17. Adjustments made' at adjust ments at closing are made in the form of a debit and credit account. The first debit is the gross amount of the purchase price, which we shall assume to be $25,000. The next debit relates to the unexpired portion of the fire insurance policies covering the buildings on the premises. This adjustment is made on the basis of the premiums on the policies, pro rated over the term for which they were written. If, for example, the closing is on June 15 and the policies were dated October 15 of the previous year, and the premiums totaled $36 for three years, we would figure that eight months had expired and that two years and four months were unexpired. The pro portion of the premiums to be charged to the pur chaser would therefore be $28. If there is an ad journment of the closing the purchaser sometimes is charged with interest on the balance of the pur chase price for the adjourned period. This is done when the closing is made as of the original date, and, unless otherwise stipulated, the interest is at the legal rate.
The purchaser's first credit is the amount paid when the contract was made. Assume in this case the amount so paid to be $1,000. The next credit is the amount of the mortgage subject to which the pur chaser takes the property. This mortgage we will assume to be $15,000 with interest at five per cent payable January 1 and July 1. The purchaser is entitled to receive as a credit the interest accrued on the mortgage from the last interest day, January 1. Since the closing is on June 15, interest for five months and fourteen days amounting to $341.67 has accrued.
If the contract provides for a purchase money mortgage in addition to a mortgage already on the property, the amount of that mortgage, which we will consider to be $3,000, would be the next credit.
The purchaser is also to be credited with a pro portionate part of the rents collected for the current month. Rents paid in advance on the first - of the month would be equally divided, the seller retaining one-half and allowing the purchaser one-half. Rents paid from dates other than the first would be appor tioned so that the purchaser will receive the part .covering the period subsequent to the closing date. In order to complete our figures, we will assume that the amount agreed as due to the purchaser to cover the adjustment of rent, is $125. Rents due and unpaid are not adjusted at the closing. Either the purchaser or the seller must collect them (as agreed upon at the closing), one making the collections and sending the other party his share.
18. Other payments made at report of title may show other unpaid obligations—taxes, assessments or water rates. It is not usual to ap portion these items unless the contract provides spe cifically for such apportionment. The total amount of these items, with interest, is often deducted from the money due the seller and turned over to the closing attorney for payment. In the following
statement a deduction of $385 is made from the amount due the seller to cover the amounts we will assume he must pay.
In addition to the amount due to the seller, the pur chaser must pay the expenses incidental to preparing the purchase money bond and mortgage, recording the mortgage and the mortgage tax. These expenses as shown by our statement total $23.
19. Closing statement.—From the foregoing fig ures, the,,following statement can be made: 23.00 In order to carry thru the transaction, the purchaser must provide $5,561.33, and must pay in addition the seller's attorney expenses amounting to $23. Out of the $5,461.33 the seller must pay $385, leaving a net balance of $5,176.33 to be taken away by him.
20. Closing exchanges, leaseholds and loans.—The closing statement for exchange transactions contains a double set of debit and credit items. One party is charged with the purchase price of the property to be transferred to him, and credited with the price of the property he conveys to the other party. Mortgages and adjustments are set up in a similar manner. Each party is charged with items he must allow to the other party and credited with those he is entitled to receive. Sometimes the difference in the respective values as stated in the contract, is charged to the proper party instead of showing the values of each parcel and the mortgages affecting each. If there is no difference in the values to be paid by one to the other, the adjustment pro and con are the only items to be considered.
Leaseholds are closed by adjustments of rents be tween the parties, including the ground rent paid or to be paid to the owner of the land, and the rents paid by the sub-tenants to the lessee. In closing mortgage loans, all items of expense are paid by the borrower, the lender simply advancing the amount of the loan. The closing attorney must see that the mortgage in strument is in proper form and that the report of title shows that the mortgage creates a lien on the premises of the kind contemplated.
21. Methods of figuring interest.—In real estate transactions, it is customary to figure interest on the basis of a 360-day year. Each month is considered to be one-twelfth of 'a year and for the purpose of short figuring it is customary to take each day as the thirtieth of a month, so as to use the ordinary six per cent method of calculating interest. As a mat ter of law, in calculations of interest for a period consisting of months and days, each month is con sidered to be one-twelfth of a year, and only the odd days are/figured on the basis of a 365-day year. When figuring interest, it is customary to exclude the first and include the last day.