Purchasing a short sale - I close in 1 week - Seller is still in the house - My options?

Question

Hello everyone. I am in the process of purchasing a short sale. I've bought a couple of foreclosures in the past, but the short sale is new to me. I have a question regarding the seller and the fact that he is still in the home 1 week before I close. Before I get to that though, let me explain what's going on:

In early August, the homeowner and I signed a purchase agreement on the home pending his bank's approval. Finally, after months of pestering my realtor and eventually his, the seller's bank told my realtor today that they want to close this coming Monday. I am concerned because the homeowner is still in the house and I don't know what his plans are for moving out. I really don't want to buy the house while he's still in it. I believe under a normal circumstance, most buyers would "rent" to the current homeowner after the closing date until he/she could move out. Given the nature of a short sale, I really don't think renting the house to the current owner is an option. I also am concerned he could trash the house in vengeance after it's in my name. He has no real vested interest in keeping the property in good order.

How would you guys handle this? The bank isn't flexible on moving out the closing date. They supposedly told the owner over a month ago he needed to move out. Since it's not in foreclosure yet, I'd guess the bank has no legal right to force him out of the home. And I suppose I have no right either until the actual closing date. I guess one option is to have the sheriff pay him a visit once the home is in my name, but again, that brings me back to my concern of him trashing the house out of vengeance.

Thank you all for your expertise!

Shane

J Scott · Answer

Agreed with all the posts above... We've dealt with this a couple times, and my best piece of advice is to NOT close until the seller is completely out. Sure, you can play games with escrowing the agent's commission, but in the end, unless/until the seller is incented to get out, you're going to be fighting an uphill battle. Put pressure on the listing agent (trust me, after all these months, they want their commission), but be firm that you won't close unless the house is vacant. Of course, as Jon pointed out, the seller still has a week, so perhaps they just haven't started the moving process yet...

J Scott · Answer

Joel - From the bank's perspective, there is no option that the owner stays. The bank will likely require the owner to be out by closing and to sign an affidavit to that effect. So, asking the bank for a reduced price won't likely get a positive response. The agents need to explain to the owner that he has to get out or lose the sale. If he doesn't care about selling, there's not much that can be done outside of eviction, which can be a long process in some states.

Joel Owens · Answer

The issue here is you are paying an agreed price for the short sale BASED ON the property being vacated and in a certain condition at the time of possession. What the bank wants is to dump the property on you with the former homeowner still in place so you handle the problem. Depending on if you are flipping this property,renting it out,etc. you can have lost income (holding costs) and damage to the property from the home owner staying after closing. If I was doing this I would go back to the bank and give them 2 prices.One is with the property vacated and secured and one is with the former owner or tenant still in place. If you are going to take on a problem like that I would ask for a substantial reduction in price or not buy at all. The bank has to understand if they want to dump a problem it is going to cost them not to handle it and get the people out or to comply with the purchase agreement. I don't really see how an agents commission plays into this.They can't force the current owner to do anything.I think people get confused with the power they believe brokers and agents have with legal issues in a transaction.

Kyle J. · Answer

In the last two houses I purchased, the occupants moved out in the week before closing. So he could still be planning to move. Talk to him, or his agent, and find out. Personally, I wouldn't close with him still in it. You'll just be inheriting a whole bunch of problems and a tenant who isn't going to pay you either.

Kevin Dickson · Answer

On an especially good deal, I'd close. Then it's really just a run of the mill eviction process. In Denver, if there is no lease, I can get ANYONE out within 3-4 weeks. YMMV I don't see how pressuring the realtors would help. What extra leverage do they have to influence the occupant? I doubt they would pay the moving costs or first month's rent. One BIG caveat. You can't evict the tenant if he has filed for bankruptcy. If that's the case, run away.

Jon Holdman · Answer

Most sellers aren't going anywhere a week before closing, unless they've moved out long before that. What does your contract say about possession? Most say "at closing". Meaning you get the keys and can go in. But its not too unusual to say "3 days after closing" or some such. That lets the seller get money from the closing (probably not in this case) and get their stuff out. If it says "at closing" do a walkthrough right before closing. Refuse to close if they're still there. I've done exactly there, where the seller had put in a tenant who had not moved out when we were supposed to close.

Lynn McGeein · Answer

Shane, I would ask your realtor to confirm a walk-through right before closing, and I believe banks usually require the seller to be out, anyway, on a short sale. If you schedule the walk-thru the day before closing, make sure you drive by and check it out just before closing to insure no damage between the time of the walk-thru and closing. Less than three months from purchase agreement to closing is not a bad time frame for a short sale. Our seller in April didn't move out until the night before closing, we had the walk-thru the next morning and then went right to close. While the place was filthy, I didn't expect much cleaning from someone who had to walk away with nothing and lose his investment, but I definitely made sure he was out and all appliances, etc., still there before signing anything at closing.

Steve L. · Answer

Talk to the Seller's agent about this and see what ideas he has to get the guy out. Require both agents commission, or for sure the Seller's agent until he vacates. They will need to agree to this. Knock on the door yourself and see what he says? It all boils down too if you are willing to risk the deal if he doesn't vacate and only you can determine that.