When Selling A Property, Who Is Responsible For The Property Taxes
Posted on May 13, 2008 in the Property taxes category
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The National Taxpayers Union writes that as many as 60% of all homeowners are over-assessed and not in line with their home value. (“How To Fight Property Taxes” 2004 p.1) |
When you are selling a property and it is in the middle of a property tax year, the seller is responsible for the property taxes up to the day of closing after which time the remaining tax is due by the buyer. Now some people are very unaware of this fact when they close on a property and usually find out at the closing. The seller will bring a check along for their part of the taxes and the seller’s mortgage company receives the check, which is deposited in the buyer’s escrow account. This however is only one option presented for coving split property taxes.
Many times the seller’s mortgage company will keep the funds and send it directly to the property tax office at the appropriate time of year. This rare of course, but has been done in the past. It all depends on the new mortgage company for the buyer and the mortgage company for the seller. The proper way many believe is to give the monies to the buyer’s mortgage lender and have them send the check to the property tax office by passing the intermediary, which is the buyer. This ensures the buyer’s mortgage lender that the money is indeed going for the property taxes.
You might wonder how they divide up property taxes and for a year. The mortgage lender of the seller will take the total property taxes owed from the past year and divide this by twelve months. After finding a monthly amount owed every month, they then will divide the number of days in the month of the closing that the buyer had the property in their name by the monthly amount. This will give a prorated property tax amount owed by the seller. The same is done to calculate the remainder of the months for the buyer.
Who Receives The Lottery Credit If There Is One
The lottery credit is usually awarded to the buyer. If the lottery credit is smaller than the previous year, you may have to add some money to your escrow account to pay the property taxes. If the lottery credit is smaller, you may see a small refund coming your way. This amount however is never very much, it could be as high as fifty dollars or as low as five dollars that you would owe or receive a refund for unless there are other circumstances you are unaware of with the taxes.Â
You never have to worry about the property taxes when a property change takes place, the mortgage lenders would not allow the seller to forget about their share. There are officers of the mortgage company that have special jobs and one is the property tax issues and insurance as well.
Your first year of property taxes is always your best, it can change after that, especially if they raise your taxes after a sale of the property and you are not escrowing enough money to cover the raise. Your mortgage company made alter your monthly payment to cover this issue.
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12 Responses to “When Selling A Property, Who Is Responsible For The Property Taxes”
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You are correct, that unless a buyer has been properly educated, this is an expense that catches them off-guard. Good work. I notice that many of your recent blog articles deal with property taxes… that is a sore topic lately in my neck of the woods. Or, more appropriately, the assessments are a sore topic.
It’s good to know that the mortgage companies are keeping their eyes on the ball with respect to split responsibility for the taxes.
I wasn’t sure how that worked… And finding this post was actually a little bit relieving! We’re going through our first closing right now and have so many questions, you know?
Cyn
Yep, I know that when we purchased our home we were responsible for the taxes for that year.
This is good info. This can be a very confusing issue and it always help to have the loan officer explain it to your clients.
We have short and long proration in Ohio.
Christina
No matter how many times we explain it, it takes a while for buyers to have it sink in here in Illinois. They don’t get “prorations” or that taxes are paid in arrears for the previous year…
I know in Hernando County the taxes are prorated to the day of closing. So as long as your closing date does not change the numbers should be correct.
I think that the buyer is responsible for the taxes for the year.
In our area, Austin Texas, if one buys a new home from a Builder, the taxes that are prorated at closing are only on the lot if the home was not finished on Jan. 1. This can cause the Buyers to get a huge tax bill when the tax office next assesses the value and the home is completed.
As a Buyer Agent, it is important to make your clients aware and, hopefully, they will put some money aside to pay this full amount when the next tax bill comes due.
The proration should be handled by the escrow company with the seller being charged the unpaid taxes up to the close of escrow. The buyer will receive a credit and will be responsible for the taxes at that point going forward. Taxes being “impounded” in an escrow account will help them after closing.
I think Indianapolis would win the award for the most confusing of all areas. We pay our property taxes one year in arrears and they vary from .75% to 2.0% of assessed values. We went through a re-assessment in 2006 (first time in like 20 years) and some areas were so hard hit, residents had to move! So, the local government got quickly involved and as of today 11/4/08; the 2007 payable in 2008 have not even been issued. So when a seller goes to closing, they pay the buyer 22 months of escrowed taxes! Luckily they probably have a good portion of that being held by their lender. Try explaining all of that !!!
Many buyers do not know anything about these taxes until they have to pay.