TAX PRORATION

The Long and the Short of it...Tax Proration.

It's tax time again ... and even the most experienced Realtors, Sellers and Buyers still have questions about tax proration; long vs. short. We hope to answer many of those questions for you.

The best place to begin is the purchase contract, where the concept of prorating taxes is introduced to the parties. As part of the many considerations exchanged between the buyer and seller in the purchase contract, the real estate taxes, both past and future, are required to be adjusted between the parties in a very specific manner.

The CABR/DABR contract, dated October 2021, paragraph No. 20 / Line 357 reads:

Tax Bills in Ohio are billed a full year in arrears. Buyer shall be responsible for any and all property tax bills that come due and payable in the next semi-annual period that begins after the date of closing, including bills that relate to a period of ownership prior to Buyer's purchase.

At closing, Seller shall pay or credit on the purchase price:

(a) all real estate taxes and assessments, including but not limited to penalties and interest, which became due and payable prior to and in the semi-annual period in which the Closing occurs.

This is the first of 3 specific items required to be adjusted between the parties. As stated, it means that as of the day of closing, any delinquent real estate taxes are to be paid by the seller or credited by the seller against the purchase price. These amounts are to include any penalties and interest due on these unpaid balances.

To continue with the contract, lets address the second required item: (b) a pro rata share, calculated as of the closing date in the manner set forth below, of the taxes and assessments becoming due and payable after the closing...

The part of the contract that defines the "manner" in which these future taxes are to be dealt with begins on line 372 of the CABR/DABR contract. First you will find an explanation of the “Long Proration Method”. If you want long proration, do nothing else.

It is important to note the preprint states if the property is new construction, long proration shall apply.

On line 374, there is a box to check if you want the “Short Proration Method”. In fact, the contract specifically states in capital letters: ONLY CHECK THIS BOX IF THE SHORT PRORATION METHOD IS USED. The contract goes on to state the Seller's share shall be calculated as of the date of Closing, based upon the amount of the annual taxes (as determined by the most recently assessed tax amounts) to establish a daily rate of taxes and then multiplying the daily rate by the number of days from the first day of the current, semi-annual tax period to the date of Closing. If checked, the Short Proration Method shall be applicable and shall supersede the provision to use the Long Proration Method.

Continuing with a look at the "manner":

Beginning dates for tax periods are July 1 or January 1 and are used to establish a beginning date for the proration. Short tax proration has just been defined as taking the most current annual real estate taxes and assessments and dividing that amount by 365 days to acquire a daily rate of taxes. Multiply that daily rate by the number of days between the immediately preceding tax installment date (July 1 or January 1) and the date of closing. For example, a transaction closing February 15th would use January 1st as the beginning date for the proration. A sample calculation follows: Semi- annual tax is $1000 X 2= Annual tax of $2000 divided by 365 = $5.479 (daily rate) X 45 days (number of days from January 1 to the day of closing) = $246.55. Helpful hint - Buyer always pays the

day of closing.

To keep it easy, think of “Long Tax proration” as the same short method mentioned above, PLUS AN ADDITIONAL SIX MONTHS. The seller pays the taxes which are a lien for the year of the closing. All tax bills due in the current year represent the annual taxes for the previous year. The long tax proration method requires the seller to credit a prorated amount based upon all tax bills due (or which will come due) in the year the closing is taking place. So, using the same example as above, the credit received by the Buyer from the seller would now total $1,246.55 (that is, six months of taxes and assessments @ $1000 per half, PLUS the 45 days totaling $246.55).

Finally, the third and last of the required adjustments under paragraph 20. For this, we have to move

back up a few lines to Line 363 and pick up on subparagraph (c). (C) At closing, Seller shall pay or credit on the purchase price ... (c) the amount of any agricultural tax savings accrued as of the closing date which would be subject to recoupment if the property were converted to a non-agricultural use (whether or not such conversion actually occurs), unless Buyer has indicated that Buyer is acquiring the real estate for agricultural purposes. If checked, Buyer hereby states that Buyer will use Real Estate for agricultural purposes and expressly waives Sellers payment to Buyer of the estimated agricultural tax savings subject to CAUV recoupment. It is important to know Current Agricultural Use Valuation = CAUV and Agricultural

Use is defined as:

1) Properties of 10 acres or more used for commercial agricultural purposes, OR

2) Properties less than 10 acres that can provide evidence of a minimum of $2500 annual income as a

result of commercial agricultural use.

If it is the intention of the Buyer to use the property as a residence, yet maintain the current

agricultural use of the property, then the box in paragraph 20, line 366 should be checked.

Assessments, if billed in a single annual installment, will always be prorated using the long

proration method.

Paragraph 21 goes on to clarify additional prorations...for homeowners association dues, rents, security deposits, and more. It is also important to understand the newly added portion of this paragraph relating to possible future proration of taxes after closing for newly constructed properties.

Whenever the concept of short tax proration crosses county lines or gets into areas with certain customs, or if you are dealing with an out of town Buyer, detailed explanations are expected of you. If you have any 'taxing' questions, please feel free to call your favorite Home Services Title representative for the answer, and always remember to insert HOME SERVICES TITLE, LLC on line 401 in paragraph 221!

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Why Title Insurance is Essential for Your Property Investment

March 17, 2026

A home purchase often represents the most significant financial investment a person will make. As you navigate the complexities of this transaction, you will encounter various steps designed to protect this substantial asset. One of the most critical, yet frequently misunderstood, of these protections is title insurance. It serves as a fundamental safeguard for your ownership rights, providing a layer of security against unforeseen issues that could jeopardize your claim to the property. Understanding its role is paramount for any prospective homeowner. At Home Services Title, we believe in empowering our clients with clear, comprehensive information. This article will explain the essential nature of title insurance. We will detail what a title is, outline the risks associated with a defective title, and clarify the distinct protections offered by both lenders' and owners’ policies. Our goal is to provide you with the confidence and knowledge needed to secure your investment effectively. Understanding the Foundation: What is a Property Title? Before delving into the specifics of insurance, it is crucial to understand what a "title" is. A property title is not a physical document but a legal concept. It represents your legal right to own, use, and dispose of a piece of real estate. When you purchase a property, you are buying the title from the seller, which grants you ownership. The evidence of this ownership is found in public records, which document the history of the property's ownership, or its "chain of title." An ideal chain of title is a clear, unbroken sequence of ownership transfers from the original owner to the current seller. The Role of a Title Search To verify the seller's right to transfer ownership, a title professional conducts a thorough title search. This is an in-depth examination of historical records related to the property. These records, typically held at county courthouses or land registries, include deeds, mortgages, court judgments, tax records, and other recorded documents. The purpose of this search is to uncover any potential issues, or "defects," that could affect the title. These defects can cloud the title, creating uncertainty about your ownership rights. Common issues discovered during a title search include: Outstanding Liens : A lien is a legal claim against a property for an unpaid debt. This could be from an unpaid mortgage, a contractor who was not paid for work (a mechanic's lien), or unpaid property taxes. If a lien is present, the creditor could potentially force the sale of your property to satisfy the debt. Easements : An easement grants another party the right to use a portion of your property for a specific purpose, such as a utility company's right to access power lines. Some easements are normal, but unrecorded or unknown easements can restrict your use of the land. Errors in Public Records : Clerical or filing errors made at the county recorder's office can have significant consequences for a property's title. A simple mistake in a legal description or name can create ownership confusion. Fraud or Forgery : Documents in the chain of title could have been forged, or a previous transaction might have involved a person misrepresenting their identity. This could invalidate prior sales and call your ownership into question. A comprehensive title search is the first line of defense in identifying these risks before you complete your purchase. It provides a detailed picture of the property's legal history and allows for many issues to be resolved before closing. The Risks of a Defective Title While a title search is a meticulous process, it cannot uncover all potential problems. Unlike other forms of insurance that protect against future events, title insurance protects you from past occurrences that were not discovered during the initial search. These "hidden risks" can emerge months or even years after you have moved into your new home, presenting serious financial and legal threats. A defective title can lead to devastating consequences for a homeowner. You could face costly legal battles to defend your ownership, or in a worst-case scenario, you could lose your property entirely while still being responsible for the mortgage. Hidden Risks Not Found in a Title Search Some of the most dangerous title defects are those that cannot be found in public records. These hidden hazards underscore the necessity of title insurance. Examples include: An Undisclosed Heir: A previous owner may have passed away, and an unknown heir with a rightful claim to the property could appear years later. Mistakes in Wills: A will might have been improperly interpreted, or a more recent will could surface, changing the distribution of the property. Mental Incompetence or Minority: A prior deed may have been signed by a person who was not mentally competent or who was a minor, making the transfer invalid. Marital Status Misrepresentation: A previous owner may have falsely claimed to be single when they were married. Their spouse could then emerge with a claim to the property. Without the protection of an owner's title insurance policy, the financial burden of resolving these issues falls directly on you. The legal fees required to defend your title can quickly amount to tens of thousands of dollars, regardless of the outcome. Lender’s vs. Owner’s Title Insurance: Clarifying the Coverage When you secure a mortgage to purchase a home, your lender will require you to purchase a lender's title insurance policy. This can sometimes create confusion, leading borrowers to believe they are fully protected. However, it is essential to understand that a lender's policy protects only the lender's financial interest in the property, not your own. The Lender’s Title Insurance Policy A lender's policy guarantees that the lender has a valid and enforceable lien on the property. If a title dispute arises, the insurance company will defend the lender's claim. The coverage amount for this policy typically matches the amount of the mortgage loan. As you pay down your loan, the coverage decreases. If you were to lose your property due to a title defect, the lender's policy would pay off the remaining mortgage balance, but it would provide no financial compensation to you for your lost equity or down payment. The Owner’s Title Insurance Policy An owner's title insurance policy is purchased for your own protection. It insures you, the homeowner, against losses arising from title defects. This policy is purchased with a one-time premium paid at closing and remains in effect for as long as you or your heirs own the property. The coverage amount is usually equal to the full purchase price of the home. Should a covered title issue arise, the owner's policy provides two key benefits: Legal Defense: The title insurance company will cover the costs of hiring legal professionals to defend your title in court. Financial Loss Reimbursement: If the legal defense is unsuccessful and you lose your property or your equity in it, the policy will reimburse you for your financial loss up to the face amount of the policy. Purchasing an owner's policy is a small, one-time investment that provides lasting peace of mind and protection for your most valuable asset. Securing Your Investment A home is more than just a place to live; it is a significant financial asset. Protecting your ownership rights is a non-negotiable part of the homebuying process. While a title search provides an essential look into a property's past, it cannot guarantee a flawless title. Hidden risks from years ago can surface unexpectedly, threatening your investment and financial security. An owner's title insurance policy is the ultimate safeguard. It stands as a firm defense against past errors, fraud, and undiscovered claims that could challenge your ownership. For a one-time fee, you secure invaluable protection for as long as you own your home. We strongly encourage every property buyer to secure an owner's policy to ensure their investment is fully protected. This is the definitive step in establishing clear and confident ownership of your new property. Frequently Asked Questions (FAQ) How much does an owner's title policy insurance cost? The cost is a one-time premium paid at closing. The amount is typically based on the home's purchase price and varies by state and provider. It generally represents a small percentage of the total transaction cost. Isn't the lender's policy enough protection? No. A lender's policy exclusively protects the lender's financial interest. It does not cover your down payment or any equity you have in the home. Only an owner's policy directly protects you, the homeowner. If I'm buying a newly constructed home, do I still need title insurance? Yes. The land on which the new home is built has a history. There could be prior liens from contractors who worked on the land or unresolved ownership claims from previous owners of the vacant lot. Title insurance protects against these and other pre-existing issues. How long does the owner's title insurance coverage last? An owner's title insurance policy protects you and your heirs forever, for the period of time you owned the property. There are no annual premiums or renewal fees. The team at Home Services Title is dedicated to providing clear guidance and comprehensive title and settlement services to ensure a smooth and secure real estate transaction. Our experts are committed to protecting your property investment with professionalism and care. Contact us to get started.

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