Settlement Statement: Net Proceeds, Cash to Close, and a Missing Tax Bill
Contract price is $520,000 on a Baltimore County single-family home, closing October 15. The buyer's $20,000 deposit already sits in the brokerage's escrow account. The buyer is obtaining a $416,000 conventional loan at 6.25% with a 1-point origination fee, $2,850 in lender fees, 15 days of prepaid interest, and $3,900 in escrow reserves. Buyer-side title and settlement charges are $2,400; recordation tax on the deed is $3,900. The seller pays a 5% commission, Maryland state transfer tax at 0.5% of consideration, and county transfer tax at 1%. The seller's existing loan payoff is $241,500 plus a $45 release fee. Annual property taxes are $6,240, billed July 1 for the year beginning July 1 and payable in advance; the seller paid the full bill. Assume a 365-day year and that the buyer owns the day of settlement.
1. Compute the seller's net proceeds. Show each line and state which way the tax proration runs and why.
Read the worked answer
Proration first. Taxes are paid in advance for July 1–June 30. The seller owns July 1 through October 14 (the buyer owns closing day): 31 + 31 + 30 + 14 = 106 days. The buyer owns the remaining 365 − 106 = 259 days. Daily tax = $6,240 ÷ 365 = $17.0959; 259 days = $4,427.83.
Because the seller has already paid money that covers a period the buyer will own, the seller is credited and the buyer debited - the buyer reimburses the seller for taxes on days the buyer occupies.
Seller's statement
| Line | Amount |
|---|---|
| Contract price (credit) | $520,000.00 |
| Commission 5% (debit) | −$26,000.00 |
| State transfer tax 0.5% (debit) | −$2,600.00 |
| County transfer tax 1% (debit) | −$5,200.00 |
| Property tax proration (credit) | +$4,427.83 |
| Loan payoff (debit) | −$241,500.00 |
| Release recording fee (debit) | −$45.00 |
| Net to seller | $249,082.83 |
Check: $520,000 − $26,000 − $2,600 − $5,200 + $4,427.83 − $241,500 − $45 = $249,082.83.
2. Compute the cash the buyer must bring to closing, applying the deposit already held in escrow.
Read the worked answer
Loan and prepaids
- Down payment: 20% × $520,000 = $104,000.00
- Origination: 1 point × $416,000 = $4,160.00
- Lender fees: $2,850.00
- Prepaid interest: $416,000 × 6.25% = $26,000/yr ÷ 365 = $71.2329/day × 15 = $1,068.49
- Escrow reserves: $3,900.00
- Title/settlement: $2,400.00
- Recordation tax on deed: $3,900.00
Subtotal = $122,278.49
Adjustments
- Less deposit held in escrow: −$20,000.00
- Plus tax proration debit to buyer: +$4,427.83
Cash to close = $106,706.32
Reasoning note: the borrower's loan amount does not change because of the proration; the proration simply moves cash between buyer and seller. The deposit is a credit because those dollars are already the buyer's money sitting in trust - a common error is to omit it and overstate cash needed by $20,000.
3. Suppose the seller had not yet paid the tax bill at all, and the second installment is not due until December 31. How does the statement change, and what protects the buyer?
Read the worked answer
The direction reverses. The buyer will be handed a property carrying an unpaid lien for a year the buyer did not fully own, so the seller must be debited for the seller's portion: July 1–October 14 = 106 days × $17.0959 = $1,812.16. The seller no longer receives the $4,427.83 credit; instead the seller absorbs 106 days of tax.
Practically the settlement agent does one of two things:
- Pays the outstanding bill out of the seller's proceeds at closing (most protective - clears the lien), or
- Debits the seller and lets the buyer's lender collect the full year through escrow, in which case the seller's debit must reflect that the buyer is funding the entire bill.
Protections: the title company's tax certificate/search and the lender's requirement that real estate taxes be current (or escrowed) surface the problem before closing; the settlement agent's disbursing obligations and the title insurance policy keep the unpaid lien from following the buyer. The takeaway: never assume the direction of a tax proration - confirm from the actual tax bill or a tax certificate who paid what and for which period.