real estate

Beware of preoccupancy agreements

Steve McLindenq_v2.gifDear Steve,
I signed a pre-occupancy agreement allowing the buyers of my home to move in with their closing date scheduled 90 days later. In it, I also agreed to give them up to three one-month extensions if they couldn't close within the original 90 days. These periods have all expired but now they tell me they don't have to move out at all! I certainly can't afford a drawn-out eviction process. The broker used for this deal turned out to be friends of the people living in my home. Isn't this a conflict of interest?
-- Anita

a_v2.gifDear Anita,
Sure, it's a conflict of interest. When you use a buyer's broker instead of your own listing broker, these kinds of things can and will happen. But your second faux pas, it would seem, was even more egregious: signing that preoccupancy agreement. Most veteran Realtors have horror stories about how such preoccupancy arrangements can quickly evolve into nightmares.

You have consented to what's known in the industry as a "dry closing," where a buyer is supposedly waiting on funding or additional authorization. Unfortunately, once buyers gain legal occupancy to a house, the seller has forfeited nearly all of his or her leverage. The best position in such matters is always this: The buyer gets the keys only when the purchase is funded and a check is cut. No exceptions.

What's worse, there are reports of some scammers out there who are taking occupancy of homes in this manner, then squatting in them until the owner exhausts all legal options and finally gets them tossed out. For their efforts, the scammers get months and months of free rent worth thousands of dollars. It's an even easier ruse now because so many desperate sellers are going out of their way to accommodate buyer whims in this depressed market.

Scam or not, the complications of preoccupancy agreements are manifold, as you've discovered. And they extend beyond just the eviction hassle. For instance, what if the occupants damage the place? You'd better check with your insurance company to make sure you're covered for damages inflicted by nonowner occupants. And if they do trash the place, the occupants may try to claim that the damage was already there when they arrived.

Further, should the occupants invest in improvements in the house, they may try to claim they have established an equity interest in it. God forbid, you may end up having to pay them to move out!

There's a pretty good chance there was unethical or even illegal collusion on the part of the agent working with these so-called "buyers," but this may be tough to prove. Most ethics investigations are conducted by Realtor associations and have little effect. But you certainly have justification to boot the tenants out since they are now in default of the contract. However, if you contact the police about it, they'll likely direct you to the civil court system to start the eviction process. Depending on the city or state, this can take months and in some cases, up to a few years even.

Sorry to hear you got roped into this deal. But you most certainly will need professional legal representation to extricate yourself.

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