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Comments On "Community Development Charges"
Update March 25, 2005:
Received the Liberty Community Infrastructure Financing Authority's (Golf Village) State Audit & Management Letter
detailing the deficiencies and noncompliance citations from the State of Ohio Auditor. You can read the "Management Letter" by clicking here and the actual State audit by clicking here.
Update March 23, 2005:
After taking a look at M/I Homes' disclosure on "Community Development Charges" in Golf Village, they are properly disclosing in their paperwork. They include a detailed description of the nature of the charges, the volume, page #, and county where the deed is recorded as well as a breakdown of the estimated yearly cost of the charge based upon the assessed property value. M/I's disclosure at the time of this update has incremental breakdowns of the charges from the price range of $150,000-$300,000, however the homes in Golf Village generally start at the $300,000 mark. The buyer is able to calculate the estimated charge on their particular property though through some simple math because M/I Homes does state the millage of the "Community Development Charge". M/I Homes is following the ORC 349 law to the letter in their disclosure, as they do identify the volume and page # of the deed.
Update:
March 8, 2005 - The Columbus MLS System now has included the field "Community Development Charge", Volume/Page #, & Instrument Number within the listing. They should certainly be commended for recognizing and coming to a good solution for the issue. The problem thus far is the lack of Realtors properly filling out the "Community Development Charge" field or the Tempo MLS System not updating the new information. The field for the "CDC" has been in the new listing agreements since January 2005. It is understandable a delay in getting the new information loaded into the database. There is no excuse, in our minds, however for 26 of 26 listings within Golf Village (a community developed with the charge by Triangle's Don Kenney) to have no disclosure of the "CDC" as of March 8, 2005. This could be due to the listing agent listing the property prior to the new change in the listing agreement or the MLS system not updating the information. Regardless, it is the responsibility of the Realtor to disclose and update the information of the listing. Nobody to my knowledge has done so. It is not only the Realtors, but some of the builders as well, as they have their own real estate companies and are well aware of the charges when they list a property, but still fail to disclose according to the law.
Update (March 15, 2005):
Congratulations to Rick Wright in my offfice RE/MAX Affiliates for being the first Realtor to properly disclose the Community Development Charge in his listing with the MLS. This truly was a good sight to see
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Brief Explanation Of A "NCD" |
A "New Community Organization" under Ohio Revised Code 349 enables a developer to recover a portion of his development costs through a "Community Development Charge" binding upon the home/land owner. The developer gets reimbursed from a bond structured by the "New Community Financing Authority" who collects the annual "Development Charge" from the home owners. This charge has not been disclosed properly by many builders and real estate agents in Central Ohio according to Ohio Revised Code 349.07 which states a purchase agreement is not enforceable unless it contains the Volume and Page Number of the County in which the deed for the "New Community Development was recorded. This "Community Development Charge" can be substantial (in the thousands of dollars) and in many cases buyers are unable to determine the amount which they are going to be charged due to the "Community Development Charge" being assessed on the appraised value of the home or the "New Community Financing Authority" filing the deed with the County Recorder at date later than when a home owner purchased the land/home. One question we beg to ask is why the value of the home should be taken into consideration when paying for a portion of the developers infrastructure costs. Our view is the the "Community Development Charges" should not exist in the first place, but if they must, they should be a fixed amount based on the value of the land not the value of the home, as the value of the home has no direct affiliation with the developer's cost to develop the community with roads, sewer, curbs, excavation, landscaping, etc. For an eye-opening list of costs the developer is able to recover, click HERE |
| Potential Problems To Home Buyers |
*We have experienced relocating employees have encountered difficulties with their employers relocation company in not participating in the purchase of the employees property as well as relocation benefits due to the financial liability and stigma attached to the property due to the "Community Development Charge".
*Less affordability to the next buyer, which translates into a lesser value attached to the property from the "CDC" when you try to sell
*"Community Development Charge" is an annual or twice a year "tax" frequently over $1,000 per year
*Lack of proper disclosure by some builders and sellers, causing unknown payments required
*It may be difficult to sell a home in a "NCD" due to the additional assessment
*Rates based upon the assessed value of the property causes unknown future payments
*It has not been the custom for home owners to pay the developers costs in a subdivision
*Necessity to properly disclose "NCD" when selling could attach a stigma to the property
*Community Financing Authorities have ability to change the rates of the "CDC" (ORC 349.06)
*Due to loopholes, the developer may retain their position on the board rather than turning over authority to the home owners, by purchasing contiguous land and continuing the "New Community Development".
*The "Community Development Charge" is a lien against the property & ahead of a your mortgage (ORC 349.07)
*The "Community Development Charge" has significant penalties if not paid as required (varies per community)
*Certain rights are given up within a "NCD" compared to a community not in a "NCD"
*"Community Development Charges" along with other factors can place a financial burden on a home owner, causing the owner to be "upside down" on the loan and likely in a default situation, causing surrounding property values to suffer
*Many More...Call Me At 1-800-875-0306 for more of my insight on "New Community Organizations" |
| Potential Advantages To Home Buyers |
*Generally the "New Community Development" will have nice facilities, good roads, state of the art utilities and perhaps even a golf course, although it will be you paying (at least a substantial portion) for the nice facilities, where in the past, it had been the norm the developer would pay for such things as quality roads, curbs, installation of sewer and water systems/lines, certain community facilities, etc. Under "New Community Developments" it seems the home owners are at least partially responsible for the costs of development and use of facilities on top of normal Home Owner's Association Dues. |
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ORC 349.07: " ...No purchase agreement for any real estate or interest in real estate upon which a community development charge exists by reason of a covenant running with the land shall be enforceable by the seller or binding upon the purchaser unless such purchase agreement specifically refers to such community development charge and identifies the volume and page number of the deed records of the county in which the covenant running with the land establishing such community development charge is recorded" - At the time of writing this (January 2005) we are aware of several (actually the majority) builders and Realtors who are not following the law and should not even have valid contracts, but it has passed under the radar. This has the potential of becoming a major issue due to lack of proper disclosure. |
Residential Property Disclosure |
Our local Residential Property Disclosure has a location (Section K, Questions 3 & 4) where the home owner must disclose if any assessments go along with the property. The "Community Development Charge" would fall under this category. It is my fear, some sellers may not be aware of the "CDC" when filling out the Residential Property Disclosure and the new owner could possibly pursue legal action. At this point in time, it is my opinion, the great majority of real estate agents are unaware of the disclosure requirements. In fact, while attending Continuing Education Classes toward the end of January 2005, the instructor, nor any of the 71 other real estate agents were aware of what a "Community Development Charge" was, let alone the proper manner to disclose its existence, both in a purchase agreement (Volume, Page # where deed was recorded) and the seller's residential property disclosure. |
| "Community Development Charges" entered into the Columbus MLS |
The new Listing Agreement and purchase contract from the Columbus Board of Realtors does include an area for "Community Development Charges". I am glad to see they are addressing the issue. The Listing Agreement has a portion where one must check "yes" or "no" to "Community Development Charge" and then mark the Volume and Page Number if a charge exists. This is a step in the right direction for disclosure, unfortunately, the data will not be included on the Internet MLS until somewhere around March 2005 I have learned. Placing the information on the listing agreement was definitely the correct move, but it does not solve the problem because the buyer is not able to see the listing agreement and the data regarding the "Community Development Charge" is not going to be up on the Tempo Internet MLS until later in the year. The law (ORC 349.07) requires disclosure on the purchase agreement which to my knowledge is very likely not being done properly by builders or by resale homes in "New Community Developments". |
Example Of Communities With A "Community Development Charge" |
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New Albany Community Authority
Includes all the land within the New Albany school boundaries. For Franklin County that includes tax district codes 220,222,545. The New Albany Community Authority assessment applies to all land and structures be they residential, commercial or vacant land. For information call the New Albany Company at 614-939-8000. Recorded in County Franklin, Instrument number 16999C04
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Pinnacle Community Infrastructure Financing Authority
Includes the Pinnacle Club area of Grove City. A subdivision in the Grove City area, that M/I is developing. For information call Stephen Caplinger at M/I Development 614-418-8000. Recorded in County Franklin, Instrument number 200408090185097 |
Murphy's Park - Powell
Powell Community Infrastructure Financing Authority
Includes the communities of Murphy Park in Delaware County, the city of Powell. For information call Triangle Development 614-540-2400. Recorded in County Delaware, Volume 0120, Page 1557
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Although not confirmed, there may be a Community Development charge upon subdivisions in:
- Granville
- Pickerington
- Canal Winchester
- Obetz
- City of Delaware, The Glennross Subdivision off Cheshire Rd where the 2005 Parade of Homes will be held.
- Scioto Reserve North (not yet developed) in Delaware County.
- The land between Dublin and Hilliard that is in the city of Columbus (not yet developed).
- Sawmill Parkway as it is extended to Hyatt Rd. and beyond in Delaware County these areas may be developed by the Community Development method.
- Jeffery Place Development (not yet Developed).
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Some Thoughts About "New Community Developments" And How They Are Structured
Recently in Central Ohio a new trend has been taking place by developers. Under Ohio Revised Code Chapter 349 called "New Community Developments" a developer is able to be "reimbursed" some of his infrastructure costs for the development of a new community. For example a developer may go to a local government such as, lets say, Liberty Township, and apply for a "New Community Development". Paperwork is filed and the development gets presented to the local government authority. If the development is approved, a new "Authority" is structured for example the "Liberty Community Infrastructure Financing Authority" where the developer and some other members are on the board and elected by commissioners of the local government. The developer then begins the development of the community and builds his infrastructure such as sewer, roads, excavation, landscaping, etc. The developer is then reimbursed a portion of these costs through a local bond. The land and home owners in that particular subdivision are then required to pay a "Community Development Charge." The structure of the "CDC" can change from developer to developer. For instance, some home owner's in communities pay a flat rate "tax" over so many years (usually around 20 years), while in other developments, a home owner pays the "Community Development Charge" based upon the appraised value of their home with no set date for the maturity of the bond or when they are able to stop paying the charge.
This "Community Development Charge" is a lien against the property and is ahead of a mortgage loan. Frequently, a $400,000 home will be approaching $2,000 per year for its Community Development Charge. It is based on "mills" such as regular property taxes usually. We feel the ramifications of the "New Community Developments" are extensive. First, with many lendors loaning money to buyers with no money down, a can be in a bad situation because for the most part they do not consider the "Community Development Charge" in qualifying a buyer or their loan to value ratio of the financing. The "Community Development Charge" along with increasing property taxes has the potential to cause a big impact on home owners. With recent trends with "interest only" loans and "zero money down", "Community Development Charges" just add to the growing ways of being "upside-down" on a loan.
There are many loopholes within the law and some of the local developers have been taking advantage of the law. For instance, if a "New Community Development" exists the developer has the ability to purchase any contiguous land to the existing development and include that land as well as a "New Community Development", thus keeping the "New Community Development" alive and possibly bypassing the law that the land has to be at least 1,000 acres or the entire land has to be located within the same municipality. The developer also stays on the board for quite some time before it is turned over to the home owners if they keep expanding the land within the "New Community Development". Since the developer is a member of the "Community Financing Authority" they have the ability to raise, lower, or otherwise alter the rates of the "Community Development Charge" and the expiration time of the charges by a vote within the "Community Financing Authority".
We see many potential disasters with this new local development. Under normal circumstances, one would think the developer would discount the land a proportionate amount due to lowering his costs of development, this however is usually not the case. Also a major problem is disclosure of the "Community Development Charge". Under the Ohio Revised Code, any contract must state the Volume and Page Number of the deed and the county in which the "New Community Development" exists. Unfortunately, many local builders are not following the law and not disclosing properly. Usually, builders will buy land from the developer for homes. The builder is properly disclosed by the developer (usually) but the builder does not pass (in some cases) the same level of disclosure to the home buyer. To make matters even worse, frequently the final figures of the "Community Development Charge" are not known at the time you build your home, so it is similar to signing an open end contract. For instance, the developer may not have the community completed by the time you purchase your home, so the final assessment is not recorded to the "Financing Authority" until a later date, leaving the home buyer unaware of the actual cost of the "Community Development Charge" -- only a basic estimate. Under some structures, the home owners charge can increase tremendously if it is based upon the appraised value of the property rather than a fixed rate over a determined number of years.
It is our thoughts, the Ohio Revised Code was originally drafted with good intentions. Our belief is the purpose and intent of the legislation was to bring utilities to areas that previously did not have access to city water and sewer and the developer was to be assisted in recovering some of their costs for the improvement of the community. Unfortunately, it seems this is not the only way ORC 349 is being used, as some land declared as a "New Community Developments" already had the infrastructure in place nearby prior to the new development.
To be continued.... |
§ 349.09. Exemption from other bond laws.
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"The issuance of new community authority bonds and notes or new community authority refunding bonds under this chapter need not comply with any other law applicable to the issuance of bonds or notes; however, sections 9.98 and 9.981 [9.98.1] to 9.983 [9.98.3] of the Revised Code apply to such bonds and notes."
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§ 349.07. Community development charges.
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"Notwithstanding any other rule of law, any covenant or agreement in deeds, land contracts, leases and any other instruments or conveyance by which real estate or any interest in real estate is conveyed by or to the developer or by the new community authority to any person or entity, including the developer, whereby such person or entity agrees, by acceptance of any such instrument of conveyance containing said covenant of agreement, to pay annually or semiannually a community development charge for the benefit and use of the new community authority to cover all or part of the cost of the acquisition, construction, operation and maintenance of land, land development and community facilities, the debt service thereof and any other cost incurred by the authority in the exercise of the powers granted by Chapter 349. of the Revised Code shall be deemed to be a covenant running with the land and shall, in any event and without regard to technical classification, after such instrument has been duly recorded in the land records of the county, be fully binding on behalf of and enforceable by the new community authority against each such person or entity and all successors and assigns of the property conveyed by such instrument of conveyance."
...When any community development charge is not paid when due, the new community authority may certify the charge to the county auditor, who shall enter the unpaid charge on the tax list and duplicates of real property opposite the parcel against which it is charged, and certify the charge to the county treasurer. An unpaid community development charge is a lien on property against which it is charged from the date the charge is entered on the tax list, and shall be collected in the manner provided for the collection of real property taxes. Once the charge is collected, it shall be paid immediately to the new community district.
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No community development charge established pursuant to this chapter shall be construed as prohibiting or limiting the taxing power of municipal corporations. |
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§ 349.08. Issuance of bonds and notes.
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A new community authority may, from time to time, issue community authority bonds and notes of the authority in such principal amounts as, in the opinion of the board of trustees of the authority, are necessary for the purposes of paying all or any part of the cost of land acquisition, land development, or the acquisition or construction of community facilities or parts thereof. The authority may, from time to time, issue renewal notes, issue bonds to pay such notes and, whenever it considers refunding expedient, refund any bonds by the issuance of community authority refunding bonds, whether the bonds to be refunded have or have not matured, and issue bonds partly to refund bonds then outstanding and partly for any other authorized purpose. The refunding bonds shall be sold and the proceeds applied, to the extent necessary, to the purchase, redemption, or payment of the bonds to be refunded. Except as may otherwise be expressly provided by the board of trustees, every issue of its community authority bonds or notes shall be obligations of the authority payable out of the income source of the authority which is pledged for such payment, without preference or priority of the first bonds issued, subject only to any agreements with the holders or guarantors of particular bonds or notes pledging any particular income source. Such pledge shall be valid and binding from the time the pledge is made and the income source so pledged and thereafter received by the authority shall immediately be subject to the lien of such pledge without any physical delivery thereof or further act, and the lien of any such pledge is valid and binding as against all parties having claims of any kind in tort, contract, or otherwise against the authority, irrespective of whether such parties have notice thereof. Neither the resolution nor any trust agreement by which a pledge is created need be filed or recorded except in the records of the authority.
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Whether or not the bonds or notes are of such form or character as to be negotiable instruments, the bonds or notes shall have all the qualities and incidents of negotiable instruments, subject only to the provisions of the bonds or notes for registration.
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The bonds and notes shall be authorized by resolution of the board of trustees, shall bear such date or dates, and shall mature at such time or times, and in the case of any such bond not exceeding forty years from the date of issue, as such resolution or resolutions may provide. The bonds and notes shall bear interest at such rate or rates, be in such denominations, be in such form, either coupon or registered, carry such registration privileges, be payable in such medium of payment, at such place or places and be subject to such terms of redemption as the board may authorize. The bonds and notes may be sold by the authority, at public or private sale, at or not less than such price or prices as the board determines. The bonds and notes shall be executed by two officers of the authority as provided in the resolution authorizing the same, either or both of whom may use a facsimile signature, the official seal of the authority or a facsimile thereof shall be affixed thereto or printed thereon and attested, manually or by facsimile signature, by the secretary of the authority, and any coupons attached thereto shall bear the signature or facsimile signature of one officer of the authority as provided in the authorizing resolution. In case any officer whose signature, or a facsimile of whose signature, appears on any bonds, notes, or coupons ceases to be such officer before delivery of bonds or notes, such signature or facsimile signature nevertheless is sufficient for all purposes the same as if he had remained in office until such delivery and, in case the seal of the district has changed after a facsimile has been imprinted on such bonds or notes, such facsimile seal will continue to be sufficient for all purposes.
... Neither the members of the board of trustees of the new community authority nor any person executing the bonds or notes shall be liable personally on the bonds or notes or be subject to any personal liability or accountability by reason of the issuance thereof.
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§ 349.06. Powers of authority.
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In furtherance of the purposes of this chapter, a new community authority may: |
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(A) Acquire by purchase, lease, gift, or otherwise, on such terms and in such manner as it considers proper, real and personal property or any estate, interest, or right therein, within or without the new community district; |
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All information located within this page is written from our interpretation. Some people may interpret the Ohio Revised Code 349 and its implications, advantages or disadvantages in a different manner. All information located within should be verified for complete accuracy, while the author made a best attempt for accuracy, we recommend you research all of the details. We are not attempting in any way to interpret or practice law, however we suggest if you are interested in learning more about Ohio Revised Code 349 you consult an attorney.
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