Question 15

Prepaid property taxes would be prorated at closing with the credit going to the seller.

Prepaid property taxes are expenses that the seller has already paid for a period extending beyond the closing date. At closing, these taxes are prorated, meaning the buyer will reimburse the seller for the portion of the taxes that cover the time after the sale.

A) accrued interest on an assumed mortgage

Accrued interest on an assumed mortgage refers to interest that has accumulated on the mortgage but has not yet been paid. This amount is typically prorated and credited to the buyer because the buyer will be assuming the mortgage and responsible for any interest due after the closing date.

B) prepaid property taxes

Prepaid property taxes are amounts that the seller has already paid for a period that extends beyond the closing date. Since the buyer will benefit from the coverage of these taxes for the period after closing, the seller receives a credit for these amounts, making this the correct choice.

C) earnest money

Earnest money represents a deposit made by the buyer to demonstrate their serious intent to purchase the property. This amount is not prorated at closing; instead, it is typically applied toward the down payment or closing costs, and does not provide a credit to the seller.

D) unearned rent collected in advance

Unearned rent collected in advance refers to rent payments received by the seller for periods beyond the closing date. At closing, this amount is generally credited to the buyer, as they will be responsible for the property and any rental agreements in effect, thus this option does not provide a credit to the seller.

Conclusion

Prepaid property taxes are the only item among the options that would be prorated at closing with the credit going to the seller. The other options either do not involve a credit to the seller or are handled differently in the context of closing. This understanding of how property expenses are allocated is crucial in real estate transactions.