Property Taxes in Residential Closings

“I?m proud to be paying taxes in the United States. The only thing is – I could be just as proud for half the money.” Arthur Godfrey

We receive telephone calls frequently from clients with questions about property tax bills on their new home purchases. They may have received a tax bill from their seller or the tax collector and don’t know what to do with it since their loan has escrows for taxes. Here is a short guide on how we usually handle tax prorations at closing:

If you close your home purchase during the months of January through June of the calendar year, we will estimate the current years taxes based on the tax rate for the prior year. (This is because the tax rate is not determined until July 1 of each calendar year). Using that estimate, we will collect from the seller his share of taxes for the current year by giving you a credit on your settlement statement. This usually appears on line 211 of your HUD-1. Then:

• If you have a loan with escrows for taxes we will collect from you the number of month’s worth of taxes your lender requires and show that on the second page of your HUD-1. Your lender ordinarily takes care of obtaining the tax bill so that it can pay the bill when due, but if you should receive the tax bill in the mail, be sure to send it to your lender.
• If you paid cash for your house or if you have a loan without escrows, then it will be your responsibility to contact the tax office to obtain a tax bill and pay it.

If you close your home purchase during the months of July through December of the calendar year, and the seller has not paid the taxes yet, then we will collect from both the buyer and the seller their share of taxes and send a check for those taxes to the tax collector. This usually appears on (i) lines 107 and 511 or (ii) the 1300 section of your HUD-1. If you have a loan with escrows for taxes, we will also collect from you the number of month’s worth of taxes your lender requires.

If you close your home purchase during the months of July through December of the calendar year, and the seller has paid the taxes already, then we will collect from you your share of taxes and credit them to the seller on the HUD-1. This usually appears on lines 107 and 407 of the HUD-1.

The above is only a guideline because all transactions are determined by the terms of the sales contract. If your contract does not provide for tax proration, then, of course, we will not prorate taxes. Also, if you are buying a new home in a new subdivision, then we handle those tax bills differently because the tax parcel for your home may not be split out from the parent for the current tax year.