First, this may not apply for all, but in Cook County (where Chicago is located), taxes are paid in arrears. For example, the first installment (of two installments) of taxes for 2011 will be sent out in March, 2012. So, homeowners are always paying the taxes for the year prior.
In our contracts in Cook County, we prorate the tax credit to the buyer, from the seller, based on the day of closing, so that they can pay the tax bill for the months in which they did not own the property. Typically they're prorated above 100% to provide for the [inevitable] increase in taxes. Whether a short sale or traditional sale, the seller always provides a credit to the buyers to pay these taxes. (In certain circumstances where the tax burden is high, the seller may hold funds in escrow to actually pay the tax bill when it arrives, but this is not possible in a short sale).
In my current transaction with GMAC, where we'll be closing in mid-December, they have just denied any credits for county taxes to the buyer. This means that the buyers will effectively be paying for nearly a year's worth of taxes from when they did not own the property. Since the bill for 2010 (which was paid this year) has been paid, and we have not yet received the bill for 2011 (which will arrive in 2012), they are saying they will not pay for any taxes. I've talked with the negotiator, their supervisor, and have emailed and talked with GMAC executives.
I've closed other short sales with GMAC where this had not been an issue, and all they can tell me is that "this is the way it works".
Have any of you, in areas where taxes are paid in arrears, come across this? I know Cook County is known for having a crazed tax system, but I am certain there are other counties/municipalities that run this way.
Any advice or help is greatly appreciated, and THANK YOU in advance!
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Thanks, Bryant and Corinn, for the great responses.
The frustrating part is that this is the first time with GMAC this has been an issue, and the first time with any lender where they don't approve after a thorough explanation. And also that they (they, being the negotiator, supervisors, and two "executives") say they fully understand what I'm saying, and they can explain the tax system back to me, so they get it. One of the issues is that since the second installment for 2010 was paid, and the next bill, for 2011, is not issued until March of 2012, the county currently shows a balance of $0. So, while they understand how it works, they're saying that the county isn't owed anything, so there is no bill to pay, and no credit to give. I'm continuing to contact others at GMAC, and we'll see what I get. Any direct contact information for someone at or above the supervisor level at GMACM would be greatly appreciated.
Thanks again for the comments, and Happy Thanksgiving!
Kevin,
I've run into the same issue with hoa dues, when there are past due hoa's but there is no lien, with banks saying, if there is no lien then we don't have to pay. What I used to deal with this was a letter from the seller's attorney explaining that this still wouldn't amount to clear title, and so we couldn't close. A letter from your title company might work as well. Essentially, just because a lien hasn't been recorded, doesn't mean it doesn't exist.
Jim Schneider, Clear Point Realty
Ohio taxes are also paid in arrears. A few times we have had issus from the negotiators on this, as it seems to confuse them! I have had to provide documentation before to prove that taxes are paid in arrears, but other than that, the taxes have always been taken care of by the short selling lender.
Taxes in Florida are also paid in arrears. I have never had an issue with the lender allowing these pro-rations. I have 2 with GMAC right now where they are paying them. I would seek clarity from the negotiator. They may not be communicating the real issue.