The house you’ve just bought is empty.  The Sellers have moved out or, maybe, it was empty when you bought it.

The inspections have been done. Repairs (if any) have been completed. The appraisal has come back and the bank says you’re good to go.

Now, it’s just a matter of waiting a week…maybe two. Settlement day.  That’s the day the real estate legally transfers from the Seller to the Buyer.  The day when keys are exchanged and information about the trash and recycling days is passed on. That’s the day when the actual money is passed from the Buyer to the Seller.

Sometimes that money is in cash.  Most of the time it’s in the form of a mortgage.

So, hey, wouldn’t it be nice to get a little jump on the moving thing?  Wouldn’t it be wonderful to be able to start moving stuff into this empty house (which will be yours in a week or so anyway)? Gosh. It would make things so much smoother wouldn’t it?

The Pre-Settlement Occupancy Agreement

There is actually a form for this kind of thing — The Pre-Settlement Occupancy Agreement. It’s really a kind of short term lease.

Typically it’s a form for an occupancy not to exceed 60 days and it also provides for a rent (per day) and a security deposit.

However, the bottom line with the Pre-Settlement Occupancy Agreement is that the current owner (the Seller) is renting to the prospective owner (the Buyer) just as if he was moving in a tenant.  The only real difference is that the Buyer is fairly certain that he will become the actual Owner in  just a little while.

But….

What If Things Go Horribly Wrong?

The downside for the Seller with this type of agreement is that something could go horribly wrong.

• Buyer financing could run into obstacles such as the buyer’s  debt-to-income ratio becoming a problem when the buyer runs out and buys a bunch of new furniture for their “new home”.  All of a sudden, at the last minute, the buyer cannot obtain the financing they need to complete the purchase.
• Death, illness, or some other natural catastrophe could befall the buyer making the purchase impossible
• The buyer moves in and realize the home inspector missed something or they didn’t realize the neighbors partied every night or the air conditioner goes on the fritz.  Now, all of a sudden the dream home they were super excited to move into (and early, at that) is not such a dream home, after all. Maybe the buyer starts to get cold feet or second thoughts.
• The buyer could inadvertently cause damage to the house or it might catch fire or be broken into.

There are really dozens of things that could go wrong which would end up with the buyer not completing the purchase.

Yet, they’re inside your house.

Pre-Settlement Occupancy Should Only Be Used Under the Most Extreme Circumstances

In the 12 years I’ve been in the real estate profession, I’ve only seen a Pre-Settlement Occupancy Agreement used once.  It was when there were serious title issues with the house and the Sellers knew it and had “forgotten” to disclose them.  Meanwhile the buyers had sold their own house, were ready, willing and able to make the purchase and were at the settlement table on the appointed day ready to make the purchase.  It was only then that a Pre-Settlement Occupancy Agreement seemed like the only alternative to massive legal action.

As it turned out, the title issues were resolved and ownership transferred, legally, from the Seller to the Buyer.  Still, if the Pre-Settlement Occupancy Agreement has not been available, it could have gotten very messy, very fast.

All the other reasons for a Pre-Settlement Occupancy Agreement are purely for the convenience of the Buyer with a lot of risk and downside for the Seller.

Maybe the Buyer is currently renting and their lease is about to expire. Maybe they were only able to line up moving help on a certain weekend and it’s the weekend prior to settlement.  There could be a lot of reasons why people want to move-in or, at least, get started moving in.  Chance are they are asking in good faith.  They want to buy the house, everything is on track for a smooth settlement.  It’s just that the actual settlement hasn’t occurred, yet.

Until the ink dries on the HUD-1 and the deed transfer and the money has changed hands, the house still belongs to the Seller and having someone move in before that happens is an invitation to headaches, heartaches and, perhaps, lots of additional expense.

In my view, a Pre-Settlement Occupancy is something to be avoided unless there is a strong and compelling reason to put one in place.

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