I am so confused...

This is a purchase where the entire current year taxes are unpaid and will be taken from the seller's funds.

The question is; should it be listed in the seller column paid at closing OR should it be listed as an adjustment in "N"?

Taxes owed by the seller for the current year (due next year) should be deducted from the sellers funds in section N and credited to the seller in Section L. For an example see model form H-25B page 3 of 5, Section L line 12 and Section N Line 14.

Thanks Jerod...this is what we were thinking as well.

But then the seller pro rata is being added as a deduction to the adjustments in the cash to close section and then the full amount is showing up in J and in section F on page 2. Why show the borrower paying the full amount (contrary to the instructions for page 2 section F 04)?

I would have thought the seller paid portion would show up in the seller column of line F 04 on page 2?

The buyer will owe the taxes described in section F because he will own the property when those taxes are due. The funds for those taxes are being taken from him at the closing and held by the settlement agent to be remitted to Any County USA after the closing. The seller, however, owns the property from 1/1 until the day before the closing, 4/14, and the settlement results in a charge to the seller and a credit to the buyer for $365.04 to cover the taxes for that period of time.

If the seller had prepaid the tax bill of $631.80, the entry on line F04 would have been in the seller's before closing column, and the entries to pay the seller for the period from 4/15 through 6/30 would have appeared on lines K09 and M10.

... borrower is responsible when they come due...
Got it!
Makes sense.


Thanks John.

Observation: When I was piecing together my facts for my 1:23 p.m. (ET) post above I tried out the math on the tax allocations. It appears that whoever did the numbers for the sample disclosure used 180 days as the number of days in the first half of the year (January 1 - June 30, which is actually 181 days, 182 in a Leap Year) to arrive at a per diem, but counted actual days of 104 in determining the amount due from the seller for 1/1 through 4/14.

Our taxes are paid in arrears with the tax bill coming out approx. 10/15 of each year
1/1/15 - 6/30/15 taxes are due 11/30/15
7/1/15 - 12/31/15 taxes are due 5/30/16

If we have a closing on 11/25/15 and the seller has paid both halves of the taxes, how would you show this?

We know we have an adjustment in K and M for the 36 days paid in advance, but I am wondering what, if anything will go under section F?

There would not be anything listed in section F for prepaid taxes because you aren't going to collect anything for them. All you need to worry about is the days during 2015 for which the seller has already paid, but will be reimbursed for by the borrower, using the adjustment entries you have alluded to.

Thanks!

Just to make sure I'm clear on the use of section F for taxes.
Again our taxes are paid in arrears with the tax bill coming out approx. 10/15 of each year
1/1/15 - 6/30/15 taxes due 11/30/15 in the amount of $181
7/1/15 - 12/31/15 taxes are due 5/30/16 in the amount of $184

This time if we have a closing on 11/25/15 and the seller hasn't paid either half of the taxes,

On the LE we show 1st half amount of $181 under section F with a seller credit of $181. The 2nd half $184 isn't specifically shown anywhere. (Should we also include $148 in the seller credit.)

On the CloD we show 1st half amount of $181 under Section F in the Seller's column. The 2nd half would show as $148 under L and N as an adjustment for items unpaid by seller. (184 total days - 36 not lived in by seller = 148 days)

Is this correct?

On the LE, assuming you have the amounts available when the LE is issued, you would include the first half ($181) in Section F as a prepaid. If you will escrow for taxes you would figure out how many months of escrow you'd collect at closing, and list it in section G. If you won't escrow for taxes, you won't include anything there and would not list the $184 bill in F or G but you would show a seller credit for the full period 1-1-15 thru 11-25-15 at your hypothetical daily rate of $1. This all assumes, of course, that you don't think the seller will have paid the bill for the first six months by the closing date.

On the CloD, you have it correct. Just make sure you are getting paid the $181 at closing by the seller (or it's being withheld from the seller's proceeds and paid to the taxing authority by the settlement agent).

Thanks!

Jon I asked this question in a thread about title insurance but didn't get any responses so I am bringing it up again here.

What about seller paid settlement fees? In our area the borrower and seller customarily split the fee 50/50.

If we don't have the purchase agreement should disclose 100% or 50% of the fee on the LE

If we do have the purchase agreement (prior to making the LE) and it shows the seller will pay 50%,
2.Do we disclose 100% of the fee on the LE with a Seller Credit of 50%.

3.Or, do we disclose 50% of the fee on the LE.

Here's what I would do --

I would show only the portion of the settlement fee that the borrower will pay on the LE if (1) I have the purchase agreement showing the splitting of the fee or (2) it is customary that the fee is split 50/50 between the buyer and seller in the jurisdiction where the property is located. By "customary" I mean that I expect the split because it happens almost all of the time (not just more than half the time). I wouldn't bother showing the full fee and a seller credit for half.

On the CD, I'd just split it by putting the correct amounts in the Borrower Paid and Seller Paid columns. But now I would only do it if I know, based on the best info available at the time, that the split will happen.

Thanks John!

As always your opinion and knowledge is appreciated!

We also asked this question to our examiners nearly a month ago but have yet to hear back. Once we do I will be sure to update this thread.

Hopefully this will all fall under our good faith effort....

If the taxes are not paid for the year and you are paying them at closing, where would you list on the CD?

Jazzy, who will be paying the taxes at closing?