Which pair of items is paid in arrears and typically prorated between buyer and seller?

Which pair of items is paid in arrears and typically prorated between buyer and seller?

• A. Taxes and insurance
• B. Rents and interest
• C. Taxes and interest
• D. Rents and insurance

Answer: (C)

The concept being tested is how items that are paid on a periodic basis are handled at closing through prorations, allocating the cost fairly between the seller and the buyer for the time each party owns the property. Property taxes are paid in arrears, meaning the tax bill covers the past period. When a sale closes partway through a year, the closing statement prorates the tax amount so the buyer covers the portion of the year after closing and the seller covers the portion before closing. Mortgage interest is also paid in arrears; interest accrues daily, so at closing you prorate the interest from the closing date through the end of the period, typically crediting the buyer for the days after closing and debiting for the days before. Insurance is usually prepaid by the seller for the upcoming period and transferred to the buyer, rather than being paid in arrears. Rents can be prorated as well, but they’re not typically described as being paid in arrears; rents involve how much rent has been collected or earned for the period surrounding closing. So, taxes and interest fit the description best: both are paid in arrears and prorated between buyer and seller at closing.

The concept being tested is how items that are paid on a periodic basis are handled at closing through prorations, allocating the cost fairly between the seller and the buyer for the time each party owns the property.

Property taxes are paid in arrears, meaning the tax bill covers the past period. When a sale closes partway through a year, the closing statement prorates the tax amount so the buyer covers the portion of the year after closing and the seller covers the portion before closing. Mortgage interest is also paid in arrears; interest accrues daily, so at closing you prorate the interest from the closing date through the end of the period, typically crediting the buyer for the days after closing and debiting for the days before.

Insurance is usually prepaid by the seller for the upcoming period and transferred to the buyer, rather than being paid in arrears. Rents can be prorated as well, but they’re not typically described as being paid in arrears; rents involve how much rent has been collected or earned for the period surrounding closing.

So, taxes and interest fit the description best: both are paid in arrears and prorated between buyer and seller at closing.