24 hrs before closing, seller demands 30-day post-close occupancy

11 Replies

In April I got a four-plex under contract, sourced from the MLS. The seller/owner occupies one apartment and the other three units are used as storage. The seller took their time getting their loan payoff and tax information together, and we had to push our initial closing date back about a month. Frustrating, but not a deal-breaker.

We were scheduled with the title company to close today, but yesterday afternoon the seller's agent contacted me and advised that the Seller needs a 30-day post-closing occupancy agreement. They said that the seller hasn't moved their stuff out and hasn't found a place to stay.

I was surprised, but I replied that we might be able to work something out, if there was some sort of consideration: security deposit and rent payment. The seller is refusing to pay rent or security deposit, and now is threatening to break contract. I suggested we reschedule the closing (to give them time to move), which they also denied.

I feel that I am taking on too much risk and liability if I let the seller keep possession of the property. The extremely short notice and lack of security deposit or rent are also red flags for me. I don't want the contract to fall through, but I don't want to close on this property without being able to take possession.

What are your thoughts, BP? 

Have you ever been in a situation like this/ What would you do?

Depends on how much you want the property, and what your plans for it are.

Typically I would say either 1) no closing til vacant or 2)$10k held in escrow, $x/mo rent, xx days occupancy, for that specific unit.

I'm guessing you'll be rehabbing the other 3 units to get tenants.  The owner occupying one wouldn't stop that if you close.

Balnce the risks with your ultimate goal.

@Garrett Spear I just went through this with a client who I represented on the purchase of a home here in Plymouth. 

Seller was a borderline hoarder and somewhat disconnected from reality.  She apparently lost her adult daughter and had the basement full of the daughter's belongings.  As a condition of the sale, she required an extra 7 days post-closing, because she needed the proceeds of the sale to pay a clean-out and moving company.

We agreed, subject to a $2,000 holdback at closing, with a per-diem of $175.00 per day if she stayed beyond the agreed upon 7 days.

She stayed 21 days, so the total was $2450.  Also, the property was not delivered broom clean as stipulated in the contract.  We're still fighting to get the entire holdback released to my buyer.

Bottom line for you - and this is not legal advice as I am not an attorney:

1. You should be able to hold her to the contract as it is now written.  You can threaten to sue for specific performance.  As my business law professor said, "we can't make you buy the house, but we can make you wish you did!"

2. If you decide to let her stay, you should be well compensated for it.

3. You need a large holdback at closing.  In retrospect, ours should have been at least $4,000.  Yours should be large enough to pay for eviction if necessary and to cover cleaning and move-out costs, including storage for whatever time local laws mandate, if the seller fails to collect her belongings.

4. You also need an air-tight Use and Occupancy Agreement to dictate terms and conditions during her tenancy.  Use a good local attorney so you don't exceed the limits of local laws.

Don't give in to the seller's threats.  You have the power of a fully executed, legally binding contract.  Whoever is representing her in this sale needs to talk some sense into her.  TODAY.

Originally posted by @Garrett Spear :

I was surprised, but I replied that we might be able to work something out, if there was some sort of consideration: security deposit and rent payment. The seller is refusing to pay rent or security deposit, and now is threatening to break contract. I suggested we reschedule the closing (to give them time to move), which they also denied.

***

Have you ever been in a situation like this/ What would you do?

Post closing occupancy is not uncommon here where the seller might need time to find a new place in a tight housing market.  It happened when I bought my place, but the seller (if I recall) had to pay an amount based on the number of days of the pro-rated portion of my mortgage, taxes, and insurance plus x%. And the post closing occupancy was for a max of 30 days. They ended up staying a little over a week, but were packing a lifetime of belongings, so it's understandable. 

I think it's crazy that your seller wants to stay there for free though. After you close, its your house, not theirs.  They don't get to stay for free in your house. 

@Peter Sanchez What Peter says is true and it's very common to have a Seller who cannot move out in time. 

1. Make sure you have a legal rental agreement with rental terms and penalties and

2. Have higher than the average market rental rate for your time and trouble. 

If she does not agree with this stick to the contract. No one should stay for free unless she gave you such a good deal that it's worth the trouble. Be nice, be fair but don't be foolish. Protect yourself and your profits. 

This should give her incentive to move quickly or if it becomes longer it's not hurting you. 

my 2 cents having done this several times. Have an escrow holdback that is painfully large like $10k. Give the seller 30 days of post possession for their unit only. If seller does not turn keys over on day 31, 100% of holdback is forfeited to buyer. Also have stipulations for damages. Document the condition of the unit and stipulate that new damages will be deducted from holdback based on a 3rd parties quote (go find some crazy high priced retail home improvement company to quote it). They won’t mess around. It’s a fair trade off because you need to protect your asset and they need a place to go. While owner is there, start working on the other 3 units. Between the $10k and noise of someone working on the units, they’ll find a place pretty quick. The $10k is what’s I do for $200k and under. Higher purchase price and the holdback increases. 

Thanks everyone for weighing in! Here is an update on the outcome of this transaction following my original post: 

Unfortunately the Seller declined to pay any rent and only would give a $500 security deposit holdback at closing. I maintained that was not nearly enough, and tried to negotiate a higher number, but they completely refused to negotiate and instead decided to break contract and walk away from the sale. 

I was baffled at the speed they abandonded the contract. But I could not let myself be forced by strong-arm and bad-faith negotiation tactics.

I faced the tough decision to abandon the money I'd spent on inspections and lender fees. Not to mention the time spent. But the risk of the Seller living there after close with minimal security deposit was too great.

@Garrett Spear have you considered attempting to collect your costs incurred from the seller? I’d imagine it would be quite a bit for a lawyer, and maybe not well worth it, but it seems like this seller entered a contract with no intent of actually closing.

I can’t comment whether it’s worth it or not, just curious about your thoughts on the subject.

Originally posted by @Mike McCarthy :

Garrett Spear have you considered attempting to collect your costs incurred from the seller? I’d imagine it would be quite a bit for a lawyer, and maybe not well worth it, but it seems like this seller entered a contract with no intent of actually closing.

I can’t comment whether it’s worth it or not, just curious about your thoughts on the subject.

I imagine, if the costs are low enough for small claims, the issue would be open and shut enough to self represent in small claim.

No legal advice given, but I wouldn't let it go.

@Garrett Spear I think that's the right decision.  In your shoes, I would keep an eye on the property.  One possibility is they have a better offer waiting in the wings.  But if not, you may be able to come back later and make another try to buy this property.  Without all the drama.