The Iowa Closing: Prorations, a Judgment Lien, and Net Proceeds
An Iowa closing is set for Wednesday, October 15. Contract price $265,000. The seller's mortgage payoff is $148,200 as of October 1 with per diem interest of $24.13; the payoff is good through October 20. Total commission is 6% of price, split 50/50 with the cooperating brokerage. Iowa real estate transfer tax is $1.60 per $1,000 (or fraction) of consideration and is customarily paid by the grantor. Current-year taxes are $3,650 and are unpaid; the contract prorates on a 365-day basis with the seller responsible through the day of closing. The seller pays $350 to continue the abstract of title. The attorney's title opinion lists a 2019 judgment lien against the seller of $4,300 and an unpaid special assessment of $2,100 for street paving, payable in annual installments. Earnest money is $5,000. The buyer is putting 20% down with estimated buyer closing costs of $3,900, recording of $120, and lender escrow deposits of $2,600.
1. Compute the seller's net proceeds with an itemized debit and credit list.
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Tax proration. Annual taxes $3,650 ÷ 365 = $10.00/day. Seller is charged through the day of closing: Jan 1 through Oct 15 = 288 days → 288 × $10.00 = $2,880 charged to seller, $770 to the buyer. The taxes are unpaid, so the seller credits the buyer $2,880.
Transfer tax. $265,000 ÷ $1,000 = 265 × $1.60 = $424.00 (exact multiple, no rounding up needed). Paid by the grantor/seller.
Per diem interest. Payoff good through Oct 20; interest accrues through the day before closing, Oct 1–Oct 14 = 14 days × $24.13 = $337.82.
| Seller debits | Seller credits | ||
|---|---|---|---|
| Commission (6% of $265,000) | $15,900.00 | Contract price | $265,000.00 |
| Iowa transfer tax | $424.00 | ||
| Mortgage payoff | $148,200.00 | ||
| Per diem interest (14 days) | $337.82 | ||
| Judgment lien payoff | $4,300.00 | ||
| Tax proration to buyer | $2,880.00 | ||
| Abstract continuation | $350.00 | ||
| Total debits | $172,391.82 | Total credits | $265,000.00 |
Net to seller: $265,000.00 − $172,391.82 = $92,608.18.
The cooperating brokerage's $7,950 is paid out of the same 6% debit - it does not reduce the seller's net a second time.
2. How should the judgment lien and the special assessment be handled, and who decides?
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Judgment lien - no discretion. A 2019 judgment against the seller attached to the seller's interest in the property. The title opinion will except it, which means the buyer's lender will not make a mortgage loan that is junior to it. It must be paid from the seller's proceeds and a satisfaction/release recorded before the deed and mortgage are recorded. If the seller claims it was paid or discharged in bankruptcy, the closing stops until a release or court order is produced - the buyer should not agree to accept it as an exception. This is not a negotiation; it is a title requirement.
Special assessment - a judgment call that must be papered. It is a lien on the property payable in installments, and the paving benefits the property the buyer is receiving. There are two defensible treatments:
- Seller pays the remaining $2,100 at closing; the buyer gets a clean title and the lender gets a first lien free of the assessment.
- Buyer takes subject to the remaining installments and the seller credits the unpaid balance (or the parties split it because the buyer gets the future benefit).
Who decides? The contract should have, and if it is silent, the parties by written amendment - not the closing agent by custom. The title opinion and the lender's requirements will usually force a payoff or a documented credit. Put it on the settlement statement in writing; a verbal "we'll work it out later" becomes a post-closing claim against the broker.
Also confirm the abstract is brought down to the closing date and that the attorney's opinion clears the deed and the buyer's mortgage - in Iowa the abstract and title opinion, not an owner's policy, are the buyer's title evidence.
3. Compute the buyer's cash to close and confirm the earnest money treatment.
Read the worked answer
| Buyer's statement | |
|---|---|
| Contract price | $265,000 |
| Less: loan (80% LTV) | ($212,000) |
| Down payment (20%) | $53,000 |
| Plus: estimated closing costs | $3,900 |
| Plus: recording | $120 |
| Plus: lender escrow deposits (taxes/insurance) | $2,600 |
| Less: tax proration credit from seller | ($2,880) |
| Less: earnest money already held in trust | ($5,000) |
| Cash due at closing | $51,740 |
Check: $53,000 + $3,900 + $120 + $2,600 = $59,620; minus $2,880 and $5,000 = $51,740, by cashier's check or wire.
Earnest money handling: the $5,000 is already in the listing brokerage's trust account; it is credited to the buyer and debited to the seller on the settlement statement, and the brokerage disburses it at closing - it is not returned to the buyer and it is not extra money. It should appear on the buyer's side as a credit and on the seller's side as a debit so the totals reconcile to zero. If funds are wired, verify wire instructions by phone to a known number; wire fraud on closing day is the most expensive mistake in this transaction.