Know The Risks Of Post Closing Deals
Understanding the ins and outs of post closing possession is a tricky road to navigate when it comes to buying or selling property in New York. NY1's Jill Urban filed the following report.
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It’s a rare occurrence to close on the home you're selling and the one you are buying on the same day. Usually there is some lag time between the two so often times buyers and sellers need to make an accommodation to bridge the gap.
"It’s not uncommon in the industry to use what’s called a post closing possession agreement, which is an agreement where the seller remains in possession of the unit after the closing for a certain period of time," says Real Estate Attorney Sandor D. Krauss.
So this arrangement allows the seller to stay in the home even though it officially belongs to the buyer at that point. Kraus says most buyer’s attorneys discourage this type of arrangement because it is the buyer who carries all the risk. Sometimes though, it can be a deal breaker so if it must happen, he has some advice to keep in mind.
"You gotta make sure your attorney puts the right language in and the right language includes the words license or use in occupancy. We want to create a license agreement, we don't wanna create a landlord-tenant relationship," says Krauss. "So we can’t use words like lease or eviction. It's better to use words like license. That way we can create penalties and a mere possession of the unit instead of a landlord tenant relationship."
Also, to help guarantee the seller will leave at the set date, punitive damages must be specified in the agreement. Usually it’s a daily charge that can range from several hundred to several thousand dollars depending on the price of the home.
Also, because the seller will now be living in the buyer’s home it's important to have money set aside in escrow for protection.
"So this is a risky proposition. And we have to make sure enough escrow is held back for damage caused by the seller, things that are broken, any other physical damage to the apartment and potential liability," Krauss adds.
Now this agreement not only needs to work for the buyer and seller, but also for the building. Some buildings may not allow it. For those that do, it needs to be carefully worded so it is not misconstrued as a sublet, which would often require board approval.
So the bottom line is if it must be done, make sure it’s done correctly because you would never want this special arrangement to be a post closing disaster.