For homeowners in the McKinney TX and surrounding Collin County area, December 31 brings not only New Years Eve celebrations, but also a bill for real estate taxes. Wah...whaaa...I know, I know...I'm a Debbie Downer. So why bring it up? If you are buying or selling a home during this time of year, you need to be aware of how paying real estate taxes could impact you!
If you sell your McKinney or Collin County home around November, December, or January realize that your lender will probably require that the year's real estate taxes be PAID IN FULL before the property can transfer free and clear. For those you of not from the area, or are relocating to the McKinney area, our real estate taxes for 2010 are due without penalty by January 31, 2011. The person who owned the home as of January 1 of the year you close will be the responsible party for paying taxes.
In our current real estate market, some home sellers are in a position where they may need to bring cash to closing in order to sell their home. If they can bring the necessary cash, then they are in a better position than many who end up with a short sale or foreclosure process on their hands. But, even if they CAN bring cash to closing it may be a very stressful and tight issue if you're cutting it close as to exactly HOW MUCH needs to be brought.
In one example, let's say it's estimated that a home seller needs to bring $3,000 to the table in order to close on the sale of his home. The Realtor prepares a net sheet for the seller prior to accepting the contract and the seller agrees that he can proceed with the sale if all that's needed is approximately $3,000.
Now, let's say this seller is closing in December. He pays his monthly taxes into an escrow account, and Mr. Seller expects that his lender will pay his real estate taxes in full when the bill is due Dec. 31.
Closing day comes in the middle of the month and the title company prepares the closing statement. The county tax office shows that the real estate taxes still need to be paid before the tax lien can be taken off the property (in order to deliver clear title to the buyer) and the lender's payment hasn't yet cleared with the county. The title company will expect to collect the full year's taxes of $6,000 at closing from the seller.
Oops! Mr. Seller doesn't have an extra $6,000 to bring to closing, remember? $3,000 was the most that he could bring. What do we do?? How could this happen?
Little known fact: If you ESCROW your taxes with your lender, then they may have automatic systems set in place to draft money out of your escrow account in order pay your taxes before the due date. BUT - just because money was drafted out of your escrow account in early December doesn't mean that the lender will send that payment immediately, They may pool the payments and send it just prior to the due date. In the end your taxes will still be paid out of your account, but the lag time between draft and actual payment could cause a delay in being refunded this money. And now there's a double payment.
In our example, Mr. Seller might not be able to go forward with the transaction. The best thing to do when closing at this time of year is to make sure that YOU, YOUR LENDER, and the TITLE COMPANY are all on the same page prior to accepting an offer. Especially if you are in a situation where money is tight.
Being informed is the most important thing when it comes to buying or selling real estate. Even though you might find yourself in a difficult situation, your Realtor can help find solutions to lessen the stress and achieve your goals.