When in Doubt- Disclose it out!

When in Doubt- Disclose it out!
The Significance of Disclosure Reports and Filing Accuracy

By:  Marc Santos, Disclosure Manager of DPFG Disclosure Services, Inc.

The importance of good disclosure in buying and selling real estate in this country cannot be overemphasized.  It’s just good business practice to fully disclose the impacts and obligations that will affect the prospective buyer of property.  Simply put, if a seller of property is lax in adequate disclosure then that company will run the risk of being sued.   Courts, across the nation, have a natural bias towards disclosing an impact and/or financial obligation to a prospective purchaser versus remaining silent.

Disclosure notices, such as Natural Hazards Reports attempt to identify all possible impacts that that could affect the property being acquired.  This could range from disclosure about earthquake faults, to flood zones, to lead paint, and to mold-- just to name a few.  It’s amazing how far reaching this type of disclosure goes when the reality is that most of the items disclosed have an extremely low probability of ever occurring, as well as having a low probability of economic consequences to the seller of the property when it has been disclosed adequately.  Nevertheless, these Natural Hazards Reports are a good example of disclosure overkill, but as a matter of practice this is a good thing.

The Securities Exchange Commission requires that Continuing Disclosure Notices be prepared in connection with tax exempt bond issuances of “special financing districts,” such as Community Facilities Districts (California, Arizona, Hawaii, and Washington), Special Improvement Districts (Nevada), Metropolitan Districts (Colorado), Municipal Utility Districts (Texas), Public Improvement Districts (Texas), and Community Development Districts (Florida).  Essentially, the purpose of this disclosure is to provide bondholders with annual updates on the real estate development project’s progress, as well as any material events that have transpired during the reporting period.  This allows bondholders to be better informed as to the status and value of their investments.  In the “great recession” many land developers and/or obligated homebuilders failed to complete these Continuing Disclosure Notices.  The problem created by this failure to comply, is that on future special financing district bond issuances, the land developer and/or obligated homebuilders will be required to disclose in the bond offering document that they failed to complete their Continuing Disclosure obligations in past special district financing transactions and this will typically cost them higher interest rates on new bond issues because fewer bondholders will have an interest in investing with a company that has a history of being noncompliant.  Oftentimes, the land developer and/or obligated homebuilder will go back and complete those delinquent Continuing Disclosure Notices to make their disclosure story in an upcoming bond issuance more credible. 

Many of the special financing districts identified in the paragraph above, including many more that were not mentioned herein, have different forms of disclosure pursuant to state law for each new home that the builder sells to a new home buyer.  Most of these notices are generally referred to as a “Notice of Special Taxes” or “Notice of Assessments.”   These notices can vary in complexity and the methods of apportionment can be extremely complex which increases the probability of drafting mistakes.

One area where disclosure Notices of Special Taxes or Assessments often fail is in properly disclosing the maximum annual tax or assessment that would apply to a prospective home buyer.  Some apportionment methods yield maximum annual taxes or assessments that are extremely high under a worst case development scenario.  In this case, some preparers of disclosure documents make the assumption that the worst case development scenario will never occur and “roll the dice” by disclosing lower maximum annual taxes or assessments than technically required.  Our preference is to describe what the annual taxes or assessments are expected to be if development builds as planned, but also show the maximum annual taxes or assessments if development fails to build as planned. 

Another area where disclosure Notices of Special Taxes or Assessments mistakes occur is related to the term of the tax or assessment.  Some preparers of disclosure documents assume that the final bond term is the last year in which a tax or assessment can be collected.  There are plenty of examples where this is not true.  A special financing district could be set up to issue parity bond which could expand the term, the collection of delinquent taxes or assessments could expand beyond the bond term or a special tax could be set to a specific fiscal year which exceeds the bond term by several years.

The cost of a bad disclosure related to Notices of Special Taxes or Assessments can be financially significant, not to mention the cost of litigating the matter.  For example, let’s assume that a 1,000 residential unit project that’s built-out has failed to properly disclose a maximum annual CFD special tax and the homebuyer signed a disclosure document at closing that their annual maximum tax would be $2,000 per unit per year; however, the actual tax that has been and needs to continue to be levied on the tax bill is $2,300 per unit per year.  Further, assume the term of the CFD tax is for 35 years.  The approximate cost of this bad disclosure is a follows, not counting litigation fees and other damages that could apply:

Actual Special Tax to Levy                                     $2,300

Special Tax Disclosed to Homebuyer                       $2,000

Under-Disclosed Amount per Unit                           $  300

Number of Affected Units                                         1,000

Under-Disclosed Amount per Year                      $300,000

Total Years Applicable to Homeowner (*)                     _32

Total Cost of Bad Disclosure                                $9,600,000

 (*)  Assumes residential units closed escrow evenly over the first 6 years of the CFD bond issue.

 In the above example, the CFD bond amount could typically range from $20,000,000 to $30,000,000 for a project of this size and magnitude.  In this case, the cost of bad disclosure represented roughly one-half to one-third of the project’s gross CFD bond potential which is very significant.

Preparing disclosure notices is a necessary part of land developing and homebuilding.  Oftentimes, these notices are rushed in their preparation and mistakes can occur.  As shown in the above example, the cost of mistakes can be financially significant.  Therefore, it behooves the land developer and homebuilder to have an experienced professional either prepare the notices or, at a minimum, have the professional review the notices, so as to bring in a second pair of eyes,  in order to minimize the possibility of mistakes. 


DPFG Continues to Grow, Opening Dallas/Fort Worth Office

In order to better serve its increasing client base throughout the fast growing North Texas area, the Development Planning & Financing Group, Inc., is pleased to announce, that effective January 15, 2015, it opened a new office located in the Dallas/Fort Worth metropolitan area.

According to Rick Rosenberg, the Managing Principal for DPFG's Texas operations, "With multiple current assignments underway throughout the DFW area including projects planned for Denton, Oak Point, Waxahachie, Royse City, Mansfield, Celina, Fort Worth and Dallas; having a full time presence in the market can only enhance our ability to continue to provide value added service to our current and future clients."

Concurrently, DPFG is pleased to announce that Meredith Martin will be joining the firm as a Manager in the new DFW office, also effective January 15, 2015.

DPFG ( is a national real estate consulting firm with 12 offices in nine states (California, Arizona, Colorado, Nevada, Idaho, Texas, Florida, North Carolina and South Carolina).  Since its inception in 1991, it has focused on providing real estate and financial consulting services principally to residential and commercial real estate developers as well as lenders, public agencies and other institutional investors.  A key emphasis is identifying the lowest cost and the lowest risk manner of financing and funding public improvements and infrastructure such as roadways, utilities, etc. as well as the vertical improvements of a project.

To accomplish this, DPFG typically provides, among others, the following services:

  • ·         Assistance in implementation of land secured financing solutions for project development;
  • ·         Preparation of financial analyses and projections;
  • ·         Preparation of financial feasibility studies including compliance analyses with debt covenants;
  • ·         Identification of available and applicable public/private financing alternatives;
  • ·         Preparation of fiscal and economic impact studies;
  • ·         Negotiation of development agreements;
  • ·         Evaluation of development impact fee agreements;
  • ·         Tracking of reimbursable development costs; and,
  • ·        

DPFG Disclosure Donates $500 to HomeAid's "Full Bellies, Warm Hearts" Event.

San Juan Capistrano, CA July 21, 2014:  The 5th Annual Full Bellies, Warm Hearts event will take place on July 26th at Veronica’s Home of Mercy in San Bernardino and August 2nd at King Hall Family Shelter in Moreno Valley. DPFG Disclosure Services, Inc. has donated a $500 check towards the success of this event along with purchasing school supplies for over 100 homeless children. Kelli Gazich, Business Development Manager for DPFG, will be coordinating the event at Veronica’s Home this weekend which will include makeup artists and hairstylists for the parents in preparation for their family portrait, “we are really excited to play such a big role in the event this year and hope that the canned food, toys and school supplies will keep these families very happy until the next ‘Full Bellies’ in 2015.” The event is planned to have a hosted lunch, mini-horse rides, face painting, water balloon toss and more to keep the kids active throughout the day.

RSI Professional Cabinet Solutions Announces New Director of Contracting Operations

MIRA LOMA, Calif. (April 8, 2014)—RSI Professional Cabinet Solutions (RSI PCS) announced the promotion of Darrin Toop to Director of Contracting Operations. Toop joined RSI PCS in January 2013 as the Sales Operations Manager and brought with him more than 23 years of industry experience as a highly-skilled cabinetry and millwork professional.

In his new role, Toop is responsible for overseeing a quickly growing team of over 100 professionals dedicated to serving customers in new construction and rehabilitation projects within Southern California, where the company is the market share leader. Toop brings extensive aptitude in streamlining processes to improve first pass yield and reduce secondary trips, which are vital elements to customer satisfaction.

“Darrin has been a key part of our success and we are thrilled to promote him to this important position,” said Eric VanDerHeyden, president, RSI Professional Cabinet Solutions. “The Southern California market has recovered quickly and needs even more cabinet experts and installers. I am confident Darrin will successfully grow our service capability so our customers can continue to choose RSI PCS as their preferred supplier.”

In his position as Sales Operations Manager, Toop was instrumental in refining the ordering process, which reduced pre-order errors and improved productivity. His proficiencies in process improvement execution and his extensive field management background will allow him to transition seamlessly into his new role.

The RSI PCS frameless European-inspired cabinetry provides numerous advantages over traditional, framed cabinetry. The frameless cabinets offer functional advantages, such as larger and deeper drawers, wider openings for more storage, easier cleaning, faster access and retrieval, and high quality hardware. Full overlay doors provide a clean, streamlined look with premium crown, light rail moldings, and knobs or pulls accentuating and completing the design. 

About RSI Professional Cabinet Solutions

Founded in 2003, RSI Professional Cabinet Solutions (RSI PCS), is part of RSI Home Products, Inc., and is the leading western supplier of frameless, European-inspired, full access cabinetry. In partnership with top builders, remodelers, dealers and distributors, RSI PCS premium construction cabinets have been installed in nearly 100,000 kitchens and baths throughout the Western United States, and are designed, built and shipped from Mira Loma, Calif.


For media inquiries, contact Kelly Kemmis




Southland Housing Affordability Hits New High

Despite Gains, Affordability Still Far Lower Than Most Parts of U.S.

IRVINE – Buying a home in Southern California is within the reach of more families than at any time so far this century, according to the latest Housing Opportunity Index released today by the National Association of Home Builders.

Despite that positive trend, however, housing prices in California remain among the least affordable in the nation, leading the CEO of the Building Industry Association of Southern California to urge local and state governments to work with homebuilders to ease fees and regulations that continue to drive up costs.

“Between state laws that encourage lawsuits to block housing developments and local government fees and requirements that can add anywhere between $20,000 and $100,000 to the price of each new home, it’s always been difficult and expensive to build in Southern California,” said David W. Shepherd.

“In this market, every dollar counts and the competition with foreclosed homes and short sales remains fierce. We look forward to partnering with state and local governments to reduce fees, speed up processing times and craft other measures to make more projects pencil. That will create jobs, generate tax dollars and allow more families to buy today’s exciting new homes. ”

During the first quarter of 2012, 49.5 percent of the homes sold in Los Angeles County could be afforded by a family earning the county’s median income. That was up slightly from the previous quarter and up by more than 6 percentage points from the same period in 2011. In comparison, just 1.8 percent of the homes were affordable at the low point, set in the first quarter of 2006, and the county was the nation’s least affordable housing market.

Affordability also hit new highs for the century in the other metro areas in BIASC’s service territory, ranging from 83.7 percent in Imperial County to 50.7 percent in Orange County. (See table below for details.)

However, L.A. County was the fifth least-affordable metro area in the country during the quarter and Orange County ranked sixth-lowest. The two Southland metro areas joined San Francisco and San Diego in the bottom 10 among metro areas nationwide.

Metro Area

Imperial County

Los Angeles County



















Median price (000)


















Nat’l Rank**










Metro Area

Orange County

Riverside/San Bernardino



















Median price (000)


















Nat’l Rank**










Metro Area

Ventura County











Median price (000)










Nat’l Rank**





*Lowest – the lowest affordability ranking since 2000 or since data has been collected for that metro area.

**National rank counts from the bottom of the affordability list. The lower the number, the more unaffordable a metro area is nationwide.




EDITOR’S NOTE: The NAHB/Wells Fargo Housing Opportunity Index is a measure of the percentage of homes sold in a given area that are affordable to families earning that area’s median income during a specific quarter. Prices of new and existing homes sold are collected from actual court records by First American Real Estate Solutions, a marketing company. Mortgage financing conditions incorporate interest rates on fixed- and adjustable-rate loans reported by the Federal Housing Finance Board.

The NAHB/Wells Fargo HOI is strictly the product of NAHB Economics, and is not seen or influenced by any outside party prior to being released to the public. Please visit for tables, historic data and details.

The Building Industry Association of Southern California, Inc., is a non-profit trade association representing nearly 1,000 member companies in the housing industry, construction trades, and affiliated businesses throughout Southern California. Along with its four chapters – Los Angeles/Ventura, Orange County, Riverside County and Baldy View – it advocates on behalf of the homebuilding industry throughout Los Angeles, Ventura, southeast Kern, Orange, Riverside, Imperial and San Bernardino counties. Visit its Website at