What are ‘Escrow Prorations’? – Here’s a Brief Explanation – Marina del Rey Real Estate
While debits and credits are fairly straightforward and understandable, “Prorations” tend to confuse most Buyers and Sellers.
“Prorating” is “dividing equally or proportionately to the time of use.” During escrow it is customary to prorate taxes, interest, rents and homeowner’s dues between Buyer and Seller in accordance with their respective periods of ownership. The most common date used for computing prorations is the close of escrow date, which is the actual date change of ownership occurs.
Prorating applies to any charges which one party or the other may have incurred in advance of the property’s sale, i.e. charges which cover a period of time following the sale. When they are prepaid by the Seller, a credit to the Seller is due for the period time the Buyer will own the property from close to the date of the next payment due. If the Buyer pays them after the sale, then a credit is due to the Buyer for the period of time the Seller owned the property. The amounts paid by Buyer or Seller prior to or after close have to be adjusted and prorations do the adjusting.
Prorations are normally based on a 30-day month.
Debit means the amount your account will be charged in proration; Credit is the opposite – it is an amount paid to your account in the proration. Prorating simply divides a charge that has been paid in advance or is due to be paid into either a bedbit or credit to your escrow account.
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