What should I watch out for with a short term seller rent back?

Question

We are in contract to buy a property. Close of escrow is next Monday (Aug 17th), but the bank is ready to fund anytime we want to sign. We weren't planning signing until the property was vacant; but now the seller wants to rent back from us for three days after signing.

Timeline as follows:

Last week the seller informed us that she can not vacate until this Friday, 14th, due to her new lease not starting until then. We offered her a 2:00pm move out date on the 14th, with the option of her storing excess stuff in the garage if needed. That way we could do an inspection of a vacated property, and close that afternoon.

Today they finally responded (after prodding from our agent):

1) Seller says she doesn't have any money to move, so she can't move until escrow is closed. (She's actually making a decent amount on the sale since she bought at the bottom)

2) She wants us to sign as soon as possible; and then rent back to her through Friday. Rent and security deposit would be arranged during signing.

3) The pending foreclosure which which the agent told us (in writing) was postponed until the end of the month, was not actually postponed. Foreclosure is set for this Friday.

Overall, both the seller and her agent have been a pain to deal with, as they incapable of responding and are never on time with paperwork. We have met the seller on multiple occasions, and she doesn't strike me as someone trying to pull something; she just seems young really irresponsible.

If we do the seller rent back, are there ways to protect ourselves if she doesn't vacate? This is in Sacramento, CA, tenant friendly laws apply.

Derek Daun · Answer

K. M.

I am worried about the pending sale. My main concern is the seller subconsciously trying to sabotage the deal, even if that is much worse for her in the long run. I'm pretty confident in title and lending being able to get the wires worked out last minute if needed. If she agrees to the SIP, then I have a much higher confidence she'll follow through with everything, and we'll close on Wednesday. Worst case scenario is I have to get her evicted, which could be a learning experience for me. She'll have plenty of money if the sale goes through; so she should actually be worried losing it in court.

Right now I'm only into the deal for $400 on inspections now. If I give her money for a uHaul and a hotel, then I'm putting more money on the line if she doesn't vacate and doesn't perform.

Dax Middlebrooks · Answer

I am going to ask what may be a dumb newbie question, but here goes.

If the bank forecloses on Friday, is the house still the sellers to sell? Could this start the negotiation over again?

Account Closed · Answer

I'd be more worried about the pending sale. Make sure your escrow officer knows that sale date status. She has to fund and payoff before Friday. I'd close tomorrow if I were you. As for the rent back, you're wise to suspect a potential problem. Many people don't have the mental or physical or emotional resources to move. Regardless of the money, regardless of what they say.

I"m hard core with this kind of thing. I reduce the purchase price, I pay to put stuff in storage, pay to put people in hotels and disperse cash before I close if I have to. I don't rent back. Rent backs or staying past close has backfired on me every time.

Derek Jones · Answer

The Seller in Possession form is there for your protection. Her money gets held in escrow or deposited with you for financial protection. If she refuses to vacate after the terms agreed upon take her to court as per the agreement "Seller has no right to remain in possession beyond this term and may be responsible for court awarded damages if Seller does remain"

Derek Daun · Answer

@Ron Manning

The situation I want to protect myself from is if the seller is incapable/unwilling to actually vacate, or even just unwilling to perform on the sale. Giving her $500 could lead me to being out $500, and her still being in the house, which then get's foreclosed. Then I'm out $500, and my inspection costs, and she has no assests of which to take her to court over breach of contract. Obviously it makes the most sense for her to sell, but sometimes people in these situations just block things out.

We went with requesting a SIP (Seller in Possession) addendum to the contract, but with a very high security deposit. Market rent is about 1200 for this place, so we set terms at 1500/month (50 dollars a day), and with the security deposit equal to last months rent + one months rent ($3000), to be held in escrow. I would havel liked a larger deposit, but I assume the SIP counts as a rental agreement, so I didn't want to violate any exessive security deposit laws.

Hopefully that is enough skin in the game to make sure she vacates on time; leaving the place in good shape.

Also, we requested a copy of her new lease, so we can verify she has intent to leave.

Ron Manning · Answer

I'm new, and this could be totally wrong. But I did a rent back last year when I sold my first house. Could you offer to give her say $500 for moving expenses as long as she credits it back to you at the time of closing? As long as she signs the papers before you pay her. You would effectively insulate yourself from renting back and the possible issue of her not vacating. Absolute worst case, she's gone and you're out $500. But at least you have the house free and clear.

What should I watch out for with a short term seller rent back?

7 Replies