WHEN HOME SELLERS REMAIN IN POSSESSION

WHEN HOME SELLERS REMAIN IN POSSESSION

Written by Bob Hunt / source: http://realtytimes.com

Frequently it happens that sellers don't want to give up possession of their home until after escrow has closed. I am not referring here to situations where they will rent back for six months or a year. Rather, it is the situation where the seller doesn't want to move out until two or three days after closing.

There can be good reasons for this. More than a few transactions have fallen apart at the last minute though this is not common. What is more ordinary -- and happens too frequently -- is that the closing may be delayed a few days, maybe even a week. Often this is not the buyer's fault, but that of some third party (such as an underwriter). The point is: knowing that closings might be delayed, many sellers don't want to schedule movers and packing etc. until they know for sure that the closing has happened. Moreover, it may simply be a question of money. They need to have the sale proceeds in hand in order to pay the movers.

I know, I know. There are those who will argue that closings ought never to take place until and unless the sellers are out. While there may be compelling arguments for this point of view, the fact remains that it doesn't always happen, and that it would probably be a mistake to let this issue be a deal-killer if everything else was satisfactory.

So, the seller is going to remain in possession for, say, three days after closing. How best to handle this? You want more protection for the buyer than simply to say "OK". On the other hand, the situation doesn't seem to warrant a lengthy special contract.

The California Association of REALTORS^®(CAR) sets forth an alternative in its standard form titled "Seller in Possession Addendum" (Form SIP). This option contains ten pre-printed sub sections plus a couple of blank lines for "other terms". It is a single-page form and might be described as a "rental agreement lite." The form specifies that it is intended for short-term occupancy (less than 30 days). If occupancy is intended to be longer, then a "Residential Lease After Sale" form should be used.

One of the main virtues of the CAR treatment is that it recognizes and makes clear that the seller -- the former owner -- is now a renter, even if only for a few days. So, for example, the SIP option includes a section wherein both a daily rental rate and a security deposit amount can be specified.

Sometimes, this comes as a shock to the seller -- it may even be perceived as an insult. "I'm not going to pay rent to stay in my house!" "Who needs a security deposit? Do they think I'm going to trash my own home?!" It can be a little testy, but this is a conversation that needs to take place. It really isn't their property anymore; and they, just like anyone else, might accidentally spill something on the carpet or gouge a hole in the wall when moving furniture.

The seller-in-possession form defaults to the position that the seller will continue to pay for the utilities while they remain, but this could be treated differently if the parties so desired. It also reminds the sellers that their personal property won't be covered by the new owner's insurance. They need to get their own.

There is no "right" way to structure the brief rental agreement between sellers and the new owners. Indeed, it is common for the buyer not to charge any rent. The important thing, though, is that there needs to be some clear agreement specifying what the relationship is and who is responsible for what.