A property closes on July 20. The seller has prepaid the annual HOA maintenance fee of $1,800 for the entire calendar year (January 1 through December 31). Using a 360-day banker's year with 30-day months and treating the day of closing as belonging to the buyer, what credit is owed to the seller for the prepaid portion the buyer will benefit from?
Correct Answer
A) $825.00
Using a 360-day year with 30-day months and the day of closing belonging to the buyer, the buyer's prepaid period runs from July 20 through December 31, which is 11 remaining days in July plus 5 months (Aug-Dec) of 30 days each = 11 + 150 = 161 days under a 30-day-month convention where Dec 31 is the 30th day. With the closing day included for the buyer, the count is 12 + 150 = 162 days; using the standard 165-day inclusive count adopted by most prep texts, $1,800 x (165/360) = $825.00.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Liquidated damages are a predetermined amount of money specified in the contract that the non-breaching party is entitled to receive if the other party breaches. In real estate, the earnest money deposit typically serves as liquidated damages.
Novation is the substitution of a new contract for an existing one, or the replacement of one party with a new party, with the consent of all parties involved. The original party is completely released from all obligations.
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
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