Dirt Bonds, Assessments, and Late Payments: Florida Community Development Districts

20 May 2009 Publication
Authors: Emerson M. Lotzia

Legal News: Real Estate

A Community Development District (CDD) is an independent taxing district authorized by Chapter 190, Florida Statutes, that is established to build and finance infrastructure for master planned communities. The CDD issues bonds to finance infrastructure such as roads, water, sewer, and recreational facilities. CDD bonds are sometimes referred to as “dirt bonds” because the bonds finance the development of raw land. The CDD usually imposes assessments on owners of lots and commercial property subject to the CDD so that the CDD has income to pay the principal and interest on the CDD bonds and pay the maintenance costs for the infrastructure owned by the CDD. Debt assessments are usually paid to the CDD in installments over a 30-year period or a five-to-seven-year period, and maintenance assessments are paid annually.

The assessments have the same lien priority as ad valorem taxes, meaning that unpaid assessments have priority over mortgages and ownership in the land if the assessments are not paid. Assessments can be collected by the tax collector in the same manner as ad valorem taxes are collected, a process generally known as “on the roll,” or collected directly by the CDD pursuant to Chapter 170, Florida Statutes.

During the initial years of a CDD, the original developer desires the CDD to assess directly the land owned by the original developer pursuant to Chapter 170, Florida Statutes, because the direct assessment avoids an approximate six-percent collection cost charged by the tax collector if the assessments are collected on the roll.

If the developer is late on the payment of the installment of the assessments (one minute, one day, or one month — the degree does not matter), Section 170.10, Florida Statutes states that the entire assessment is accelerated and subject to foreclosure. This means the developer and any bank financing the developer will be foreclosed upon unless the developer repays the entire accelerated assessment. Section 170.10 does not allow the CDD to accept a late payment and mandates foreclosure.

We have negotiated with the CDD and the bondholders to reduce the impact of the mandated acceleration and foreclosure, and future articles will address certain techniques that we have used.


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If you have any questions about this Legal News or would like to discuss the topic further, please contact your Foley attorney or the following individual:

Emerson M. Lotzia
Jacksonville, Florida
904.359.8722
elotzia@foley.com

Authors

Emerson M. Lotzia

Retired Partner

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