Recovering prepaid assessments, taxes, and rents

Recently, Bob sold his condominium. He had paid the homeowner association the full monthly assessment, and was concerned about what would happen since the sale was closing early in the month.

In real estate transactions, it is not unusual for the Seller to have prepaid certain assessments or expenses, or to have collected rents on leased property. How such costs and expenses get recovered or apportioned is one of the most frequently asked questions when closing draws near.

Unless the closing is scheduled for the first or last day of the month, a portion of these monies or expenses may be attributable to the other party.

Similarly, because property taxes are paid a year in arrears, the Seller will have accrued property taxes during his period of ownership that have not yet been billed. These taxes ultimately will be paid by the buyer when future tax bills come due.

Rents, taxes, costs and expenses can all be split, or prorated, according to the days of ownership. At closing, the party that did or will pay the expense receives a credit from the other. That way, each party essentially bears the costs attributable to its period of ownership.

When the proration is done at closing, neither side will have to separately collect an amount from the other. Instead, it is included in the amounts the Buyer needs to pay, or the Seller will receive, at closing.