Let's say the closing of escrow on the house you're selling is in one week, and you find yourself in bind regarding moving out. Perhaps your new house isn't yet built, and you have nowhere to move to. But the buyer of your property refuses to postpone the closing date, saying it will mess up their mortgage loan. What can you do? We'll offer some suggestions here.
Realize the Property Buyer Is in a Tough Position, Too
A homebuyer's reluctance to put off the closing date is understandable, and doesn't necessarily mean they're just being difficult. The buyers might, for example, have paid for a lock on their interest rate, which expires soon. Or they might want the security of having the loan wrapped up when it's supposed to be, without giving the lender any more chances to check their credit rating and deny the loan after all.
Consider Requesting a Rent-Back From the Buyers
Delaying the closing of your home sale is not your only option. Another important one is to ask the buyers for something called a "rent back." This would allow you to stay in the home even after the closing, basically becoming a tenant in the home you once owned.
Why would the buyer consent to this arrangement? They might say "no," in which case you would be forced to find temporary digs. But it's possible the buyers are feeling the stress of preparing for the move themselves, or just want to maintain good relations up through the closing. A rent-back arrangement will require consent by the buyer's mortgage lender, but it's less of a big deal than delaying the closing itself.
How a Rent-Back Agreement Works
The closing of your home sale would go ahead as scheduled, and legal title to the property would pass to your buyer. Then—even though you probably won't be able to convince your buyer to let you stay in the home for more than a few weeks—your buyer would become your landlord.
The two of you would want to draft and sign a rental agreement. This serves to formalize the arrangement and make sure everyone's expectations are clear.
Terms to Include in Your Rent-Back Agreement
Your real estate agent might be able to help with this task, by providing a standard form for your agreement. In some states, such agreements have been standardized as an addendum to the purchase contract. If not, this might be a good time to hire an attorney.
In any case, here are the most important concerns that the language in your rent-back agreement should cover:
- The length of time the rental term will run. You can set your planned departure from the home for either a specific date—for example, 30 days past the originally planned closing—or leave it open-ended. However, the buyer will need to check in with the bank or mortgage lender before committing to a date. Some lenders will not allow a rent-back that lasts more than 60 days (assuming the lender allows rent backs at all).
- The amount of rent you will pay each week or month. This should be high enough to cover your new landlord's mortgage, insurance, taxes, and other carrying costs, given that they won't actually be living in the home. You might want to add some amount to compensate your buyer for the inconvenience of a delayed move.
- Security deposit amount. If the buyer is worried about you causing damage to the home, you can put down a security deposit (or place it into an escrow account), like with any normal lease.
- Under what circumstances the buyer/landlord can enter the property. This is a normal part of any lease or rental agreement, and might partly be dictated by state law. A tenant should have the right to advance notice before the landlord shows up to do repairs, inspections, and so forth, unless it's an emergency. A clause covering this issue could be particularly important to include here, given that your "landlord" will be eager to prepare the home for moving in, perhaps by measuring for curtains, arranging for home contractors to do home improvements, and so forth.
- Which of you is responsible for paying for utilities. In normal rental situations, the landlord often pays for utilities. However, for a single-family home, it makes as much sense for you to pay, and the buyer will no doubt prefer this.
- Whose homeowner's insurance will cover the property. Talk to your insurers and lender about this. It usually makes sense to rely on the property buyer's policy, which is normally scheduled to kick in at the close of escrow anyway.
- Whether you will purchase insurance for your personal property while living in the house. Because you are not the home's owner, you can no longer look to the homeowner's policy to cover any personal possessions that might get damaged by fire, theft, and so on.
Although this might sound like a lot of work for a short-term arrangement, talking out the issues ahead of time and committing them to writing can avoid disagreements later. Your real estate agent or an attorney can assist in anticipating and preparing for disputes.