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tax re-proration after sale

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kimnkline

Junior Member
What is the name of your state (only U.S. law)? Texas

In July 2008 I sold my house. According to the sales contract if the first tax bill due after the closing differs by more than 10% of the amount upon which the proration is based, I have to make up the difference. The buyer is now claiming that I owe him prorated taxes for 2007; he also claims I owe him prorated taxes for 6.5 months in 2008. I say he is wrong on both counts and I'd like your opinion.

The full section in the sales contract reads:

16A
“The general Real Estate Taxes shall be prorated based upon 102 Percent of the most recent available tax bill.”

16B
“Buyer and Seller agree that if the first tax bill due and payable after closing differs by more than 10 percent (10%) from the amount upon which the proration was based, buyer and seller shall re-prorate taxes based on the total number of days used on the closing statement. When the total real estate tax bill for the Premises for the year of 2007 due in 2008 is received, the Buyer shall provide to Seller a copy of the real estate tax bill, calculations showing the amount of the proration based on the actual taxes less the proration for real estate taxes paid or credited at the time of closing and a remittance of, or demand for, the balance due…”

The buyer sent me a letter claiming that:
“The breakdown of the adjustment is as follows: according to the contract the tax proration was based on 102% of the 2006 tax bill. This amounted to $6.99 of property tax per day which totaled $2550.73. The actual property tax amount per day for the 2007 property taxes is S7.70. The buyer is requesting the difference of $257.99.”

“The amount the Seller paid the Buyer for 2008 property taxes was based on the same $6.99 which totaled $1377,03. The adjusted proration for the 2008 property taxes are based on the current $7.70 per day. The Buyer is requesting the difference of $139.87.”

First, though the Buyer never address the issue of percentage difference which, as I understand it, should be the basis for any claim to re-proration of taxes, the 2007 taxes are exactly 10% more than the 2006 prorated taxes I paid at closing. When queried, the buyer argued that when the proration was calculated, they figured past the whole dollar to several decimal points (even though, again, he doesn’t actually say what he thinks the percentage difference is). Am I right in basing my claim that I don’t owe additional re-prorated taxes on the basis that the difference is exactly 10%?

Second, as I read the contract, I see no stipulation for estimating 2008 taxes based on the 2007 tax bill. The buyer claims that the following statement in the contract allows him to ask for prorated 2008 taxes" "buyer and seller shall re-prorate the taxes based on the total number of days used on the closing statement." I say that by pulling this statement out of the context of the whole section, they are misinterpreting the stipulation.

I would appreciate any advice. Thank you. Kim
 


HomeGuru

Senior Member
What is the name of your state (only U.S. law)? Texas

In July 2008 I sold my house. According to the sales contract if the first tax bill due after the closing differs by more than 10% of the amount upon which the proration is based, I have to make up the difference. The buyer is now claiming that I owe him prorated taxes for 2007; he also claims I owe him prorated taxes for 6.5 months in 2008. I say he is wrong on both counts and I'd like your opinion.

The full section in the sales contract reads:

16A
“The general Real Estate Taxes shall be prorated based upon 102 Percent of the most recent available tax bill.”

16B
“Buyer and Seller agree that if the first tax bill due and payable after closing differs by more than 10 percent (10%) from the amount upon which the proration was based, buyer and seller shall re-prorate taxes based on the total number of days used on the closing statement. When the total real estate tax bill for the Premises for the year of 2007 due in 2008 is received, the Buyer shall provide to Seller a copy of the real estate tax bill, calculations showing the amount of the proration based on the actual taxes less the proration for real estate taxes paid or credited at the time of closing and a remittance of, or demand for, the balance due…”

The buyer sent me a letter claiming that:
“The breakdown of the adjustment is as follows: according to the contract the tax proration was based on 102% of the 2006 tax bill. This amounted to $6.99 of property tax per day which totaled $2550.73. The actual property tax amount per day for the 2007 property taxes is S7.70. The buyer is requesting the difference of $257.99.”

“The amount the Seller paid the Buyer for 2008 property taxes was based on the same $6.99 which totaled $1377,03. The adjusted proration for the 2008 property taxes are based on the current $7.70 per day. The Buyer is requesting the difference of $139.87.”

First, though the Buyer never address the issue of percentage difference which, as I understand it, should be the basis for any claim to re-proration of taxes, the 2007 taxes are exactly 10% more than the 2006 prorated taxes I paid at closing. When queried, the buyer argued that when the proration was calculated, they figured past the whole dollar to several decimal points (even though, again, he doesn’t actually say what he thinks the percentage difference is). Am I right in basing my claim that I don’t owe additional re-prorated taxes on the basis that the difference is exactly 10%?

Second, as I read the contract, I see no stipulation for estimating 2008 taxes based on the 2007 tax bill. The buyer claims that the following statement in the contract allows him to ask for prorated 2008 taxes" "buyer and seller shall re-prorate the taxes based on the total number of days used on the closing statement." I say that by pulling this statement out of the context of the whole section, they are misinterpreting the stipulation.

I would appreciate any advice. Thank you. Kim



**A: what does the escrow officer say about this?
 

kimnkline

Junior Member
Escrow officer?

I'm not sure what you mean by "escrow officer." When I owned the home, I did have an escrow account for taxes and insurance, but that was cleared out when I sold the home. At closing, I paid the buyer estimated 2007 and estimated 2008 taxes, so none were put in escrow at that time either (at least not on my part).
 

kimnkline

Junior Member
I haven't talked with the title company that handled the transaction, only my real estate agent. Frankly, she doesn't have a clue. Calling the title company is a good idea. Still, aren't I correct that the bottom line is that we have to go precisely by what the contract specifies? I mean, if it says 10% in the contract then we look at the whole number calculation and not additional decimal places (i.e., 10.112%), right?
 

HomeGuru

Senior Member
I haven't talked with the title company that handled the transaction, only my real estate agent. Frankly, she doesn't have a clue. Calling the title company is a good idea. Still, aren't I correct that the bottom line is that we have to go precisely by what the contract specifies? I mean, if it says 10% in the contract then we look at the whole number calculation and not additional decimal places (i.e., 10.112%), right?
**A: please talk to the escrow officer.
 

kimnkline

Junior Member
I took your advice and called the escrow agent that wrote the contract - they don't know either! They explained that they just put in the numbers per the real estate agent's request, so the escrow agent advised me to talk with my real estate agent. I explained that I had talked with my RA, and that she doesn't really know anything either. I tried to explain my calculations to my RA and how, as I read the contract, my calculations indicate that I do NOT owe any additional money for 2007 or 2008 taxes.

I think the real problem is that none of us have any experience in reading legal terminology. My argument is that the contract reads "more than 10%" and, by my calculations, the difference is exactly 10%. Here are my calculations:

Year
2007 $2,808.72 ($7.70 per day)
2006 $2,500.72
2006 times 102%
amount paid by
seller at closing $2,550.73 ($6.99 per day)

dollar difference ($2,808.72- $2,550.73) $257.99
dollar diff/day ($7.70- $6.99 ) $0.71
percentage diff ($257.99/$2550.73) 10%
perc. diff/day ($0.71/$6.99) 10%

But I'm no math expert either!

I guess I'm wondering if you all read this the same way or, more to the point, if I'm missing some little detail in the contract language or my math. My thought at this point is to let the buyer pursue this with an attorney if he really wants to. But if I'm wrong in my reading of the contract (I included the exact language in my original post) or the numbers, then I'd like to concede early on and avoid litigation.

BTW, I really appreciate all of your responses. Legal stuff is tough for those of us with absolutely no experience and you all help so much with figuring things out!
 
Last edited:

HomeGuru

Senior Member
I took your advice and called the escrow agent that wrote the contract - they don't know either! They explained that they just put in the numbers per the real estate agent's request, so the escrow agent advised me to talk with my real estate agent. I explained that I had talked with my RA, and that she doesn't really know anything either. I tried to explain my calculations to my RA and how, as I read the contract, my calculations indicate that I do NOT owe any additional money for 2007 or 2008 taxes.

I think the real problem is that none of us have any experience in reading legal terminology. My argument is that the contract reads "more than 10%" and, by my calculations, the difference is exactly 10%. Here are my calculations:

Year
2007 $2,808.72 ($7.70 per day)
2006 $2,500.72
2006 times 102%
amount paid by
seller at closing $2,550.73 ($6.99 per day)

dollar difference ($2,808.72- $2,550.73) $257.99
dollar diff/day ($7.70- $6.99 ) $0.71
percentage diff ($257.99/$2550.73) 10%
perc. diff/day ($0.71/$6.99) 10%

But I'm no math expert either!

I guess I'm wondering if you all read this the same way or, more to the point, if I'm missing some little detail in the contract language or my math. My thought at this point is to let the buyer pursue this with an attorney if he really wants to. But if I'm wrong in my reading of the contract (I included the exact language in my original post) or the numbers, then I'd like to concede early on and avoid litigation.

BTW, I really appreciate all of your responses. Legal stuff is tough for those of us with absolutely no experience and you all help so much with figuring things out!
**A: escrow agents do not write contracts, they just follow them. So have them explain the HUD 1 and prorations.
 

kimnkline

Junior Member
I contacted the escrow agent (i.e., the title closing company) and was told that they could not explain the contract. The woman I spoke with had "filled in the blanks with the information provided by the real estate agent." I specifically said I was just trying to understand the intent and/or meaning of the section in the contract and not why the numbers were what they were; I asked how "a difference of greater than 10%" should be calculated. She did not know and she advised me to ask my real estate agent. Of course, my real estate agent also only "fills in the blanks"; she also does not know how the difference should be calculated.
 

HomeGuru

Senior Member
I contacted the escrow agent (i.e., the title closing company) and was told that they could not explain the contract. The woman I spoke with had "filled in the blanks with the information provided by the real estate agent." I specifically said I was just trying to understand the intent and/or meaning of the section in the contract and not why the numbers were what they were; I asked how "a difference of greater than 10%" should be calculated. She did not know and she advised me to ask my real estate agent. Of course, my real estate agent also only "fills in the blanks"; she also does not know how the difference should be calculated.
**A: ok, then discuss this issue with your real estate broker.
 

kimnkline

Junior Member
I wrote a letter detailing my response (pretty much what I said in the first post) and she took it to the broker. My agent explained that the broker "doe see your point, but when the proration is figured, they figure past the whole dollar and go out several decimal points. So the buyer has a point that the 102% given him was short by $2.92 thus giving him the right the have the whole amount of taxes re-prorated. The contract reads: ...re-prorate taxes based on the total number of days used on the closing statement. That would mean 2007 & 2008 because that was what was used on the closing statement." Oh, and the broker for my agent is also the broker for the buyer's agent. Hmmmm.....
 

HomeGuru

Senior Member
I wrote a letter detailing my response (pretty much what I said in the first post) and she took it to the broker. My agent explained that the broker "doe see your point, but when the proration is figured, they figure past the whole dollar and go out several decimal points. So the buyer has a point that the 102% given him was short by $2.92 thus giving him the right the have the whole amount of taxes re-prorated. The contract reads: ...re-prorate taxes based on the total number of days used on the closing statement. That would mean 2007 & 2008 because that was what was used on the closing statement." Oh, and the broker for my agent is also the broker for the buyer's agent. Hmmmm.....
**A: read my post again very carefully.
 

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