Possession is 9/10ths of the Law: Seller Beware

Jane Gray
Jane Gray
Published on November 2, 2017
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Once in a while a seemingly innocuous request comes in from the Buyer to occupy their dream home before closing.  It happens innocently enough.  Buyers may make the request when their apartment lease is ending and before their house is closing or maybe when closing has been delayed because of a last-minute underwriting issue.  The Buyers need to have their belongings out of their house but they don’t have a new home yet to move into.

Homeless (for a week or a weekend)

It happens when Buyers find themselves with their previous home sold a couple of weeks before they close on their new home.  In Seller’s markets, Buyers know that it’s easier to get an offer accepted if they can get their home closed first.

Then there’s the uninformed Agent who (trying to be helpful) may suggest Early Occupancy on Friday when closing is scheduled for Tuesday after a 3 day holiday to give their Buyer more time to move in.  Whether it’s 3 days or longer…

The Sellers may consider it a harmless idea until they consider that the house may not actually close…and then that small decision may turn nightmarish in broad daylight.  Consider that even sure bets don’t always payout.  In the real estate business, we know that you NEVER, EVER count on an escrow closing until it actually records at the county recorder’s office because anything can happen and you just don’t want it to happen to you.

What could possibly happen?

Well, let’s consider the stark truth.  The Sale might not go through at all and the Buyers may need to be evicted.  Geez, does that really happen?  Yes.  Imagine that the Buyer buys a car or new furniture in the week prior to the closing and when Underwriting does the final approval and checks credit, UH-OH!  The Buyer doesn’t get approved to buy!  Then, if that wasn’t bad enough, they don’t leave.  Could it get any worse?  Hmmm, yes…

It could when the Buyers start tearing down walls and making improvements and the house doesn’t actually close or they trash the house before the Seller can take possession of THEIR home again.  But I think the worst case yet is when the Buyers move their property into your home, and the house burns to the ground, and the Buyers sue the Sellers for their loss!  Then maybe your insurance doesn’t want to pay at all because they weren’t informed there was a renter in the house!  Yes, it happens.

Get Smart

If you can’t just say “No” to Early Buyer Possession, then ensure you have legal counsel or get smart about the following provisions to protect you and your asset.

  • Create a contract with verbiage that stipulates what happens if the sale goes sideways and doesn’t close or even if it’s delayed. How much time does a Buyer have to vacate the premises?
  • Is there a rent payment? How much?  Do you want a security deposit?
  • Ensure that you have verbiage that stipulates that Buyers should, under no circumstances, modify the home without consent of the Seller. Stipulate that the if the home doesn’t close, that home is to be returned to the Seller in its original condition.
  • Determine who pays for utilities.
  • With the Buyer living in the house, the relationship becomes Landlord-Tenant and the Seller’s homeowner’s insurance needs to cover the tenants. Buyers need to secure renters insurance for their personal belongings.
  • Who covers the yard maintenance? Will pets be allowed?
  • My sister allowed a Buyer to store his belongings in her garage but she didn’t give him a key to the house until it closed.

You recognize that attorneys will always try to dissuade you from entering into this not-quite-sold state, but sometimes it’s going to be a consideration to assist both parties.  Just make sure that if you’re the Seller, you do your due diligence about the Buyer and get as much in writing as possible. 

Experience is priceless.

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BTW – A shout out of thanks to two former Intel employees who answered last week’s question about why “k” in the ubiquitous 203k, 401k, k-1…etc.  Thank you Cary O’Keeffe and Carlene Ellis!  For all who were curious too, “The subsections of the tax code are letters a-z and double letters after that.”  It appears that the frequency of the letter “k” is coincidental and of no significance.  That’s one thing I miss about Intel culture.  Deep knowledge (data nerdy!), willing to share, and good people!  Thank you.

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Possession is 9/10ths of the Law: Seller Beware
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