Q: We are selling a house in Maryland and will be moving to another house shortly. Our buyers have not received their loan commitment, but we feel confident that they will get their loan soon. Our buyers would like to move in before settlement, and we are willing to accommodate them. However, we don't know the legal remifications of such a transaction.
A: Permitting a buyer to move in before settlement can be very dangerous. First, from a seller's point of view, this gives the buyer an opportunity to find all sorts of things wrong with the house, which may be used against the seller at the settlement. Second, there are insurance considerations that have to be considered, since you are no longer in control of the property.
If a fire occurs during the occupancy of the purchaser, for instance, whose responsibility is it?
If you are prepared to let your buyer move in before settlement, you should draw up an agreement that contains at least these points:
The purchaser agrees to occupy the property and will pay an agreed-upon amount, usually based on a per-day formula, for the reasonable rental of the property.
The purchaser agrees to place the balance of the down payment with the title attorney for the title company, to show good faith. If, for any reason, the purchaser does not actually complete the settlement, the agreement should spell out that all or part of the deposit will be forfeited at the option of the seller.
The purchaser will have a pre-occupancy inspection of the property and will agree to accept the property in its present condition. Thus, at the settlement, the purchaser will not be permitted to raise questions as to the condition of the property. For all practical purposes, it will be treated as if settlement took place at the time of occupancy.
The purchaser is obligated to keep the property in the same condition, with reasonable wear and tear, and to maintain the heat. The purchaser is also obligated for the utilities.
The seller will be permitted to inspect the property on a periodic basis until settlement, during reasonable hours and on reasonable notice.
Finally, if at all possible, a date should be set for the actual settlement.
If you are working with a pre-occupancy agreement, keep in mind that it is a legal document that spells out the terms and conditions for the buyer to move in before settlement. The seller should make it very clear that this is not a lease, and the buyer should not be considered a tenant.
Otherwise, the seller may find that the only way to get the buyer out of the property is to go to landlord and tenant court, which is expensive and time-consuming.
I am personally opposed to allowing a purchaser to move in before settlement. However, there may be instances where it is in everyone's best interest to permit the pre-occupancy, but it should be cautiously are carefully entered into.