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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
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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.
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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