Lesson learned: Re-Proration of Property Taxes

[Pearce G.]

The term "re-proration" does not generate any results when you search it on BP, but I just paid $1500 to learn what it means with respect to property taxes.  

I purchased a commercial property in late August from a small business owner-occupant.  At closing, I was credited roughly 2/3 of the prior year property tax amount for Jan-Aug 2016.  But when I got the 2016 tax bill, it was $1500 more than in 2015.  

So I called the closing attorney and told him I was not credited enough for the 2016 property taxes.  He said that's why the seller and I signed a Tax Re-Proration Agreement at closing.  It protects me from exactly this situation.  

Whew!

So the attorney called the seller to explain their obligation to adjust their portion of the tax liability for 2016.  The seller says they are bankrupt.  The business entity from which I bought the property has closed and has no assets.

Looking back at previous closing paperwork, this is not the first time I've signed a Tax Re-proration Agreement, but it's the first time I've been acutely aware of it.  I'm glad my attorney put it in there, and I guess it was explained to me at closing, but it didn't really register.  Nevertheless, I'm still out $1500.  Not worth the legal expense to go after the business owners and probably lose, so it's sort of a toothless document in this situation.  Next time the seller is a business entity, I might ask them to escrow an amount sufficient to cover any changes in the seller's share of property tax or have the owner sign personally for it.

I hope this saves someone else from the same mistake.