III. Your Settlement
Costs
C. Adjustments to Costs Shared By Buyer and Seller
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:
| 211. County
taxes 1/1/97 to 6/30/97 |
$600.00 |
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.
