Among the various items which will be prorated, or shared between the
buyer and seller at the closing will be real estate property taxes. Although
prorations are normally pretty straightforward and easy to understand,
property taxes can be a problem if provisions are not made for an increase in
tax assessment which may occur after the close of escrow.
Often the closing agent must use the taxes from the previous year to
compute the prorations for the sale. Let’s say that your escrow closes in
September and that the new taxes will not be available until November. If
the taxes go up, are you responsible for new taxes for the whole year since
you only lived in the property for 3 months? One answer to this problem is
to sign a Proration Agreement, whereby the buyer and seller agree to make up
the difference among themselves.
Many times it is common to ask the seller to pay a little extra in real
estate taxes above the daily proration fee, because in many areas property
taxes rise each year and the exact amount of the next bill may not be known.
Oftentimes, the seller is asked to put up 110% of the daily fee to cover any
increases.
Once escrow is closed, it would be difficult to go back to the seller and
ask him to pay you for any additional property taxes. Likewise, you would
not want the seller to come back to you and ask for a refund if the property
taxes were to go down.
To prevent any misunderstandings, ask you escrow officer, attorney, or
real estate agent about the property tax prorations, and find out when the
property tax assessment is scheduled to be made in your state. Tax
assessment dates vary from state to state. In California, for example, taxes
become an outstanding debt against property on the first day of March, even
though they are not payable until considerably later. The full fiscal year
for property taxes in California runs from July lst to June 30th, and it is
divided into two halves so that payments may be made in two installments. In
Illinois, as another example, property tax payment dates vary. Larger
counties typically schedule them for March lst and September lst, and smaller
counties schedule them for June lst and September lst. You may consult the
appendix of All About Escrow and Real Estate Closings for a listing of
property tax dates state by state.
Also See:
Escrow Impound Accounts: Do You Have a Choice?
Exceptions To Coverage In Your Title Insurance Policy
Can I Object To A Proposed Zoning Change or Variance Request?
What Is The Lis Pendens That I Found In The Preliminary Title Report?
Published: October 22, 1999
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