It is that time of year again that we all dread. Several counties in South Carolina have issued the ad valorem tax bills for 2016. Once the tax bill is issued by a county it becomes due and payable. The tax bill is past due on January 15, 2017. The issuance of the tax bill may impact your closings through the end of the year so it is imperative that you understand these tax issues so you can discuss them with your clients.
Since tax bills are due and payable when issued, the tax becomes a lien against the property which must be satisfied at or before closing. Therefore, if the county has issued the tax bill the closing attorney will have to collect the tax on the Closing Statement, otherwise the Buyer will not get clear title. Assuming the CCRA contract is used, the Seller will pay the portion of the tax bill from January 1 through the date of closing. The Buyer will pay the tax bill from the day after closing through the end of the year.
The issuance of the tax bill can be problematic for both the Seller and Buyer. If the Seller escrowed taxes and their lender has processed the tax payment but the county has not posted the payment, the closing attorney will still have to collect the tax bill on the Closing Statement. Sellers are often very unhappy having a line item for taxes when they escrowed especially when the lender says the payment has been processed. Unfortunately unless payment is posted at the county, the tax lien is still due. Once the county receives the second tax payment, the County will return the check. Which check is returned depends on which check the county processes first. Typically the Seller will receive the refund quicker if the check is sent back to the closing attorney instead of the lender.
Buyers can also be affected when the Seller is taxed at the 6% Second Home tax rate. In these cases, the Buyer’s portion of the tax bill from closing to the end of the year will be also be at 6%. The higher tax bill can result in the Buyer bringing a lot more money to closing than the lender disclosed on the Closing Disclosure because the Buyer’s portion of taxes is much greater at 6% than it would have been at 4%. After closing the Buyer can apply for the owner-occupancy rate. If the Buyer otherwise qualifies, the county will issue a refund for the difference in the tax rate. The Closing Attorney cannot guarantee to whom the county will make the check payable or where it is sent. The non-receiving party may also have difficultly convincing the receiving party to reprorate even if it was agreed to in writing prior to closing. The closing attorney nor lender have any control over this situation.
We have seen this issue cause serious problems on closings where the Buyer or Seller had to bring more money to the Closing than was anticipated. This hits hardest with first time home buyers, deficit Sellers and low income purchasers.
If you have any questions about tax bills or prorations, please contact Blair Cato Pickren Casterline for additional information.
Historical Note: Did you know that Dentsville in Richland Northeast was home to two popular summer resorts? Lightwood Knot Springs was a very popular summer retreat for Columbians during the first half of the nineteenth century. A few miles east of Lightwood was Rice Creek Springs which was also the site of the Richland Polytechnic Institute from 1830 to 1845.