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popular whereby the seller gives warranties against title defects arising during seller’s period of ownership only. Most title insurers do not see this type of limited warranty deed as an impediment to issuing title insurance. Quit claim deeds are also frequently used where the seller conveys whatever interest it has and provides no warranties of title, in which case the buyer should obtain and would be relying entirely on title insurance to address title defects. VIII. CLOSING COSTS/ADJUSTMENTS A. The seller usually pays the transfer taxes due at the time of the conveyance. There is a standard county tax of $0.55 per $500 of consideration, however, a county with a population over 2 million may charge as much as $0.75 per $500. The state transfer tax is $3.50 per $500 in consideration. There are several transfer tax exemptions mostly involving family or related party transactions with little consideration. B. Buyer and seller adjust for water, sewer, gas/oil, electricity, and taxes. Depending on what part of the state the property is located in, proration of taxes varies by local custom. The most common methods for pro rating taxes are: (1) paid in advance, due date basis (favors seller), (2) calendar year and (3) paid in arrears, due date basis (favors buyer). With retail or multi-family commercial properties, closing adjustments also include, among others, rents, management/operating expenses and common area maintenance expenses. C. Certain lands used for agricultural purposes pay reduced taxes that, in
some instances, may be clawed back if the agricultural use is terminated. D. Standard federal income tax withholding is required for sellers who cannot provide a non-foreign FIRPTA affidavit. IX. OTHER CLOSING DOCUMENTS A. Residential Property – If the property is to be used as a principal residence, the seller should rescind any PRE, or “Personal Residence Exemption” seller may have (results in lower property taxes), and the buyer should promptly file a PRE form with the local assessing unit. B. If the property is leased (residential or commercial/industrial) and if the lease is to be terminated at or before closing, a lease termination instrument signed by the tenant should be provided. If the lease(s) is to continue after the sale and purchase, an “assignment and assumption of lease(s)” instrument should be executed by the seller and buyer. C. Title insurance is always recommended and an effective review of title to the property is nearly impossible without a title commitment (and copies of all exceptions to the seller’s title that survive closing) being provided, which commitment is the basis for the title policy issued at closing. Typically, the seller pays the premium charged to issue the title insurance policy. The buyer is responsible for a title policy required for any purchase money financing. X. RECORDING REAL ESTATE DOCUMENTS Deeds and any other documents evidencing an encumbrance on title are recorded at the
ILN Real Estate Group – Buying and Selling Real Estate Series
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