How Lenders (& Local Governments) Avoid Getting Left Holding the Bag
First, a word about real estate’s better known — OK, less obscure — acceleration clause.
Also known as a “due on sale” clause, it’s that little paragraph in very fine print at the end of each mortgage that provides if the homeowner 
transfers title to their home — that is, sells it — the outstanding mortgage balance is immediately due and payable.
Were it not for that provision, lots of homeowners — and by “lots,” I mean millions — would have sold their underwater homes the last few years, leaving the new owner and the bank to duke it out (why someone would buy a home subject to such a lien is another question).
Handling Special Assessments
Now, on to situation #2.
When a city levies a special assessment, homeowners often have the option of paying it off in one lump sum, or spreading the amount over annual installments.
So far, so good.
But what happens if the homeowners elects annual installments, but then sells their home?
The entire amount becomes due and payable — essentially, it accelerates.
In effect, it’s no different than if the owner had purchased a new furnace, and opted to pay it in installments.
Rather than figure out how to collect from the new owner — or repossess the furnace — the furnace vendor requires the balance to be paid off before the home is sold.
Whose Responsibility?
Which leaves the question, who is responsible for a still-outstanding special assessment when a home is sold?
Answer: whomever the Buyer and Seller contractually agree.
The standard Minnesota residential Purchase Agreement provides that the Buyer may assume responsibility for it; the Seller may; or they may share (pro rate) responsibility.
In practice, though, Sellers typically are responsible.
Many Sellers feel that’s unfair, because it’s the new owner — not them — who is going to be around to enjoy the associated improvement (typically, a new sidewalk, curb, sewer, and/or street).
However, the typical Buyer’s position is that the obligation predates their ownership, which means the Seller should pay for it.
My advice to Sellers who are adamant about not paying the special assessment balance: instead of fighting with a prospective Buyer about it and risk derailing a deal, go ahead assume responsibility for it up front — but increase their home’s asking price by an offsetting amount.
P.S.: the foregoing assumes special assessments that are levied and payable.
Special assessments that are merely prospective (for example, pending but not yet assessed or payable) are handled differently.
In practice, Sellers who assume responsibility for any outstanding special assessment have that amount deducted from their sales proceeds.
