What Happens During Closing When a House Is Sold for Cash?

Sellers love cash buyers because they interject more certainty into the process.
Sellers love cash buyers because they interject more certainty into the process. (Image: Comstock/Comstock/Getty Images)

If one of the key events at a closing is the buyer’s signing of the final loan papers, is a closing even necessary when he is paying all cash? The answer is a resounding “yes” because a lot of other things happen at the closing that are every bit as important. Without them, the property would never be sold.

Loan Is Paid Off

Whether the buyer is paying in cash or a combination of cash and mortgage, the seller needs to get paid so that funds can be sent to the seller’s existing lender. If the lender isn’t paid off, it will not release the lien it holds on the property. Without the lender releasing the lien, the title company will not guarantee title. Title could still technically transfer, but neither buyer nor seller could want it to: a slew of litigation would surely follow.

Title Is Transferred

While paying off the property's existing loan is an important part of a closing, the property won't transfer if a deed isn't signed. The deed is filled out with both the buyer's and seller's names, reviewed by both parties and signed by the seller. Depending on the type of sale that is occurring, you could have any one of several types of deeds. The title company will know what type of deed to draw up and will oversee signing.

Insurance Is Initiated

An important part of a closing in cash is the handling of insurance. Usually it is the buyer’s lender that demands to see that insurance is paid and put into effect at the closing. Without a lender, sometimes insurance at a cash closing can be overlooked, and it is entirely possible to close without insurance. It is important, therefore, to include insurance payment with the closing and to make sure the closing coordinator confirms insurance is in place.

Taxes Are Prorated

Taxes may only be paid once or twice a year, but it is at the closing that taxes are prorated and credited to either buyer or seller, depending on what has been previously paid by the seller. Otherwise, the buyer may be stuck paying more than her fair share of taxes or may be getting an unanticipated deal because the seller paid in yearly property taxes in advance.

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