Definition of Prorations:

To divide or make an adjustment for an item that that has been paid for in advance by one party.

The most common proration that occurs in Real Estate closing is the proration for property taxes. The tax year in the State of Oregon is based on the fiscal year and runs from July 1st to July 1st.

Taxes are a lien on your property starting on July 1st even if they are not yet certified. Prior to being certified by the tax collector the taxes, also described as "the tax roll has turned", usually occurs in Mid-October when the final tax amounts are certified and finalized by the County.

The statement “ taxes a lien not yet due or payable.” will show on your preliminary title report before the tax rolls are certified.

For closings occurring after July 1st but prior to the taxes certifying. The Seller will be charged a prorated share of the taxes at closing, because once the tax roll as “turned” or certified they will be paid for by the Buyer of the property.

For Example:

Closing is scheduled for September 15th, the taxes that were paid last year in November were $1200.00. So we would prorate on what we knew had been paid last year and charge the Seller from July 1st until September 15th when the taxes will be the obligation of the Buyer to pay when they certify a month later.

Based on $1200 annually ($100/month) the Seller would end up owing the Buyer $250.00(approximately) $100/July - $100/August - $50 for 1/2 of September.

Then when the tax rolls certify, the Buyer would be obligated to pay the entire tax bill and they would have received a credit from the Seller to cover their part of the tax year at closing.

Taxes that are paid prior to November 15th will receive a three (3%) percent discount. Usually when there is a lender involved in a transaction the escrow company will hold 120-130% of the previous years taxes beginning in approximately the middle of September. Once the taxes have certified we would pay the bill and refund any difference back to the Buyer. If we had miscalculated the amount owing, the Buyer would need to bring in the difference.

Once the taxes rolls have certified and we haven’t closed yet, we would have the Seller pay the entire tax bill and charge the Buyer from the date indicated for prorations (usually recording but could be possession or any other time agreed to by the Seller and Buyer).

Example:

We are closing on November 1st. The taxes now certified and owing are $1200.00. First we discover the discounted amount ($1200.00 minus 3% or $36.00 which equals $1,164.00). We charge the Seller the full $1,164.00 (discounted amount) and the Buyer reimburses the Seller the difference from November 1st until July 1st.

Other items that may be prorated are:

• Rents
• Homeowners Association Dues
• Oil/Fuel

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This educational series is created to allow Realtors to obtain continuing education. The articles are intended for general informational purposes and are not to be construed as legal advice or legal opinion on any specific facts or circumstances. You are advised to consult with an attorney concerning any questions about your rights or responsibilities in any specific situation.