Profile picture for aplomb

Is it normal that the Buyer has to pay 6 months property tax in advance!

On my HUD-1 for the house that I am about to close this Monday, I am surprised to find out that I will have to pay 6 moths property tax in advance:

Adjustment for items paid by seller in advance:
   City/Town Taxes: $976.48        This is to cover the property tax starting from April 23, 2012 to June 30, 2012

Then another 4 months property tax is included in Settlement charge:  $392.87 x 4 = $1,571.48

So in total, Wells Fargo is charging me 6 months tax in advance!  Is this normal?

I thought that $976.48 shall be credited back to the settlement charge. Anybody can help here?

Thanks in advance.

Michelle
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April 21 2012 - New York
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Answers (5)

You also have the right to NOT have your lender escrow for taxes and insurance. Some lenders used to try and charge a higher loan percentage for buyers that didn't escrow but I haven't seen that in a while (it was probably illegal). If you do decide not to escrow, remember that you will be responsible for paying your tax bill on your own with a short window to get it paid.
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April 23 2012
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Thanks you all for the answers. Now I understand it better. Thanks.

Michelle
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April 21 2012
Profile picture for SoCal_Engr
@ aplomb...

You have asked the same question on another thread, here. Sunnyview provided a decent answer. It sounds like you have questions, and the escrow agent, lender, or REA should be able to explain the local situation.

@ David...

Way to represent (since you self-identify as an "Agent"). No answer, just a self-serving assertion. What would it hurt to point them in the right direction, vice using the OPs situation as a launching pad for rhetoric?
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April 21 2012
It looks to me that the property tax year ends in June or they collect 2X/year. Your seller has already paid the taxes through June and so you are paying back the seller for the 2 months that he has paid.

Not sure where you get the 6 months in advance from.

Wells Fargo has to escrow for your next tax bill. Based on when your next tax bill is to be paid they will need insure they have enough for that tax bill + a 2 month buffer.  The banks can't collect anymore then is allowed by a mandated escrow formula. In fact your HUD may show an aggregate adjustment(line 1009) which will reduce what is collected. But the banks have to collect whatever is needed to make sure you have enough for the next tax bill.

For example our next tax bill in TN is paid by banks in Dec. So to insure a customer has enough to pay taxes in his escrow account we would be collecting 7 months in the month of April. Because by Dec the customer needs 12months + 2 or 14 months. An april closing has a June 1st payment so there are 7 deposits in the escrow account between June and Dec. (Now in TN the payment in Dec is for the whole year so a seller would credit the buyer for his portion of the taxes from 1 Jan-23 April. In your case you owe the seller because he has paid those taxes. The $976.48 isn't going to Wells Fargo it is going to the Seller because you owe him.)
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April 21 2012
Another example of why every buyer needs an agent to represent them in a transaction.
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April 21 2012
 
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