Difficulty: Hard

Average Score: 40%

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

Rationale

Unearned rent collected in advance would be prorated at closing with the credit going to the seller.

In real estate transactions, unearned rent collected in advance is considered the seller's income for the period they owned the property. At closing, this amount is prorated, ensuring the seller receives credit for the rent that covers the time they still owned the property, while the buyer assumes responsibility for the remaining rental period.

A (accrued interest on an assumed mortgage) YOUR ANSWER

Accrued interest on an assumed mortgage typically pertains to the interest that has accumulated on a mortgage up to the closing date. This amount is usually paid by the buyer at closing to the lender rather than credited to the seller, as it directly relates to the buyer's assumption of the mortgage rather than any income earned by the seller.

B (prepaid property taxes) YOUR ANSWER

Prepaid property taxes are amounts that the seller has already paid for a period extending beyond the closing date. At closing, these taxes are typically prorated, but they result in a debit to the seller and a credit to the buyer, as the buyer will benefit from the prepaid taxes during their ownership period, not the seller.

C (earnest money) YOUR ANSWER

Earnest money is a deposit made by the buyer to demonstrate their commitment to purchasing the property. It is held in escrow and is not prorated at closing. Instead, it becomes part of the buyer's down payment or closing costs, serving as a security for the seller rather than an item to be prorated.

D (unearned rent collected in advance) CORRECT

Unearned rent refers to payments received by the seller for a period of time beyond the closing date. Because the seller has received this rent for a period they still owned the property, it is prorated at closing, allowing the seller to receive credit for this income while the buyer takes over the rental obligations.

Conclusion

In a real estate transaction, unearned rent collected in advance is the only item among the options listed that is prorated at closing with the credit going to the seller. This ensures that the seller is compensated for income received for the time they owned the property, while other items, such as accrued interest, prepaid taxes, and earnest money, do not operate in the same manner and are typically settled differently during the closing process.

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