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Disclaimer
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 |
$600.00 |
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511. County taxes 1/1/97 to 6/30/97 |
$600.00 |
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.
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
much confusion that can result if you are billed for utilities used when
the seller owned the property.
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