Q: We purchased a house and have been going through a lawyer to get our deed from the previous owner. In the meantime, we’ve been living in the house for well over a year as well as paying the property taxes.
I tried to call and get answers, but no one seems to have an answer for me. Hopefully, you can help me out.
A: We’re a bit confused as to how and when you “purchased” the home you are living in. The way real estate transactions typically progress, buyers and sellers plan for a day in which the “closing” or “settlement” will occur. This means that at this closing or settlement, you pay the cash that has been agreed to for the home and the buyers give you title to the home in exchange.
It is at that closing that the annual real estate tax bill for the home is determined and the seller pays you what the seller may owe (or does owe) through the closing date. We understand your confusion. Many buyers and sellers get confused when it comes to the closing details and how the numbers are calculated.
We’re going to try to walk you through the process and see if this makes sense given your situation. But first, let’s talk about your deed.
There are situations where at settlement the buyer and seller close but something happens to the documentation and the deed doesn’t get recorded or filed. It might be that the settlement agent loses the document. It could be that a document from a governmental agency has not been obtained. It can even be that the person who drafted the deed prepared it incorrectly and title to the property did not get transferred from the seller to you as it should have been.
If you’ve closed through a title company or settlement agent that is affiliated with a national title insurance company, and you have or are due to receive an owner’s title insurance policy that insures your ownership in the home, you should be fine and the title company or settlement agent will need to take the steps necessary to correct the problem and get the deed recorded. If you don’t have title insurance, you’re at risk that the party that was responsible for recording the deed may not be able to do it and you may not be protected if they are unable to secure the deed. That may mean, and this is important, that the title is defective. (If this is the case, please speak to a competent attorney immediately.)
As far as the real estate taxes are concerned, the seller should pay the real estate taxes to cover the time the seller owned the property to or through the date of closing (whether the seller pays for the day of closing depends on the custom of the area). In places where real estate taxes are paid in arrears — meaning that prior years or a prior period of taxes are paid now — the seller would make that payment and then give you a certain amount of money to cover the seller’s obligation to the closing date.
But in places where taxes are paid in advance, the seller may have made a payment for a period of time that goes beyond the closing date. In this situation, the buyer would have to come to closing with some money to reimburse the seller for the period of time after the closing. In some locations, real estate taxes are billed twice a year in two equal installments, so it’s easy to figure out the numbers. In other places, local taxing bodies have winter taxes, school taxes and other period taxes. Those different taxes may make it harder to compute the amount owed by you or to you.
In any case, your closing documentation should show what money you paid or got credited for real estate taxes. We’re assuming the “proration” you mentioned was done as of the day you closed on your home. The taxes you paid after the closing were to cover the taxes you owed on the home. Given what we’ve seen in the past, we doubt that the seller would owe you money and that the money you paid to the taxing body went to cover what you owed.
If you are unsure of what is going on or how the numbers work, you should make an appointment with the professionals who are helping you to see if they can explain what’s going on. If they won’t give you the time of day, try to find someone you trust who has some knowledge of residential real estate transactions — a real estate attorney, a real estate broker, an accountant or a tax preparer — and ask that person to help you out with the numbers so that you have a better understanding of the real estate taxes owed and paid from the date of the closing.
Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them through her website, ThinkGlink.com.