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C. Adjustments to Costs Shared By the Buyer and Seller
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At Settlement it is usually
necessary to make an adjustment between buyer and seller for property taxes
and other expenses. The
adjustments between buyer and seller are shown in Sections J and K of the
HUD-1 Settlement Statement. In
the example given above, the taxes, which are payable annually, had not yet
been paid when the settlement occurs on July 1.
The borrower will have to pay a whole year’s taxes on the following
December 1. However, the seller
lived in the house for the first six months of the year.
Thus, one half of the year’s taxes are to be paid by the seller.
Accordingly, lines 211 and 511 on the HUD-1 Settlement Statement
would read as follows:
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211. County
Taxes
1/1/97 to
6/30/97
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$600.00
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511. County
Taxes
1/1/97 to
6/30/97
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$600.00
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The borrower is given credit
for this amount at the settlement and the seller will pay this amount or
count it as a deduction from sums payable to the seller.
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Similar adjustments are made
for homeowner association dues, special assessments, and fuel and other
utilities, although the billing periods for these may not always be on an
annual basis. Be sure you work
out these cost sharing arrangements or ‘prorations” with the seller
before the settlement. You may
wish to notify utility companies of the change in ownership and ask for a
special reading on the day of settlement, with the bill for pre-settlement
charges to be mailed to the seller at his or her new address or to the
settlement agent. This will
eliminate mush confusion that can result if you are billed for utilities
used when the seller owned the property.
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