Since an October closing usually means the first loan payment will be due on December 1, lenders often want the settlement agent to collect for and make payment of the current year’s tax bill when it becomes available in November. (Lenders may also insist upon similar withholdings and payments for closings in other months due to the logistics of setting up and administering the borrower’s escrow account for future payments.) Here are some examples of how lenders may allow these payments to be disclosed:
“Section F. Prepaids” is reserved for items the lender requires to be paid in advance of the first loan payment. Payment of the tax bill in November in advance of the first loan payment due in December satisfies that condition. If shown in Section F. Prepaids, the payment would likely be disclosed in the borrower’s column, but it could be directed to the seller’s column as well. In either case, the proration on page three in the Summaries of Transactions tables will apportion the obligation between the parties.
“Section H. Other” is intended to capture optional items as well as those services which the lender does not require as a condition of closing the loan. Since arguably the payment of a tax bill before its due date is not a condition for closing the loan, some lenders may decide that this is the appropriate location.
“Section N. Due from Seller at Closing” is intended, among other things, to capture the payoff of liened items such as the seller’s existing mortgage. Although some may discount the disclosure here of a not yet due tax bill, they do so on the theory that no lien has been recorded. Since, in Florida, the lien attaches automatically on January 1st of the tax year without the necessity of a recording, we feel this solution addresses the Florida situation accurately and that Section N is a viable alternative.