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NEW LAW REQUIRES A SELLER TO DISCLOSE THE POTENTIAL
FOR SUPPLEMENTAL PROPERTY TAX BILLS

When real property changes ownership (or when new construction is

completed), California law requires that the value of the real property be reassessed for property tax purposes. This reassessment occurs at the time of transfer (or completion). However, property taxes are collected on a specific date. As such, issuance of one or two supplemental property tax bills are required to account for any difference between the property taxes relating to the old assessment value and the property taxes relating to the new assessment value. Unfortunately, many prospective buyers did not realize that after the close of escrow they may have to pay supplemental tax bills, which cannot be paid through lender impound accounts. Without a doubt, the failure to plan for supplemental tax bills can result in severe economic hardship.

The California Legislature, acknowledging the hardship caused by the issuance of supplemental tax bills, enacted a new disclosure law. Effective January 1, 2006, a seller (or his/her agent) of residential property that is one to four units in size must deliver to the prospective purchaser a disclosure notice regarding the potential for one or more supplemental tax bills. The newly-mandated disclosure notice must include the following language:

California property tax law requires the assessor to revalue real property at the time the ownership of the property changes. Because of this law, you may receive one or two supplemental tax bills, depending on when your loan closes.

The supplemental tax bills are not mailed to your lender. If you have arranged for your property tax payments to be paid through an impound account, the supplemental tax bills will be paid by your lender. It is your responsibility to pay these supplemental bills directly to the tax collector.

If you have any questions concerning this matter, please call your local tax collector’s office.[2]

The seller (or his/her agent) must deliver the above disclosure to the purchaser. Delivery of the above disclosure must be by personal delivery and before transfer of title. The seller’s failure to provide the required disclosure will not, in and of itself, invalidate the transfer. However, any person who willfully or negligently fails to provide the required disclosure shall be liable in the amount of actual damages suffered by the purchaser.

The risk of a damage award should result in sellers providing the required disclosure, and buyers will not be surprised when the tax man cometh.

Mr. Torres is an Associate in the firm’s litigation group. Email: glt@kpclegal.com.

[1] This title must be in at least 14-point type or a contrasting color.

[2] This language must be in at least 12-point type or a contrasting color.