- February 06, 1996
- All Colorado Issuing Agents for Stewart Title Guaranty Company
- Real Estate Settlement Procedures Act; Escrow Accounting Procedures ("RESPA Escrow Procedures")
It has come to our attention that certain lenders are interpreting the RESPA Escrow Procedures to state that Real Property Taxes ("Taxes"), even upon sale of the property with a new purchaser, must be paid in two installments.
Normally in a transaction for a sale/purchase, if the closing occurs after January 1, the previous year's Taxes, if not already paid, would be collected from the seller at closing and disbursed to the County Treasurer. In Colorado taxes may be paid in either one installment due April 30, or in two installments with the first installment due the last day of February and the second payment due June 15. Some lenders are now requiring that at the time of closing, one-half of the Taxes are to be disbursed to the County Treasurer and the other one-half of taxes are to be placed in the purchaser/borrower's escrow account for payment in June.
If a lender insists on paying half of the Taxes and placing the second half in an escrow account, and if the lender's instructions require a specific tax exception, the exception for taxes on the Lender's Policy will read as follows:
Second half of taxes for the year 19_____, a lien, now due, but not yet delinquent.
The specific exception for taxes on the Owner's Policy would read as follows:
Second half of taxes for the year 19_____, and subsequent years; special assessments or charges not certified to the County Treasurer.
For preparation of the closing documents you must be sure that the closing instructions executed by all parties, specifically set forth this arrangement for payment of taxes. The following is an example of the paragraph that could be added to the closing instructions for this purpose.
Seller and Purchaser hereby acknowledge and agree that based on the instructions of the Purchaser's Lender the disposition of the 1995 Real Property Taxes will be handled as follows: (1) The Seller will be given a debit for the full amount of the 1995 Real Property Taxes (2) The closing agent will disburse one-half of the 1995 Real Property Taxes to the County Treasurer at the time of closing (3) The remaining one-half of taxes will be credited to the Purchaser for placement in the Purchaser's escrow account to be disbursed by the Lender to the County Treasurer on or before June 15, 1996.
In addition, we would recommend, if possible, an addendum to the contract as the contract normally states that the Taxes have been paid in full. The following paragraph is an example of the wording which may be used for the purposes of the contract Addendum:
Based on the instructions of the Buyer's Lender, the disposition of the 1995 Real Property Taxes will be handled as follows: (1) The Seller will be debited for all of the 1995 Real Property Taxes (2) The closing agent will disburse one-half of the 1995 Real Property Taxes to the County Treasurer at the time of closing (3) The remaining one-half of Real Property Taxes will be credited to the Buyer for placement in the Buyer's escrow account to be disbursed by the Lender to the County Treasurer on or before June 15, 1996.
The HUD-1 Settlement statement should show a debit for the full amount of the taxes to the seller and a credit for one-half of the amount of the taxes to the purchaser/borrower. One-half of the taxes will be disbursed to the County Treasurer by the escrow agent. The Real Estate Tax Agreement should include the following paragraph:
Buyer is aware that Stewart Title is paying only the first half of 1995 property taxes. Buyer's lender will be responsible for paying the second half of the 1995 property taxes in June 1996. Buyer's lender will pay these taxes out of the escrow account. Buyers acknowledge receiving credit at closing for second half of 1995 property taxes.
The lenders instructions must specifically state that you are to pay only half of the Taxes and escrow the remaining half. Any lien letter given to the lender would specifically except to one-half of the Taxes.
As always, if you have any questions or comments regarding these procedures, please contact me at (303) 331-0333.
THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.
- Bulletins Replaced:
- Related Bulletins:
- Underwriting Manual:
- 17.04 Real Estate Settlement Procedures Act (RESPA)
- Exceptions Manual: