We have moved into the season of Tax Holdbacks. Preparing your clients for this additional financial responsibility is another way to help your transaction flow quickly and smoothly. During the period of September 1st through October 15th, your buyer/borrower’s lender, in most cases, will require a Tax Holdback for the estimated payment of the 2011-12 county property taxes. This estimated amount quite often is 115% of the previous year’s tax amount.
Also during this time, pro-rations of the property taxes will be a debit to the seller and a credit to the buyer. The prorated tax value will be based on last year’s tax amount as the New Year’s tax amount is not yet available, unless the sales agreement instructs for a different figure to be used.
It’s a good idea to confirm with your seller that once the tax roll is certified (around October 15th), any taxes due for the remainder of the year will be charged to the Seller to clear the lien of taxes. Your seller will receive a credit for the buyer’s pro-rated share. To clarify, prior to the certification of the tax roll, the taxes are “a lien, not yet payable”. Once the tax roll turns, they become a lien on the title to property. Additionally, if your seller has an escrow account for property taxes/ insurance, they will get a refund from their lender about three weeks after closing; it is not a credit at the closing table. They should contact their lender for the specific information on how the funds will be returned.
Time of closing is critical when dealing with tax prorates between the buyer and seller. When in doubt, ask questions. We’re on your team and here to help.
Escrow Tips Courtesy of Theresa Marshall, Senior Escrow Office at Lawyers Title. With over 15 years experience Theresa is a great resource for your Title & Escrow needs.