Florida Real Estate Broker ExaminationReal Estate Law and RegulationsHard
A Florida real estate broker is preparing for a closing where the buyer is assuming an existing mortgage. The buyer will receive a credit on the closing disclosure for the unpaid principal balance, and the seller will be debited for the same amount. Additionally, the seller has already paid the property taxes for the current year. Assuming a closing date of October 1st, and taxes are paid in arrears for the full calendar year, how will the property taxes be handled on the closing disclosure?
- AThe seller will be debited for the taxes from January 1st to September 30th, and the buyer will be credited for the same amount.
- BThe buyer will be debited for the taxes from October 1st to December 31st, and the seller will be credited for the same amount.
- CSince the seller paid the taxes, no entry for taxes will appear on the closing disclosure.
- DThe buyer will be debited for the entire year's taxes, and the seller will receive a corresponding credit.
Show answer & explanationAnswer & explanation
Correct answer: B. The buyer will be debited for the taxes from October 1st to December 31st, and the seller will be credited for the same amount.
Since the seller has already paid the taxes for the full year, and the buyer will own the property from October 1st, the buyer owes the seller for the portion of the taxes covering October 1st to December 31st. Therefore, the buyer is debited, and the seller is credited for these three months.
Why the other options are wrong
- A. This represents the seller's period of ownership for which they already paid, so they wouldn't be debited again. This would be true if the buyer paid the taxes at closing.
- C. Proration is necessary to ensure each party pays for the period they owned the property, even if one party paid in full upfront.
- D. This would be incorrect as the seller already paid the full year and only needs reimbursement for the buyer's portion.
Proration of Property Taxes (Florida)
The division of property tax expenses between the buyer and seller at closing, ensuring each party pays for the period of the year they own the property.
- Taxes are typically paid in arrears (after the period they cover).
- Calculated based on the closing date.
- Buyer usually pays for the portion of the year they own the property; seller pays for their portion.
Memory trick: Prorations 'split the bill' based on ownership 'days'.