For some, the prorating of assessments may be wrong, especially if your assessments are included in your property tax bill.
March 4, 2008 –
Property taxes are due annually, on January 1. They can be paid as early as November and are not deemed delinquent until April 1. Taxes due January 1, 2008 cover the year 2007. This means they are paid "in arrears." If you bought your property on July 1, the previous owner (seller) enjoyed ownership for half the year, but you get the tax bill for the entire year. To compensate, the seller is charged 50 percent of the tax bill at closing. (They actually divide the tax bill by 365 and charge the seller for each day the seller was in possession.)
The problem arises when non-ad valorem taxes, such as association fees, are included on the tax bill as they are for Grand Haven. (Non-ad valorem means that the amount is not determined by the value of the property.) While property tax covers the period from January 1 to December 31 and is paid in arrears, Grand Havens assessments cover a period from October 1 to September 30. They are paid in advance, or paid forward.
Here’s what almost happened. For simplicity, let’s not count days. I’ll use April 1 as the closing date to make the math easy. Property taxes on the Grand Haven property are $4,259.75. The non-ad valorem taxes total $1,723.00 comprised of a Grand Haven Community Development District (CDD) assessment of $1,689 and a
Here is the right way:
The seller pays the buyer $1,064.94 for three month’s (January 1 – March 31) of the total property tax, which will be paid in arrears by the buyer at the end of the year.
The buyer pays the seller $861.50 for six months (Oct 1 – March 31) for assessments which the seller had paid in advance.
The net correctly paid by the seller to the buyer is $1,064.94 less $861.50, or $203.44.
If the error had not been caught, the seller would have been overcharged by $1,292.25. Be sure that you and the closing agent understand each prorated item. Review the HUD statement carefully.