I just discovered the home I am buying has a cloud on the title. Seller wants me to occupy early. What should I do?

April 16, 2018

Pre-closing occupancy can be a stressful situation. If it is handled correctly it may be a good solution. Read on..

 

Reader Question: ​I have signed a contract with a seller. I had ten days due diligence to have the home inspected. I did that, and the house looked like a good deal. 21 days later the closing attorney calls and says the home is in probate, and it will take a minimum 6-8 weeks to clear it up (maybe longer there are 20 + people involved) and we are less than a month from our closing date. So now I have a home inspection ($400) an FHA appraisal ($600) and my escrow ($650) tied into this home already. Now they are suggesting I occupy early. What should I do?

Monty’s Answer: It sounds like you want the house because it looks like a good deal. The seller suggesting you move in indicates that they too want to complete the transaction. They also are likely not happy with the delay. Pre-closing occupancy in real estate transactions can work when both parties understand the pros and cons of the arrangement, have negotiated a fair understanding, and have correctly reduced the agreement to writing. If it was the right house before the issue appeared, this problem is a solvable one that will not change the home’s value.

What can go wrong?

Both parties have the same fear; we may never get to a closing. Your concern is whether they can deliver clear title to the property; they are concerned about multiple events on your end that could kill the contract or cause you to seek to void it. To ally the concerns of both parties, answer this question upfront; what will happen if we move in and there is no closing?

Cost is the primary concern

  • Do the math. Your current living arrangement may have moving cost repercussions. Are you leaving a lease early? Can you coordinate a satisfactory departure with your landlord? Be sure you know all the costs associated with moving out.
  • How will you move? Do your family members pitch in and bring the pick-up trucks? Do you use a nationally branded moving company? Calculate the costs you will incur to move from your old residence and into your new home. Remember various hook-up fees or cleaning fees may apply depending on where you live. If you have to move out in a double-move if the transaction fails, will these same costs be replicated? Here is a link to a moving-out article. http://bit.ly/2HE7Pad
  • You have invested over one thousand dollars in good faith this far to buy this home. If you agree to move in early, it is fair for you to pay to occupy the house, but with twenty heirs a daily occupancy rate has little impact. In the event they are asking for compensation, consider a rent reduction to recover your investment if the transaction fails because they cannot deliver. If the seller agrees this is fair, you will get some money back through reduced rent. If they are not asking for compensation, it comes back either way.
  • Many states have preprinted forms to handle a pre-closing occupancy like this sample agreement form that resulted from an Internet search for “pre-closing occupancy form.” Every state has different laws so search for your state’s version. If there is no printed pre-closing occupancy form, the seller or title company should be responsible for drafting a document for your review. That document should cover the same or similar subjects as the sample.
  • Printed pre-closing occupancy agreements often anticipate the buyer is at fault. In most instances, it will be the buyer that fails to close. They misstated their earnings, bought a car two weeks before closing, or lost their job. In your situation, it is the seller that is as likely to be the party that cannot deliver clear title. Make sure the pre-closing occupancy agreement is fair and balanced. For example, item number seven in the sample agreement form above appears slanted in favor of the seller. The reason you want an attorney to review the document is to protect your interests.

Overestimate the extent of the delay

Does the loan commitment expire? Is there a financial penalty? Has your mortgage been approved in writing? Can it be extended? Because the seller will be unable to sell the house to any buyer with a clouded title, can you stay until you find a different home you can buy? With a willing seller and buyer, this can work.