Selling property does not have to be a stressful process. For most sellers, it can be a matter of signing the paperwork and sitting back to wait for a check. However, often sellers are nervous or apprehensive about what the final closing will bring. Below are 5 things a seller should know about closing.
- The seller’s spouse will probably need to sign, even if only one spouse was listed on the deed. This is because the spouse has a marital interest in the property and that interest must be dealt with before the property can be conveyed to the buyer. Unless the seller has some sort of marital release signed by the spouse, then the seller’s spouse will need to sign.
- The closing attorney will have to pay off any existing liens against the property. This includes any mortgages or Deeds of Trust, tax liens, and, in most cases, any judgments against any of the owners. Additionally, if there is an equity line against the property, it will have to be closed to prevent any future advances being made to the Seller. In most cases, the closing attorney will contact the Seller before closing to obtain payoff information. The attorney will usually ask the Seller for the lender’s contact information, account number, and social security numbers. They will then contact the lender directly to obtain a payoff good through the closing date, and usually a couple of days after. Unfortunately, while a bank statement may be helpful in providing some of the necessary information, the balance shown on the bank statement is usually not the correct payoff information. However, Sellers can rest assured that any overage paid on the payoff will be refunded to them by their lender after closing.
- The closing attorney will have to report the sale to the IRS. The closing attorney will usually provide a 1099-S form to the seller at the time that the deed is signed. This document will ask a seller to provide a forwarding address and a social security number. At the end of the year, Form 1099 is transmitted to the IRS to show the full sales price of the property.
Sellers should be aware that whether they will actually end up owing taxes on the proceeds from the sale depends on a number of factors. In some cases, Sellers may owe capital gains taxes on all or a portion of any profit. However, in other cases, they may not actually end up owing anything. Sellers should always consult with a tax professional to determine what tax liability may apply in their particular situations.
- The seller does not have to be present at the buyers’ closing. It is a common misconception that all the parties must sit around the table together at closing and exchange documents and keys. This misconception can often cause stress for sellers who are out of state, out of the country, or just worried about scheduling. In most cases, however, the parties prefer to sign separately. Usually, a seller’s closing package consists of only a few documents, while the buyers’ package may be much more substantial. And a buyer may feel more comfortable with the seller not being present for a discussion of their finances. The parties can still meet, if they want, and discuss matters about the house, but there is no requirement for everyone to be present at closing.
- You will not receive your proceeds check when you sign the deed. Unfortunately, the State Bar rules do not allow closing attorneys to disburse funds until after all documents have recorded. This may be the same day you sign, or it may not be until later after the Buyer’s lender has approved all of the paperwork. The closing attorney should explain to you when the closing date is set, and how you should receive your proceeds.
If you are selling property, be sure to stay in communication with your agent and the closing attorney. The clearer the lines of communication, the smoother your transaction will go. Your closing attorney can answer any questions regarding your paperwork or the closing process and can refer you to a tax professional if needed.
Published by Emily Price on March 16, 2017