By: Tracey Daniels O’Connell, Esq.
The timing of a closing can be tricky, and coordinating the move out of the old and into the new without ending up temporarily homeless can be overwhelming. It is not always possible to close on the home you are selling and the one you are buying in the same day.
To avoid the stress of interim housing and the cost of moving twice, many sellers request the option to stay put for a period of time after the closing. In the typical scenario, the seller pays the buyer’s carrying costs for the post-closing period. At the closing, the buyer pays for the new house and, typically, some money is held back to secure the seller’s obligation to move out. The seller then closes on their new home and vacates the old one. The buyer inspects the home after seller leaves, and once it is confirmed that the house is empty and in good condition, the money is released and everyone is happy.
It’s a no-risk proposition for sellers—and the exact opposite for buyers. If you agree to let the seller stay, here is what you need to do to protect yourself:
Sign an “occupancy agreement” NOT a lease.
Legally speaking, in a post-closing possession agreement the seller has a license to stay in the house rather than a lease. The distinction is critical. Landlords must start an expensive and time-consuming eviction proceeding against a tenant who refuses to leave. With a well drafted license agreement this process can be avoided though the threat of stiff monetary penalties (see below).
The penalty for staying beyond the agreed upon date is substantial
Nothing says ‘get out’ like the prospect of paying hundreds of dollars per day of overstaying one’s welcome. To be effective, the penalty should be a lot more than what it costs to stay a hotel and more than the apartment would rent for.
For example, on a $500,000 one-bedroom that could be rented at about $2,000/month, a $500 per day fine would make sense.
Require the seller to put up an escrow
Without a pre-closing stroll through an empty apartment, you’re basically flying blind. An escrow of around 2-3% of purchase price ($20k-$30k on the average $1m apartment) will likely be big enough to cover damage you couldn’t see when the apartment was furnished as well as any intentional acts (eg taking the window a/c’s, which were supposed to remain) and move-out damage. I also encourage buyers to do two walk-throughs: One before closing, and one after the seller has finally cleared out.
Limit the post-closing occupancy period.
Most lenders require that their borrowers move in within 60-90 days of closing. After that, the home is considered an investment property which may change the terms of your financing.
This article is written by a member of the Oxman Law Group, PLLC (www.oxmanlaw.com). Any comments or inquiries are welcome and can be directed to Marc Oxman at 914-422-3900 or moxman@oxmanlaw.com
