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Why Pre- and Post-Possession is a No-No

Date:May 2, 2007 | Author:Diane Tuman | Category:Real Estate

Today’s Wiki Wednesday Feature: The Perils of Pre- and Post-Possession

It never fails that when I read some of the Zillow Real Estate Guide articles that deal with real estate no-no’s, I have usually thought about doing most of them. Doing a no-no, that is. Here’s one that strikes close to home:

Scenario: Your lease is up on your apartment and you’re two days away from closing on the house you just bought — why not move into your new house early? The reasons are many, but here are a few: What if the house burns down? Or, what if you trip and fall and break your hip and you’re out of work for months? Or, what if a meteorite comes crashing through the ceiling? Who’s liable for all of this? Who pays for the damages?

So, now are you tempted to take possession of a home before you close or stay in a home after you close? You will be quickly cured of these thoughts after reading "The Perils of Pre- and Post-Possession." The article concisely points out the reasons why it’s not wise to take possession prior to or after full legal ownership and provides enough nightmarish imagery to consider the consequences — even if everyone just wants to be a pal. Lastly, if Murphy’s Law is considered, how can you possibly take up residence and not be worried sick? It’s best to protect yourself — even if it is only 48 hours.

Ed: Wiki Wednesdays is a weekly feature that highlights helpful or interesting articles from the Real Estate Guide.

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Responses (10)

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Greg Swann 10:44 PM - May 2,2007

Hey, thanks for featuring that. It comes from my column in the Arizona Republic. I only get 350 words — nothing for me. That one takes care of the whole issue in just a little space.
Diane Tuman 8:26 AM - May 3,2007

Honestly, I have always whined about wanting to “move-in early” and this makes it very clear why you shouldn’t. Plus, I’ve been wanting to use that burning house photo for a while now, so it was perfect.
Caterina 11:10 AM - May 3,2007

I loved this article. I am about to buy a house and I would never have thought about these issues. I will be back to read more.
Nickie 11:32 AM - May 3,2007

You definitely have some good points in your article, particularly about pre-posession. Absoultely a bad idea!!! You never know when something will come up at the last minute and you won’t be able to close!
However, I disagree about posession after you close. Many people state right on the listing that posession is closing plus 3. Particularly for people who are selling and buying at the same time. How are they supposed to get everything out of their house and into the new house in one day? Especially if you need the funds from the first house to fund the next house. You can’t close on the second transaction until you close on the first….which means that at some point, you will be in the house after it closes.
Being aware of the implications is key here. Make sure that the new owners know that they will need to have insurance on the house as of the closing date, even if they are not moving in for a few days. Furthermore, make sure that the sellers get several days of rental insurance since their home owners policy will not apply anymore.
Diane Tuman 1:40 PM - May 3,2007

Great info, Nickie! If you have additional information that could benefit consumers, please add it to the wiki article when you have a chance. It looks like this topic was on many people’s minds today: http://www.truegotham.com/archives/tips-advice-moving-in-before-the-closing.html
Greg Swann 5:47 PM - May 3,2007

Sorry, but post-possession as Nickie describes it would require the buyer either to pay insurance for the home as a rental or to commit insurance fraud. Same for the mortgage. The solution for sellers is to store their stuff on the truck. Post-possession is just as much a bad idea as pre-possession.
jf.sellsius 9:46 AM - May 6,2007

Generally, good advice. Pre and post possession are risks, to be discouraged and avoided. But they are not, in and of themselves, BAD ideas. Because they bear risks, the bad idea is not minimizing and allocating that risk properly.

Often one party will incur further loss w/o the accommodation, but sometimes both parties will suffer. For example, the costs associated with a prolonged closing adjournment may be worth the risk.

Accordingly, the cost/risks should be allocated to the party requiring the accommodation with the accommodating party getting full protection against the risk.

There are also ways to minimize the risk. The shorter the time, the less chance of Murphy popping in. Letting only furniture move in, instead of people,is another. The establishment of escrows is essential. Penalties for overstaying must be severe. You also need to know the circumstances of the need and the party you’re dealing with.

Most of the time, things work out fine… PROVIDED, the contract language is properly drafted, escrows are taken, and insurers are notified. The “bad” in these cases comes more from sloppy language drafted by inexperienced/incompetent attorneys and any non-attorney who would even attempt drafting a pre or post possession rider.
jf.sellsius 10:02 AM - May 6,2007

A point in that piece needs correction. A pre or post possession does not create a de facto “tenancy” if the contract language expressly disclaims such a legal relationship. You must also consult the laws in your state and an experienced attorney to interpret that law. A simple example for this author (my guess is he’s not a lawyer). Not every person who stays in your home becomes a de facto tenant. If that were true, having a guest who stays at your home for a week or two would be a bad idea. (wait a minute–it is a bad idea, but not because of landlord-tenant law)

This is one reason I don’t like wikis. If no one takes the time to correct stuff, it lives as truth.
Greg Swann 5:03 PM - May 7,2007

Possession of a piece of real estate creates a de facto tenancy-at-sufferance. If any interested party contests this fact, the judge is almost certainly going to require a forcible detainer action — an eviction — to settle the issue. This is not opinion. This is settled practice, at least in Arizona. There is no circumstance under which a professional should advise a client to permit a pre- or post-possession without a lease specifying recourse procedures and without disclosing the tenancy to all interested parties.
jf.sellsius 5:23 PM - May 8,2007

A lease does not solve the problem since a person who refuses to leave would require court action. The solution is a contract rider which establishes a substantial per diem penalty for holding over, a large escrow from which to draw the funds and a confession to eviction which bypasses the eviction proceeding.
BTW, most real estate contracts that have these provisions expressly disclaim any tenancy being established.

If you claim mere possession of real estate establishes a tenancy in Arizona, you should qualify your wiki which leads one to believe it is the law everywhere.

Be careful Greg, Arizona may send you a nasty letter claiming your legal opinion constitutes the practise of law without a license
Note: I am a licensed real estate attorney in NY and have drafted many of these riders without any problem. The real risk is having a non-attorney draft the language.