Help me understand this? (prorations: property taxes)

[ShanahBanana]

What is the name of your state? Tx

I'm hoping someone here can just clarify what this says to me. The RE agent has said that the seller's are paying the taxes up till the date we close (which is Nov 15th, 2006- btw). I'm concerned though because what we're paying for the house is "very tight" including even the seller's agent and buyer's agent taking a "cut" in their commissions to make this closing happen- because the seller's have stated they did not have to make a profit on the house (wanted out of it- they've been moved out since April paying 2 house pymts all this time) but did not want to bring money to the table for closing (quote). However, I've voiced concern to my RE agent that they'll pay it in some way of "credit" at closing- which I'm not sure if that means we'll actually get it and end up paying a year's worth of taxes in Jan instead of only for our month and a half we'll own the property in 2006.

2006 taxes here have already been billed- latest due date to pay them is Jan 30, 2007. Even though the sellers don't want to bring money to the table for closing- surely they don't mean not paying the taxes?

In any case- reading the contract this is what it says about it and it concerns me:

prorations: Taxes for the current year, interest, maintenance fees, assessments, dues and rents will be prorated through the closing date. The tax proration may be calculated taking into consideration any change in exemptions that will affect the current year's taxes. (side note here- we will file homestead exemption for next year- sellers had veteren's exemption- I'm not sure if that makes a difference) If taxes for the current year vary from the amount prorated at closing, the parties shall adjust the prorations when tax statements for the current year are available. IF TAXES ARE NOT PAID AT OR PRIOR TO CLOSING, BUYER SHALL PAY TAXES FOR THE CURRENT YEAR.

(the last part in caps is what I'm concerned about)
Doesn't that sound like if they haven't paid the tax bill already, or don't pay it at closing- then we, the buyers, have to pay taxes for the current year- the whole year?

We're not prepared to pay this year's taxes in Jan after paying for closing/etc. With eveything in escrow, apprasials, inspections, closing costs, etc.- not to mention we have to pay for this year's property taxes on the home we're in now (in contract to sell this home closing in Dec) by Jan- we're just not going to have the funds to turn around and pay almost double the property taxes for this new house too- in Jan. (double because the new home has twice as much property taxes due to tax appraisal/assessment twice as much for that house as our house now). RE agent assures me that the seller's should have already paid taxes or will at closing- my concern is that
A) if they don't- they'll be wanting to just "credit" us in some way where we don't actually get the money to pay them and have to pay it out of our pocket in Jan or
B) that the above mentioned prorations section of our contract makes it sound like if they haven't paid the taxes at or prior to closing that WE pay the current year's taxes- even though we're only owning it from Nov 15th to end of year.

What do you think- am I reading that prorations section incorrectly? Is the RE agent telling me the truth? How does it normally work on property taxes when closing at the end of the year once tax bill has already been sent and is due- with latest due date only 2mo later in Jan?

 

[CraigFL]

First, the good news.... The sellers are responsible for the property taxes up until closing -- without a doubt.
Now the 'unknown" news... It is very common for the property taxes to be unpaid before closing because the sellers mortage holder is the one that usually pays them and they disperse the money when they want to. This means that there might very well be a credit on your closing cost for their part of the property taxes and you(or your mortgage holder) will need to write a check to pay for them. Usually it's to the sellers advantage to have the property taxes paid sooner - this year for income tax purposes, but not always.

Since this seems like a significant detail to you, it's in your best interest to contact your mortgage holder and have them take control of the credit from the seller by putting it in your escrow account so they can pay from that if the taxes won't be paid by the seller. You will be able to see that this is true(or whatever is happening) because legally, you get to review the closing documents before the closing.

 

[homebuyinstinks]

Couldn't you just ask your agent to contact the sellers agent and find out about the taxes. I understand completely how you feel. I found out on Friday (i am due to close tomorrow the 13th) that the sellers on the property that we are buying actually paid their taxes a year in advance and that we have to reimburse them for 7 months worth of them. Its a giant pain in the butt. If you are due to close on the 15th then your lawyer (if you have one) should contact you and tell you what your closing costs will be. They usually recieve these documents 1-3 days before hand. You can ask for a itemized list so that you will not be surprised at closing.

I hope this helps you. All in All talk to your agent and find out if they've been paid. This is something that they should have to tell you. I can't see why you would be responsible for property taxes in the months that you did not own the property.

 

[ShanahBanana]

Thank you for your replies.

I had asked my RE Agent about this a couple of weeks ago and she just said the sellers pay up until the closing and I told her good- because we didn't want a "credit" where we'd have to come up with the money later. However, keep in mind that our previous transaction was an owner/finance so it was different- they did the "credit" of prorated taxes (thru Oct that time) and it basically came off the owner-finance note- which meant we had to come up with it -for the entire year- a couple of months later.

When I asked her again recently, reminding her about how the seller's had stated to their listing agent they didn't want to bring any money to the table at closing, she said she'd check into it to make sure it wasn't a credit or if they'd already paid it/etc. It takes some time though (that was Thurs I think) because I go thru my agent, she goes to seller's agent, seller's agent has to contact them and they don't live around here anymore, then get back to my agent and my agent get back to me. Nothing is done in the blink of an eye when I ask questions like this. It appears to me to not be my agents fault but rather a lack of response (or slow response/actions) of the seller's agent to get any information back to her.

What one of you said just reminded me this is a bit different- we're going to have a mortgage for the amount of purchase- so if the sellers "credit" us the prorated amount of taxes they owe for 2006- there is going to be an excess of funds adding that to the mortgage amount the mortgage co is paying at closing (100% of purchase price)- and therefore the money will be there for the taxes in Jan. Thanks for the tip about talking to the lender about just having that "credit" applied to our tax escrow so it will be there to pay the taxes (pretty much immediately. End of Jan is just the deadline- the bills have already been sent out and can be paid now).

This means that there might very well be a credit on your closing cost for their part of the property taxes and you(or your mortgage holder) will need to write a check to pay for them.

Do you mean you have to write a check and pay them right then at closing? Or later in Jan before deadline? If it's a credit to our closing cost- then this is not a big deal anyway. Say we're already expecting (for example) to pay upwards of $8000 in closing costs and they credit us around $5k for the taxes (Jan-Nov 15th of closing that they would owe on property taxes)- then that's less that we're paying for closing and can turn around and pay the taxes- no biggie. Like I mentioned above, I guess I was referring back to our previous transaction of owner financing where the seller credited us Jan-Oct of taxes but it came off our "loan amount" in the owner financing- so it made our principal balance lower but we had to pay the taxes out of our pocket 2mo later. That's what I was concerned about.

 

[seniorjudge]

Why don't you ask the person closing this drama all your questions?

 

[ShanahBanana]

If you had read- you would see I did already ask.
I came here to make sure I was given the correct information. This website is to ask questions, is it not? Feel free to answer if you want- but I fail to see the point of only posting why don't you ask someone else -when A) I've already asked someone else and B) this board IS for asking such questions ie: the name of the website is even freeadvice. It's not "ouradviceisasksomeoneelse -sodon'twasteyourtimeaskinghere".

Thanks.

 

[ShanahBanana]

update:
The sellers moved the rest of their belongings out of the house today and signed closing papers at 4pm and went on home... (another town where they have lived since 4/06). Apparently when they said they didn't want to bring money to the table- they expected taxes to be paid too-- but the problem was something about how they paid escrow for property taxes and had to come up with the money themselves to pay the taxes and then they'd get their escrow back from the mortgage company later. From the "agent grapevine" (their's to mine to my ears) they weren't happy about this and had to get a loan real quick to pay the taxes.
Their agent really should have prepared them better for that- otherwise they should have known. Maybe they've never sold a house before but somehow I doubt it- since they are even older than we are (and we're nearing 40- very close in fact) and they only purchased this house 3yrs ago- so surely they've sold a house a time or two in their lives? Maybe their mortgage company just wasn't being cooperative. I don't know if that is normal for them to hold on to the escrow for taxes and only give it back to them later after they've paid the taxes at closing.

In any case- they paid their part... we'll pay our part tomorrow. Closing at 8:30am- so exciting! LOL (up until that moment- then have to get down to business of transferring utilities and actually moving in- QUICK before Thanksgiving)

Thanks again for all your help- on my threads and the many others I have perused and learned a lot from. If it weren't for this forum and reading all the posts and replies I have read the past few weeks- I probably never would have thought to really check EVERY-THING during the final walk thru earlier today. (fortunately everything works- but atleast I have the peace of mind knowing it works!)