The Counselor

New Montgomery County Property Tax Disclosure Law

February 12, 2008

In an attempt to assure that home purchasers in Montgomery County understand how much they may be required to pay in real property taxes, the County Council has enacted new legislation. Effective April 1, 2008, “any written or electronically transmitted material that the Seller produces or distributes in connection with the advertisement for sale of a specific residential real property located in the County must disclose the estimated full-year tax that a Buyer would be obligated to pay in the next full tax year after the property is transferred….” The figure to be disclosed must include all State and County property taxes and any other non-tax fee or charge included in the consolidated tax bill. The estimate must be updated (1) each July 1 when the new annual tax bills are issued, (2) and by January 31 if the property is in the 3rd year of its 3–year assessment cycle to reflect the revised assessment by the State Department of Assessments and Taxation (“SDAT”).

A little background may be helpful to understand the reason for this ordinance. Under Maryland law, properties are assessed for real estate tax purposes on a three year cycle. Any increased assessment is phased in over a three year period. In addition to this phase in, an owner occupant may be entitled to receive a Homestead Credit, which limits any increase in the tax bill over the prior year’s bill. For instance, the Homestead Assessment cap for Montgomery County is 10%. When a new owner-occupant acquires residential real property, however, the first full year tax bill that the new owner receives after acquisition is not limited by the Homestead credit. Thus, the new owner’s tax bill will be based on the phased-in assessed value for that tax year without the benefit of any cap on the amount of increase from the previous year’s assessment. This can sometimes result in a significant increase in the tax bill of the new owner. For subsequent tax years, the new owner-occupant does receive the Homestead credit (provided he has applied for it) and the increase in the taxable assessment will be capped. Based on this potential increase in the tax bill of the new owner, the County Council decided that sellers, in advertising the home, should advise prospective purchasers of the estimated property taxes which will be due for the first full year following the sale.

In order to comply with the law, the Seller (or Seller’s Agent) will need to determine the phase-in assessment of the property for the next tax year and then apply the current tax rate to that value. Any other charges that appear on the annual tax bill, such as front foot benefit charges, solid waste charges and special taxes must be added to determine the estimate required to be disclosed. The phase-in assessment value can be obtained from the SDAT website, www.dat.state.md.us under “Real Property Data Search.” The County tax rate, which is applied to the phase-in assessment to determine the tax, can also be found at the SDAT website under www.dat.state.md.us/sdatweb/taxrate.html.

The law requires that the Montgomery County Office of Consumer Protection (“OCP”) assist Sellers in determining the estimate required by the ordinance. It is anticipated that OCP will have available clear guidelines to follow by April 1. Moreover, OCP is working on a program, which it hopes to have available by April 1, that will allow anyone to log into the OCP website, input the address of the property and automatically receive the tax estimate required to be disclosed. Eric Friedman, the director of OCP, is working with County IT personnel to implement this program.

One of the more troubling aspects of this new law is the requirement that the estimate be included in “any written or electronically transmitted material that a Seller produces or distributes in connection with the advertisement for sale of a specific residential real property…” [Emphasis added]. There is no definition of the term “advertisement.” Construed literally, this includes signs, small newspaper ads, multiple listing material and internet information, as well as flyers, brochures and other printed or electronic materials. The OCP has suggested a “common sense” approach to this issue, but without specific regulations or other guidance from the County, we are concerned that any materials that do not include the tax estimate could be construed to violate the law. Hopefully, the OCP will be able to promulgate some guidelines that can be relied upon by Sellers and their agents.

Failure to comply with the law is a Class A violation under the County code which can be treated by the County as a civil or criminal matter involving fines and, theoretically, even incarceration. The ordinance does not clearly delineate who must comply with the law. It refers to materials that “… a Seller produces or distributes …” as being subject to the law. However, elsewhere in the bill it suggests that a “… Seller or the Seller’s agent is not liable for any incorrect information disclosed … if the Seller relies in good faith on a method approved or recommended by the County to estimate the information.” This language could be construed to suggest that both Sellers and their agents could be liable for failure to comply with the law.

Hopefully, some of these issues will be clarified prior to April 1st.

The foregoing was prepared by the Law Firm of Darby, Nalls, Smyth & Muldoon, LLC, General Counsel to Counselors Title, LLC for general informational purposes. It is not intended as legal advice.