Ad-Valorem vs. Non Ad-Valorem Taxes. Although Sarasota County residents receive one tax bill, it covers ad valorem and non-ad valorem taxes. Ad-valorem taxes, simply put, are for the dirt. Non ad-valorem taxes are for services, like garbage collection, storm water, etc. The twist is, the ad-valorem tax is paid on a calendar year basis (January 1 — December 31), while the non-ad valorem tax is paid in advance for the period from October 1 to September 30. For most of the year, you’ll see a credit to the seller for the pre-paid, non ad-valorem portion of the taxes, and a debit for the unpaid ad-valorem portion. If it’s any comfort, Sarasota is one of the few counties we’ve found in Florida that handles taxes this way, so we can at least be proud that we’re unique!
Establishing Escrow Account for Taxes. When a lender requires an escrow account for taxes, the second page of the settlement statement (Line 1004) will reflect the amount required to establish that account. This is calculated by dividing the current annual tax figure by 12 and multiplying by the number of months required for the escrow. In determining how much is needed to find the account, the lender looks at when the buyer will start making mortgage payments (and therefore contributing to the escrow account on a monthly basis) versus when the tax payment is due, and takes enough to ensure that the combination of the amount collected at closing, and any amounts added to the fund because of mortgage payments up to the time the tax is due, will leave a total amount sufficient to cover the current bill, plus a cushion of a couple of months of taxes.
Credit for Existing Escrow Accounts. For people who are refinancing with the same lender, often the lender will allow them to apply their current escrow balance to their mortgage payoff, thereby reducing the amount due to satisfy the existing mortgage. Funds are still collected for the new escrow account, but the borrower has received the benefit of the funds held by the lender under the prior mortgage. When it’s not a same-lender refi, the best the borrower can expect is to receive a refund of the amounts held by the existing lender after satisfaction of the current mortgage. Few lenders seem to allow the mortgage payoff to be netted out if they’re not the lender on the refinance.
Why Do I Have To Pay My Taxes Now When They ‘re Not Due Until March?… is a question we hear frequently during November closings when a seller has escrowed all year long, but the taxes are not showing as paid. From the closing agent’s perspective, taxes become a lien on the owner’s property as of January l’s, and must be discharged in order for the Seller to convey clear title. Although the seller may have escrowed their taxes along with their mortgage payments, most lenders do not pay tax bills until the END of November, and there will usually be no evidence of payment until some time in December. Therefore, it is necessary for the closing agent to hold an amount sufficient to cover the seller’s taxes pending verification that the lender paid these.
And the List Goes On…
Please do not hesitate to give us a call if you have any questions. It can be a sticky situation having to explain taxes to a client, and we’re happy to help you through that explanation if you find yourself in need of a little information boost.
