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Oops! If you caught my typo on the birth of title
insurance last week where I said it all began in 1968, you were probably
wondering if Benchmark's President, John Howe, was there the
day the first title policy was written. Actually it all began in
1868, not 1968, and the first title insurance policy was written on June
19, 1876, nearly 100 years before John first ventured into title
insurance. Sorry for the confusion!
Now hold on to your hats because this week's Title Tip explains property
tax prorations, which can be a bit
confusing.
Property
Tax Prorations
by Sarah Holdener, Esq.
Bills for the 2006 property taxes have begun to go out to
landowners in many Metro East counties. At this time of year confusion regarding
tax prorations is rampant and a source of frustration for all parties to a
real estate transaction. One of the main reasons for confusion is the
fact that Illinois collects property taxes in arrears. Purchasers new
to Illinois frequently call us to ask why they are receiving tax bills in
June of 2007 for the 2006 tax year when their seller was in title to the
property for all of 2006.
Suppose for example, we are closing a sale-purchase transaction on
residential property on May 25th, 2007. The tax bills have not yet
been mailed out and the only available information is from the property tax
bill for the 2005 tax year, sent out in June of 2006 because of the
arrearage system - in the amount of $3,000.00. Seller paid the
2005 taxes in June of 2006. Seller has lived in the property for all of
2006 and 2007 through the day of closing on May 25,
2007. Typically the real estate contract will provide that
Seller is responsible for the property taxes up to and including the day of
closing, even if Buyer takes possession that day.
In these circumstances, the title company does the following at
closing: (1) credits to Buyer and debits from Seller $3,000.00 to
cover the 2006 taxes which will become due in June 2007 so that Buyer has the
funds to pay the 2006 tax bill when it arrives, and (2) prorates the
2007 taxes by crediting to Buyer and debiting from Seller an amount
representing the portion of 2007 that Seller was in title to the property,
based on the following formula - "Prior Year's Tax Amount" /
"365 days in a year" x "Number of Days Seller was in
Title" = "Credit to Buyer at Closing" (in our example -
$3,000.00 / 365 days/year x 145 days between 1/1/07 - 5/25/07 =
$1,191.78). In this example the total of $3,000.00 for all of 2006 plus
$1,191.78 for the Seller's ownership in 2007 equals a credit to Buyer out of
Seller's proceeds in the amount of $4,191.78.
Now supposed the closing date has moved to June 25, 2007, and the property
tax bills for 2006 have been mailed out to landowners. If our
fictitional Seller's tax bill is anything like mine it would have increased
to about $3,200.00 for the 2006 calendar year. Working with the same
formula above (now for 176 days of 2007) we would prorate the 2007
portion of the taxes and credit Buyer in the amount
of $1,543.01 out of Seller's proceeds. However, rather than add
this to another credit from Seller to Buyer for the 2006 tax year, we would
debit the $3,200.00 from Seller's proceeds and send the money directly
to the County Treasurer's Office to pay the 2006 tax bill.
It should be noted that we always work from the most recent County
Treasurer's tax bill and do not obtain tax information from the County
Assessor's Office. Until the tax bills have been mailed out and are
considered final we do not rely on the Assessor's records because the
property assessments may not yet be available or may not be accurate because
a reassessment is underway or has not yet occurred, or the county multiplier
may not yet be available or final. However, if the parties are not
happy with a proration based on the most recent tax bill we are
happy and willing to prorate taxes based on the agreement and
instruction of the parties. Such arrangements typically occur
when the property has recently been subdivided and the prior tax bill is
for a much larger parcel, or when a new building has been constructed on the
property and the prior assessment was for land only.
Additional information regarding tax bills can be found by contacting your
County Treasurer's Office or visiting them online.
Any questions can be directed to Benchmark Title at 618-239-3750. Please feel
free to call or email:
Serving you from three convenient locations:
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Main Office:
1124 Hartman Lane
Shiloh, IL 62221
Ph: 618-239-3750
Escrow Fax: 618-239-3707
Title Fax: 618-239-3757
Fax Orders: 618-310-1589
President: John Howe
www.benchmarktitle.net
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318 North Main St.
Columbia, IL 62236
Ph: 618-281-9700
Fax: 618-281-9705
Manager: Randi
Schur
4215 S. State Rte 159
Glen Carbon, IL 62034
Ph: 618-288-1695
Fax: 618-288-1852
Manager: Sara Sowell
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Upcoming Title Tips
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More 2006 ALTA Policy Changes
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lenders and home buyers now receive their title policies at the closing
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Debbie Jetter, Escrow
Officer in our Shiloh office, worked in banking for 30 years
before venturing into title insurance as a Closer for Benchmark in
2003. Debbie started out as a receptionist at a bank and
worked her way up to Loan Processor, then Commecial Loan Processor,
and Administrative Assistant. Since joining Benchmark Debbie has proven
herself to be an outstanding closer of residential and commercial
transactions. Her background in banking has given her an advantage in
understanding and working with lenders to get the deal closed.
Debbie resides in Belleville with her husband, Steve, and has
two sons, Chris, 24 and a student at Murray State, and Matt, 18 just
starting his freshman year at SIUE. Debbie can be reached at
618-239-3750 or by email at djetter@benchmarktitle.net.
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