27 Oct 3 Reasons to Avoid Post-Closing Possession Agreements
Although post-closing possession agreements are necessary at times, your real estate attorney (especially this one!) should advise you to avoid them! This scenario occurs when after closing, the seller stays in possession of the property and rents it back from the buyer. Both buyers and sellers can find themselves in a sticky, or even ugly situation that can lead to costly and frustrating lawsuits.
Here we outline three reasons to avoid post-closing possession agreements for Illinois real estate deals.
1. Property Damage
Property damage opens up a big can of worms. Buyers might move in to discover damages which they will claim arose after closing while sellers will say those conditions had been there since they bought the home. You can soon find yourself in a frustrating and costly ‘he said she said’ battle, and both sides will find it difficult to prove their side of the story. Depending on the people involved, this can escalate leading to costly legal battles and stress. Both sides can face costly challenges due to actual damage and alleged damage claims. Even the best written and negotiated post-closing possession agreement will not be enough to save you from adversity.
You may try to protect yourself by taking pictures at your initial home inspection as well as at the final walk through before closing. Also, make sure to have two walk-through inspections: one before closing and the second once the sellers leave but before escrowed funds are released.
2. Failure to Move
If the seller wants to stay on the property post closing because of issues such as not finding a home yet, waiting for a new home to be built, or for renovations to be completed–all of these scenarios can lead to issues. Regardless of why the seller is still in the home or the agreed possession date, buyers will still be forced to rely upon sellers keeping their promise and moving out on time. Meanwhile, you have a moving truck packed with your belongings and nowhere to go.
Although timing might prove to be a matter of hours, you can still find yourself paying the movers or a storage company due to the delay. And this is actually the best-case scenario.
The worst is the seller just refuses to move out. You legally own the home, but you still need to have them, and their belongings removed. Even if your post closing possession agreement contains penalties such as a fee for every day the seller stays past the agreed upon possession date, the buyer may still be forced to contact their real estate attorney to have the sellers vacated.
3. Creates User/Occupant Relationship
The post-closing possession agreement creates a user/occupant relationship between the seller and buyer. A use and occupancy agreement only allows the seller to occupy the property for an agreed upon period of time and for an agreed upon sum. You can calculate a daily rate based on the buyers’ monthly mortgage payment including their principal, interest, taxes, insurance, and assessment, if any. Insurance should also be maintained by the seller to avoid liability issues in the case of fire, break-ins or natural disasters.
The post-closing possession agreement does not constitute a lease, so the seller won’t have any tenant rights. You would think this distinction would make it easier to evict and remove the seller from the property – think again!
We could go on and on with reasons to avoid post-closing possession agreements, but these three reasons should be enough to discourage you from entering this troublesome territory!