I just closed on a SFH purchase last month in TX and I received an email from the seller's agent requesting a refund from me because the seller over estimated the property tax and has over paid during closing.
Has anyone else been in the same situation before and how did you deal with it? Does the refund need to go through escrow or can be direct?
Frankly, I'd be pissed that the Seller's Agent contacted you about this WITHOUT showing you (a) how the calculations were completed with an explanation of how they arrived at the "overestimated" property tax credit and (b) the new and allegedly correct calculations with an explanation of how they arrived at the correct property tax credit.
IF you were represented by an Agent in the transaction, the Seller's Agent should not have contacted you directly.
In Illinois, if you were my Client, the Seller's Agent would never contact you if you had an attorney at closing.
I don't mean to be rude but I hate it when people like this Agent makes a statement that you owe her Client $$$ but she can't give you the amount and she doesn't really know that you should actually pay it, which is why she hasn't explained it to you.
Personally, I would email her back with an "email my agent" or "email the title company" message and then wait, so that you don't do all the work trying to find out what this is all about.
AND don't agree to anything as there are a lot of variables involved, which will probably include the Seller predicting that a tax rate will change or the assessed value will change (perhaps not since I am unfamiliar with Texas property tax procedures).
Again, in my state, the contract rules and tax proration credits are final unless you can show that the tax credits given were in error and not in compliance with the terms of the contract.
I've represented Buyers at closings in Illinois where the Seller wanted to give a lower tax credit because "we applied for a senior exemption and you will get it on the next tax bill" or "we applied for a certificate of error and expect the county treasurer to amend/lower the current tax bill later." Bottom line: they want to renegotiate the terms for tax credit prorations at closing and I argue that that they should have negotiated these tax issues/terms at the front of the contract.
I would talk to the closing agent/title attorney about this calculation. He/she should be able to help you come to a definitive figure. Do you know/understand how this figure is calculated at closing? If not, you should educate yourself on the math. It's pretty simple imo. But either way, if funds are going to be exchanged, consider going through the title company that did the closing.
Frankly, I'd be pissed that the Seller's Agent contacted you about this WITHOUT showing you (a) how the calculations were completed with an explanation of how they arrived at the "overestimated" property tax credit and (b) the new and allegedly correct calculations with an explanation of how they arrived at the correct property tax credit.
IF you were represented by an Agent in the transaction, the Seller's Agent should not have contacted you directly.
In Illinois, if you were my Client, the Seller's Agent would never contact you if you had an attorney at closing.
I don't mean to be rude but I hate it when people like this Agent makes a statement that you owe her Client $$$ but she can't give you the amount and she doesn't really know that you should actually pay it, which is why she hasn't explained it to you.
Personally, I would email her back with an "email my agent" or "email the title company" message and then wait, so that you don't do all the work trying to find out what this is all about.
AND don't agree to anything as there are a lot of variables involved, which will probably include the Seller predicting that a tax rate will change or the assessed value will change (perhaps not since I am unfamiliar with Texas property tax procedures).
Again, in my state, the contract rules and tax proration credits are final unless you can show that the tax credits given were in error and not in compliance with the terms of the contract.
I've represented Buyers at closings in Illinois where the Seller wanted to give a lower tax credit because "we applied for a senior exemption and you will get it on the next tax bill" or "we applied for a certificate of error and expect the county treasurer to amend/lower the current tax bill later." Bottom line: they want to renegotiate the terms for tax credit prorations at closing and I argue that that they should have negotiated these tax issues/terms at the front of the contract.
Your attorney who handled the closing should have calculated this based on the current taxes as provided by the city, not the seller. Depending on when you closed and where you are, you either paid the seller for the taxes they paid or they paid you for the next round of taxes. If it was the former, then is it a super simple calculation as the seller had already paid them for the year and you base it on that. For the latter, the buyer may end up a bit short if the taxes go up a lot.
Either way, they should have checked the document at closing when they signed it and questioned it then. They signed off on it.
This is common, and unavoidable when tax bills are generated after the closing. All parties agreed in the closing documents to correct this when the bill comes out...do it through the closing agent.
As Wayne said, you signed a document at closing, which was called "Title Company disclosure" or "Pro-ration Agreement" that you and the seller acknowledge that the pro-ration done for closing were an estimate and the best information at the time was used. Additionally, you and the seller agreed to handle and shortfall(Yes keep in mind you could have been shortchanged as well) or excess will be handled outside of closing.
So, if you owe the money you should pay it just as you would expect the same. Keep in mind this is what you agreed to in writing and if taken to Small Claims court you would lose
@Greg H.(Moderator) is from Texas so he would know the kinds of standard documents that the parties would sign at a Closing.
IF the OP and the Seller signed a tax reproration agreement, then he should follow the terms of that agreement or risk being sued as mentioned by our Moderator.
In Illinois, the parties agree that Seller will give Buyer a tax credit based on the most recent tax bill prorated through the date of closing plus 5-10% to handle tax increases in the future. No post closing reproration is completed unless negotiated at he front of the Contract.
Regardless, I believe it is the responsibility of the Seller or their Agent to provide Buyer with the calculations evidencing how the Seller arrived at the new and correct tax credit amount.
The reason for reviewing the closing statement is to ensure all amounts are shown correctly. As was previously stated, you should tell the agent that they can send you their calculations showing why they believe the prorations were miscalculated. This is one example of why I always confirm the prorated taxes are correct before closing and my contracts always state that all prorations are final with no post-closing adjustments being made. It eliminates this issue.
RE Taxes are estimated, usually by the title company, as the pro rata share of anticipated taxes due. Sometimes things are not readily known. First what does your "CONTRACT" say? Ask your attorney.
What does your conscience say?
What caused the overestimate? Was a real estate tax exemption applied that no one knew of? If so you should consider refunding the credit. You did not buy this property for the RE Tax allowance. You bought it for the deal.
Thanks everyone for detailed response!! To be fair, the seller's agent did cc my agent in his email and he did attached a detailed calculation in excel spreadsheet. This particular piece of property is located in an area with high % increase of annual pp tax. So the seller assumed the same % increase for this year and overpaid in closing. When the tax bill came in this month, about one month after closing, the amount was a few hundred bucks lower than estimated, thus the refund request.
The seller took the total annual amount, let's say $3650 for simplicity, and divided by 365 days which yields to $10 per day. Then he multiplied by the calender days until sale, let's say 300 days. $10 x 300 = $3,000.
I think the math makes sense. What do you guys think?
Hi there, since you are in Cali, is the property you closed in Cali, too, Jack? If so, then the settlement agent has the responsibility to prorate taxes, so it is likely that there was a credit to the seller on the closing statement for this. This will not trigger a separate check/disbursement to the seller, it is just added to their net proceeds at closing.
@Jack Zhuang - Review the Contract to see what it states RE prorations. In Illinois, my home state, prorations are final as of the date of closing unless there was an issue where the Buyer was shortchanged due to property tax exemptions not inuring to the benefit of Buyer post Closing.
@Jack Zhuang I have had this happen twice to me in the past year and a half. Once with an elderly lawyer doing the closing that wasn’t paying attention and he contacted me about 3 months later informing me I owned the sellers another $800+/- for water/sewer that hadn’t been properly calculated.
The second time was about 4 months ago and the title company messed up the property tax calculation and said I owed another $400+/- to the seller.
The first time the lawyer had been treating me like crap the whole process of the closing so I was really annoyed.
But since I have to still live here and do business in a fairly small area I decided to pay quickly because I don’t want to get a reputation as being difficult to work with. Plus both of the sellers live in the area.