From Dodds & Hennessy, one of our preferred real estate closing attorneys:
"Re: Refusals by Closing Attorneys to Re-Prorate Tax Bills Based on Actual Bills
It has come to our attention that some closing attorneys are interpreting the tax pro-ration provisions of the standard residential Board of Realtors' contract in a manner that serves to enrich Buyers hundreds (and in some cases thousands) of dollars to the detriment of the Seller.
The language in the contract is ambiguous at best and certainly subject to alternate interpretations. The language in the contract states taxes are to be prorated on "the tax information available at the time of closing ...Pro-rations at closing shall be final. "
The situation arises when the property being sold received non-owner occupied (6%) tax status for the prior year but will receive the owner-occupied status for the current year based on the application/qualification of the Buyer. These attorneys are taking the position the "tax information available" is the prior year's bill at the non-owner occupied rate (even when owner occupancy is a requirement of the Buyer's loan and taxes are escrowed on the buyer's loan at the 4% owner-occupied rate) and then declining to allow their Buyer/client to enter in to a tax re-proration agreement relying on the language 'in the contract that pro-rations are final. Since the school tax is also eliminated on owner-occupied properties this is a significant loss for the Seller and windfall to the Buyer without regard to fairness.
The solution when you represent a Seller whose property received non-owner occupied (6%) status for the prior tax year and who is selling to a Buyer who will own and occupy is to add in special stipulations, such as the following: "Notwithstanding anything herein to the contrary, property taxes shall be pro-rated between the Buyer and Seller on the assumption the property will qualify for the owner-occupied (4%) tax status for the current tax year." You can also add another provision binding the parties for re-proration, such as "If requested by the other, Buyer and Seller agree to re-prorate taxes based on the actual tax bill when available. "
If you have any questions please don't hesitate to contact us.
DODDS & HENNESSY, LLP"