportation, wastewater, and the like), and for shoreline maintenance. In some contracts of sale, the balance of these improvement charges must be paid in full at the transfer or are assumed by the purchaser for the balance of the term. The problem with the developer’s special assessment collection is that it is not found on a local government tax bill or a lien certificate, so the assessment can go unreported in a title report. Further, such covenants or private special assessments are extremely detailed and are often overlooked by title abstractors and examiners as to the effect and priority of the liens that are established.

For example, some of these title documents or agreements creating the private special assessment lien have been drafted to make their liens superior to ALL SUBSEQUENT LIENS including, but not limited to first mortgages. Some make their liens subordinate to ONLY FIRST MORTGAGES WITH INSTITUTIONAL LENDERS and therefore secondary loans are not subordinated for the superior lien of these private contracts. Some do not even address the delinquency issue at all and others make the delinquencies subject to the "Maryland Contract Lien Act".

This non-standard dichotomy is very concerning to those examining and issuing title commitments. If a Declaration of Covenants including covenants dealing with private special assessments is not fully and accurately reported by the abstractor, it might be improperly listed on the commitment and final policy. Moreover it could cause both the title insurer and title agent to be at risk. It is imperative that the abstracting community provide pertinent portions and properly report the effect of these documents. Merely providing a copy or citing an exception is not sufficient to alert the practitioner to the private special assessment. Moreover, second trusts may be jeopardized if priority is not reviewed.

A best practice technique is for the practitioner, abstractor and/or title agent to obtain satisfactory certification as to the status of the amounts owed. The "belt and suspenders approach" for all cases should be to obtain local government lien certificate information and a certificate issued by the private special assessment company or their agents, like a certificate of resale from a condominium association. Also, the following type of clauses should be added to the commitment for title insurance, if applicable:


SUBJECT TO THE TERMS AND CONDITIONS AND PRIORITIES OF THE LIEN OF DEFERRED WATER AND SEWER CHARGES as established pursuant to that certain Declaration of Deferred Water and Sewer Charges dated ____2004 and recorded among the Land Records of Montgomery County, Maryland on ____2004 in Liber **** folio >>> from Declarant to FFBC Company.


Effect of that certain Declaration of Deferred Water and Sewer Charges dated ____2004 and recorded among the Land Records of Montgomery County, Maryland on ____2004 in Liber **** folio >>> from Declarant to FFBC Company.


Effect at time of delinquency of a separate and subordinate lien as to delinquent water and sewer charges as established by that certain Declaration of Deferred Water and Sewer Charges dated ____2004 and recorded among the Land Records of Montgomery County, Maryland on ____2004 in Liber **** folio >>> from Declarant to FFBC Company where said delinquency prior to foreclosure thereof being governed by and becoming subordinate to prior liens of record as prioritized by the filing of a Statement of Lien instrument pursuant to the Maryland Contract Lien Act pursuant to Real Property Article §14-201 et seq. of the Annotated Code of Maryland.

In conclusion, abstractors, title company agents and attorneys have to be vigilant when reviewing title and property documents for liens. One cannot rely on a local government lien sheet or a cursory review of a title report.