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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:
| 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
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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.
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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