Difficulty: Medium

Average Score: 50%

Which of the following items would be prorated at closing with the credit going to the seller?

Rationale

Prepaid property taxes would be prorated at closing with the credit going to the seller.

Prepaid property taxes are typically prorated at closing, meaning the seller is credited for the amount of taxes they have already paid for the period that the buyer will occupy the property. This ensures that the seller is compensated for taxes they have already covered that will benefit the buyer after the closing date.

A (accrued interest on an assumed mortgage) YOUR ANSWER

Accrued interest on an assumed mortgage is typically calculated up to the closing date, with the buyer responsible for paying the seller the interest that accrues from the last payment date to the closing date. This means the credit does not go to the seller as it is the buyer's responsibility.

B (prepaid property taxes) CORRECT

As mentioned, prepaid property taxes are prorated at closing, with the seller receiving a credit for the portion of taxes they have already paid that correspond to the time after the sale. This ensures fairness in financial responsibilities between the buyer and seller.

C (earnest money) YOUR ANSWER

Earnest money is a deposit made by the buyer to show their commitment to purchasing the property. At closing, this money is applied toward the buyer's down payment or closing costs, not credited to the seller. Therefore, it does not qualify as an item prorated at closing.

D (unearned rent collected in advance) YOUR ANSWER

Unearned rent collected in advance is money received by the seller for rental periods that occur after the closing date. Typically, this amount is credited to the buyer, as they will be responsible for these future rental periods, rather than providing a credit to the seller.

Conclusion

In summary, when closing on a property, prepaid property taxes are prorated, ensuring the seller is credited for taxes already paid that benefit the buyer post-closing. Other options, such as accrued interest, earnest money, and unearned rent, do not represent amounts that would be credited to the seller at closing, reinforcing the importance of understanding these financial arrangements in real estate transactions.

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