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7 Issues when the Seller Retains Possession after Closing (Under a GAR® contract)

Updated: Dec 20, 2023

It is not uncommon for the Seller to request possession after Closing. The Seller may have concerns about vacating the property before they know that the transaction will close. The Seller may be purchasing other property that is not ready at time of the sale and wants to avoid a double move and temporary housing. The Buyer and Seller need to understand the risks and responsibilities when a Seller continues to live in property they no longer own.

ONE. The Buyer will have access to the property while the Seller maintains possession. The Seller must understand that they need to provide the Buyer with a key to the property and the Buyer’s Right to Inspect the property under the Purchase and Sale Agreement and the Temporary Occupancy Agreement allows the Buyer reasonable access to the property. Reasonable is the eye of the beholder. Buyers and Sellers will often have different interpretations of what is reasonable.

TWO. Insurance Issue – Seller’s insurance policy must be adjusted to cover the possible risks. The Seller’s existing insurance policy will not cover them when they are no longer the owner of the property. They bear the risk of loss for their personal property but the Buyer also needs to be concerned that someone is injured on the property while the Seller is in possession. The GAR® Temporary Occupancy Agreement does not require the Seller to purchase an insurance policy to cover personal liability for injury by an invitee. A special stipulation would need to be added to accomplish this.

THREE. Insurance Issue – Buyer’s insurance policy may need to be adjusted to cover possible risks. Most insurance policies will cover for a short period of time in which the Buyer owns the property but the Seller still has possession – typically 60 days. The Buyer should get confirmation from their insurance company (in writing!) that the policy will cover damage to or loss of the property for the entire time that the seller will maintain possession. If the time period exceeds the coverage of the policy, the Buyer must purchase a rider to their policy to make sure their property is fully insured.

FOUR. The Buyer may be required to take possession by a certain date. If the Buyer is obtaining a mortgage to purchase owner-occupied property, the Georgia Deed to Secure Debt will usually require that the Buyer reside in the property within 60 days of the Closing Date. Seller possession past this point is a default of the mortgage. The Temporary Occupancy Agreement states that it cannot be used for more than 60 days for this reason.

FIVE. The Buyer cannot usually charge rent for the time the Seller retains possession of the property. Buyers who are borrowing money to purchase a property to live in will usually obtain an owner-occupied loan. The lender will not typically allow rent payments on the settlement statement. Rent payments make the loan look like an investment loan which violates underwriting requirements and harms the lender’s ability to sell the loan on the secondary market. This is why there is no provision for rent payments on the GAR® Temporary Occupancy Agreement.

SIX. What happens if the Seller does not vacate on time? The Buyer assumes that the Seller will give possession on the agreed upon date. The GAR® Temporary Occupancy Agreement demonstrates that this does not always happen. There is a cost per day for the Seller “holding over.” The Buyer would need to pursue the matter in the courts if the Seller does not give possession or gives possession late and does not pay the penalty for holding over.

Conclusion Every situation will vary. This information is provided to point out the most common issues and concerns. Contact me for assistance for your particular contract.

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