Question 59

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

When a property is sold, any property taxes that have been paid in advance by the seller are typically prorated. This ensures that the seller is credited for the portion of taxes that cover the period after the sale closes.

A) accrued interest on an assumed mortgage

Accrued interest on an assumed mortgage refers to interest that has built up but has not yet been paid. This amount is typically the responsibility of the buyer after closing, so it would not result in a credit to the seller.

B) prepaid property taxes

Prepaid property taxes are amounts that the seller has already paid covering a period that extends beyond the closing date. Since the buyer will benefit from these payments after the closing, the seller is entitled to a credit for the portion of the taxes covering the time they owned the property.

C) earnest money

Earnest money is a deposit made by the buyer to show their commitment to the purchase. This amount is not prorated at closing as it is applied directly to the purchase price, rather than being a recurring charge or credit.

D) unearned rent collected in advance

Unearned rent collected in advance is rent that has been collected by the seller for a period beyond the closing date. While this amount may be adjusted at closing, it is not a credit to the seller but rather a liability that may need to be transferred to the buyer.

Conclusion

Prepaid property taxes are the only item among the options that would result in a credit to the seller at closing, as they reflect an expense already incurred by the seller for the period after the sale. Other options either pertain to responsibilities that fall on the buyer or do not involve credits to the seller. This distinction is crucial in understanding the financial implications of real estate transactions.