A California escrow is closing on September 15. Annual property taxes of $8,400 were paid by the seller through June 30. Using a 360-day year (30 days per month) and charging the seller through and including the day of closing, what is the correct tax proration entry on the closing statement?
Correct Answer
B) Seller credits buyer $1,750 for taxes accrued but unpaid at closing
Taxes are paid through June 30, so the unpaid period runs from July 1 through the closing day, September 15: two full 30-day months plus 15 days, or 75 days. At $8,400 divided by 360, the daily rate is $23.33, and 75 days comes to $1,750, which is the same figure as 2.5 months at $700 a month. The seller had the benefit of the property through that period without paying the tax, so the amount is a debit to the seller and a credit to the buyer, who will pay the installment when it falls due. A proration runs the other way, as a credit to the seller, only when the seller has already paid past the closing date.
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A general warranty deed provides the greatest protection to the grantee by guaranteeing that the grantor holds clear title and has the right to sell the property. It includes covenants that protect against all defects in title, even those arising before the grantor owned the property.
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Marketable title is title that is free from reasonable doubt as to who the owner is and free from liens, encumbrances, or defects that would cause a reasonable buyer to hesitate before purchasing. It is also known as merchantable title.
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