objective 5: explain the general rules for prorating Flashcards
(81 cards)
1
Q
___ are necessary to ensure that expenses are divided fairly between the seller and buyer
A
prorations
2
Q
If a seller owes current taxes that have not been billed, the buyer would want this settled at closing. What is this an example of?
A
Prorating
3
Q
Where taxes must be paid in advance, the ___ is entitled to a rebate at closing.
A
seller
4
Q
Where taxes must be paid in advance, the seller is entitled to a ___ at closing.
A
rebate
5
Q
if the buyer assumes the seller’s existing mortgage or deed of trust, the seller usually owes the buyer an allaowance for ___.
A
Accrued interest through the date of closing
6
Q
___ such as water bills, IL real estate taxes, and interest on an assumed mortgage that is paid in arrears, are expenses to be prorated that are owed by the ___ but will later be paid by the ___.
A
Accrued items
Owed by seller
Paid by buyer
7
Q
Accrued items such as water bills, IL real estate taxes, and interest on an assumed mortgage that is paid in arrears, are expenses to be prorated that are owed by the seller but will later be paid by the buyer. Therefore, the ___ pays for these items by giving the other party ___ for the expenses at closing.
A
Seller pays
Credits
8
Q
___, such as fuel oil in a tank, are expenses to be prorated that have been prepaid by the seller but not fully used up. They are therefore credits to the ___.
A
Prepaid items
seller
9
Q
What are the 4 considerations of accurate prorating?
A
1) Nature of item being prorated
2) whether it is an accrued item that requires determination of an earned amount
3) whether it is a prepaid item that requires the determination of an unearned amount (refund to seller)
4) what arithmetic must be used
10
Q
The computation of a proration involves identifying ___ for the item and then dividing it by ___ to determine the ___ for the item
A
identifying a yearly charge for the item
dividing it by 12
determine the monthly charge
11
Q
It is also usually necessary to identify a daily charge for the prorated item, by dividing the ___ by the ___
A
dividing the monthly charge by the days in the month
12
Q
___ is multiplied by the number of ___ or ___ in the prorated period to determine the accrued or unearned amount that will be figured in the settlement
A
Daily charge is multiplied by the number of months or days in the prorated period
13
Q
A statutory year contains 12 months with ___ days in each month, for a total of ___ days
A
30 days per month
total of 360 days.
14
Q
How many days are in a statutory year?
A
360
15
Q
How many days are in a calendar year?
A
365 or 366 if leap year
16
Q
How many days in a month for a statutory year?
A
30
17
Q
How many days in a month for a calendar year?
A
Varies, between 28-31 depending on the month
18
Q
When prorating THROUGH the day of closing, the ___ is responsible for the day of closing.
A
seller
19
Q
When prorating ___ the day of closing, the seller is responsible for the day of closing.
A
through
20
Q
When prorating ___ the day of closing, the buyer is responsible for the day of closing.
A
to
21
Q
When prorating TO the day of closing, the ___ is responsible for the day of closing.
A
Buyer
22
Q
In IL, what are the 3 acceptable proration methods?
A
1) Statutory year
2) Calendar year
3) Statutory month variation
23
Q
In IL, when using the statutory month variation, how is the monthly amount determined?
A
Divide the yearly charge by 12
24
Q
When using the statutory month variation, how is the charge calculated for the month in which the closing occurs?
A
Monthly charge is divided by the actual number of days for that specific month
25
All computations in the statutory month variation are computed by carrying the division to ___ decimal places.
Three
26
Assume a sale is to be closed on September 17. Current real estate taxes of $1200 are to be prorated using a statutory year method. The accrued period, is then ___ months and ___ days.
8 months
17 days
27
Assume a sale is to be closed on September 17. Current real estate taxes of $1200 are to be prorated using a statutory year method. How many days are in this year?
360
28
Assume a sale is to be closed on September 17. Current real estate taxes of $1200 are to be prorated using a statutory year method. The accrued period, is then 8 months and 17 days. What is the prorated cost of the real estate tax per month?
$100 per month
1200 divided by 12 months = 100
29
Assume a sale is to be closed on September 17. Current real estate taxes of $1200 are to be prorated using a statutory year method. The accrued period, is then 8 months and 17 days. What is the prorated cost of the tax per day?
$3.333 per day
1200 divided by 12 months = 100 per month
100 divided by 30 days = 3.333 per day
30
Assume a sale is to be closed on September 17. Current real estate taxes of $1200 are to be prorated using a statutory year method. How many days are in a month?
30
31
Assume a sale is to be closed on September 17. Current real estate taxes of $1200 are to be prorated using a statutory year method. The accrued period, is then 8 months and 17 days. What is the total prorated real estate tax?
$856.66
1200 divided by 12 months = 100 per month
100 times 8 months = 56.661
100 divided by 30 days = 3.333 per day
3.333 times 17 days = 56.661
800+56.661=$856.661 (rounded to 856.66)
32
Assume a sale is to be closed on September 17. Current real estate taxes of $1200 are to be prorated using the ACTUAL number of days. The accrued period from Jan 1 to Sep 17 runs 260 days (assuming it is NOT a leap year). What is the daily amount of tax?
$3.288
1200 divided by 365 = 3.288 per day
33
Assume a sale is to be closed on September 17. Current real estate taxes of $1200 are to be prorated using the ACTUAL number of days. The accrued period from Jan 1 to Sep 17 runs 260 days (assuming it is NOT a leap year). What is the total amount of accrued tax?
$854.88
1200 divided by 365 = 3.288 per day
3.288 times 260 days = 854.88
34
In IL, taxes are paid in ___.
Arrears
35
In IL, taxes are paid in arrears. When will 2014 taxes be paid?
In 2015
36
Assume that the water is billed in advance by the city without using a meter. The 6 months billing is $60 for the period ending October 31. The sale is to be closed on August 3. Because the water bill is paid to October 31, the prepaid time must be computed. Using a 30-day basis, the time is the ___ days left in August plus ___ full months.
27 days
2 full months
37
Assume that the water is billed in advance by the city without using a meter. The 6 months billing is $60 for the period ending October 31. The sale is to be closed on August 3. Because the water bill is paid to October 31, the prepaid time must be computed. Using a 30-day basis, the time is the 27 days left in August plus 2 full months. How much is owed per month?
$10
60 divided by 6 = 10
38
Assume that the water is billed in advance by the city without using a meter. The 6 months billing is $60 for the period ending October 31. The sale is to be closed on August 3. Because the water bill is paid to October 31, the prepaid time must be computed. Using a 30-day basis, the time is the 27 days left in August plus 2 full months. How much is owed per day?
$0.333
60 divided by 6 = 10
10 divided by 30 = 0.333
39
Assume that the water is billed in advance by the city without using a meter. The 6 months billing is $60 for the period ending October 31. The sale is to be closed on August 3. Because the water bill is paid to October 31, the prepaid time must be computed. Using a 30-day basis, the time is the 27 days left in August plus 2 full months. What is the prorated bill for the month of August?
$8.991
60 divided by 6 = 10
10 divided by 30 = 0.333
0.333 times 27 days = 8.991
40
Assume that the water is billed in advance by the city without using a meter. The 6 months billing is $60 for the period ending October 31. The sale is to be closed on August 3. Because the water bill is paid to October 31, the prepaid time must be computed. Using a 30-day basis, the time is the 27 days left in August plus 2 full months. What is the prorated bill for the remaining 2 full months?
$20
60 divided by 6 = 10
10 times 2 = 20
41
Assume that the water is billed in advance by the city without using a meter. The 6 months billing is $60 for the period ending October 31. The sale is to be closed on August 3. Because the water bill is paid to October 31, the prepaid time must be computed. Using a 30-day basis, the time is the 27 days left in August plus 2 full months. What is the total prorated bill?
$28.99
60 divided by 6 = 10
10 divided by 30 = 0.333
0.333 times 27 days = 8.991
60 divided by 6 = 10
10 times 2 = 20
20 + 8.991 = 28.991 (rounded to 28.99)
42
A prepaid item is credited to the ___ and debited to the ___ on the closing statement.
Credited to the seller
Debited to the buyer
43
Assume that the water is billed in advance by the city without using a meter. The 6 months billing is $60 for the period ending October 31. The monthly division of this comes out to $10 per month. The sale is to be closed on August 3. Because the water bill is paid to October 31, the prepaid time must be computed. Using the actual amount of days in the month, how much is owed per day?
0.323
10 per month divided by 31 days in august = 0.323
44
Assume that the water is billed in advance by the city without using a meter. The 6 months billing is $60 for the period ending October 31. The monthly division of this comes out to $10 per month. The sale is to be closed on August 3. Because the water bill is paid to October 31, the prepaid time must be computed. Using the actual amount of days in the month, how many days would the new owner be billed for in August?
28 days
(august 4 through august 31)
45
Assume that the water is billed in advance by the city without using a meter. The 6 months billing is $60 for the period ending October 31. The monthly division of this comes out to $10 per month. The sale is to be closed on August 3. Because the water bill is paid to October 31, the prepaid time must be computed. Using the actual amount of days in the month, what is the total prorated bill for the remainder of the year?
$29.04
10 divided by 31 = 0.323
0.323 times 28 days in august = 9.044
2 months times 10 = 20
20+9.044 = 29.044 (rounded to 29.04)
46
In most states, the ___ owns the property on the day of closing, and prorations or apportionments are usually made to and including the day of closing.
seller
47
In MOST states, the seller owns the property on the day of closing, and prorations or apportionments are usually made to and including the ___
day of closing
48
Mortgage interest, general real estate taxes, water taxes, insurance premiums, and similar expenses usually are computed using which method?
Statutory year
49
Mortgage interest, general real estate taxes, water taxes, insurance premiums, and similar expenses usually are computed by using ___ days in a year
360
50
Mortgage interest, general real estate taxes, water taxes, insurance premiums, and similar expenses usually are computed by using ___ days in a month
30
51
The ___ should specify which proration method is used
agreement of sale
52
When are accrued or prepaid general real estate taxes normally prorated?
At closing
53
When the amount of the current real estate tax can not be determined definitely, the proration is usually based on the ___
Last obtainable tax bill
54
Special assessments for municipal improvements such as sewers, water mains, or streets are usually paid in annual installments over several years, with annual interest charged on the outstanding balance of future installments. The ___ normally pays the current installment.
Seller
55
Special assessments for municipal improvements such as sewers, water mains, or streets are usually paid in annual installments over several years, with annual interest charged on the outstanding balance of future installments. The buyer normally assumes ___.
All future installments
56
The ___ is generally NOT prorated at closing
Special assessment installment
57
The special assessment is generally not prorated at closing, however the buyer may insist that the seller allow them a(n) ___ for the seller's share of the ___ to the closing date
credit
interest
58
Rents are usually adjusted on the basis of the ___ in the month of closing
actual number of days
59
It is customary for the ___ to receive the rents for the day of closing and to pay all expenses for that day.
Seller
60
If any rents for the current month are uncollected when the sale is closed, the ___ often agrees by separate letter to collect the rents if possible and remit the pro rata share to the ___
Buyer
Seller
61
Security deposits made by tenants to cover the last month’s rent of the lease or to cover the cost of repairing damage caused by the tenant are generally transferred by the ___ to the ___
Transferred by the seller to the buyer
62
In some states, real estate taxes are paid in advance (if tax year runs Jan 1 - Dec 31, taxes for the coming year are due on Jan 1). In htis case, the seller, who has prepaid a year's taxes, should be reimbursed for the...
portion of the year remaining after the buyer takes ownership of the property
63
In IL, taxes are paid in arrears. Therefore, the ___ must be credited for any taxes that still will be paid in the future for time in the past (up until closing).
Buyer
64
In IL, taxes are paid in arrears. Therefore, the buyer must be ___ for any taxes that still will be paid in the future for time in the past (up until closing) when the seller occupied the property
credited
65
In IL, taxes are paid in arrears. Therefore, the buyer must be credited for any taxes that still will be paid in the future for time in the past (up until closing) when the seller occupied the property. If an unpaid installment based on last year has been billed, this specific amount is credited to the ___ and debited to the ___.
Credited to the buyer
Debited to the seller
66
In IL, taxes are paid in arrears. Therefore, the buyer must be credited for any taxes that still will be paid in the future for time in the past (up until closing) when the seller occupied the property. The buyer must be credited with the ___ because those taxes will not be paid until next year.
current years taxes to the time of closing
67
In IL, taxes are paid in arrears. Therefore, the buyer must be credited for any taxes that still will be paid in the future for time in the past (up until closing) when the seller occupied the property. The buyer must be credited with the current years taxes to the time of closing because those taxes will not be paid until next year. The seller is ___ accordingly, to the date of close, and a proration is necessary.
Debited
68
The following formula may be used in IL to determine tax proration:
___ divided by ___ times ___ = tax proration
Last annual tax bill divided by 360 times number of days from January 1 to closing date = tax proration
69
Interest is paid ___ on almost every mortgage loan.
in arrears
70
Interest is paid in arrears on almost every mortgage loan. Therefore, the mortgage payment due on June 1 includes interest due for ___
May
71
Interest is paid in arrears on almost every mortgage loan. Therefore, the mortgage payment due on June 1 includes interest due for May. The buyer assumes the mortgage on May 31, and makes the June payment. The buyer should be...
Credited with a month's interest by the seller
72
In IL, the terms of SOME assumed mortgage loans provide that interest is charged ___.
At the beginning of the month (in advance)
73
In IL, the terms of SOME assumed mortgage loans provide that interest is charged at the beginning of the month (in advance).WITHOUT this provision, interest is always charged ___.
At the end of the month (in arrears)
74
In IL, when the interest on the existing mortgage to be assumed by the buyer is charged at the beginning of the month, the unearned portion must be ___ to the seller and ___ to the buyer.
credited to seller
debited to buyer
75
76
In IL, when the interest on the existing mortgage to be assumed by the buyer is charged at the beginning of the month, the unearned portion must be credited to the ___ and debited to the ___.
77
In IL, when the interest on the existing mortgage to be assumed by the buyer is charged at the beginning of the month, the ___ must be credited to the seller and debited to the buyer.
unearned portion
78
In IL, when the mortgage interest is charged in arrears, the ___ of the mortgage interest through the date of closing is an accrued expense, debited to the seller and credited to the buyer.
earned portion
79
In IL, when the mortgage interest is charged in arrears, the earned portion of the mortgage interest through the date of closing is a(n) ___, debited to the seller and credited to the buyer.
accrued expense
80
In IL, when the mortgage interest is charged in arrears, the earned portion of the mortgage interest through the date of closing is an accrued expense, ___ to the seller and ___ to the buyer.
debited to the seller
credited to the buyer
81
In IL, when the mortgage interest is charged in arrears, the earned portion of the mortgage interest through the date of closing is an accrued expense, debited to the ___ and credited to the buyer.
debited to the seller
credited to the buyer
