Hello,
I am a first-time homebuyer in the process of some back & forth after putting an offer on a short sale. The latest thing to come up is that we have been sent what appears to be a standard addendum which needs to be signed in front of a notary. Our concern is with part of point 3 on the addendum:
"3. The parties acknowledge and agree that there are no agreements, understandings, or contracts between the parties that the Seller will remain in the mortgaged premises as a tenant or later obtain title or ownership of the mortgaged premises, except to the extent that the seller is permitted to remain as a tenant on the mortgaged premises for a short term, as is common and customary in the market but no longer than ninety (90) days, in order to facilitate relocation."
I understand the purpose of the document - they want to make sure we aren't just helping the seller get out from under this loan and will rent or gift the property back to them. My husband is concerned that the bolded piece is saying we MUST allow up to 90 days, as there is no mention of us having any sort of "veto power." I interpret it more as a limitation, stating that IF we make some arrangement to allow the seller extra time beyond close of escrow, there is a 90 day absolute maximum limit, and it must be because they need more time to find a place or finish moving (for example if they find an apartment to move to, but it won't be ready for them until a week after escrow is set to close).
Can anyone help explain which interpretation is correct?
Thank you!
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Section 3 really has to do with the time allowed for the former owner to remain in the property after closing (COE). For example, in California it is commonplace to write the Purchase Agreement allowing the seller to remain in the property "COE plus 3 days at 5:00pm"
So let's say you close on the 1st of the month, they have to be out by the 4th of the month by 5:00pm (3 days is the 2nd, 3rd, 4th @5pm) Personally, I think allowing 90 days is way too generous and dangerous. The statement provided in the document is not saying you must allow 90 days but rather you cannot allow anymore than 90 days.
The seller should have a plan as to where they are going before you close and it is simply for their convenience they are being allowed to stay past COE.
A real danger on short sales, especially if the seller has not been paying their mortgage for quite some time, is they will never leave until they are physically evicted. If you are a first time buyer, you do not want a former owner in the property for even one day after closing - they may never leave.
I know of a transaction where this exact thing happened; first time buyers, moving from their rental apartment into their new home, former owner would not move. New owners could not afford both rent at current apartment and mortgage on new home. They had no family in the area so no place to go short term. This went on for many months during the eviction process. The legal fees were overwhelming. Eventually they had to stop paying the mortgage - they lost the home to foreclosure and had never lived in the property. A year later and lots of legal fees spent, they got the sale reversed but their credit is trashed.
When you do your final walk-thru prior to closing, make sure the seller is truly packing to move ASAP.
If you don't like the terms of the addendum, cross out that section and rewrite and initial. "Under no circumstances is the seller to remain in the property after closing" - Whatever you are comfortable with.
I'm not 100% opposed to them making arrangements with us to stay a short time as needed (like the example I mentioned where maybe their new apartment wont' be ready til a few days after escrow will close). I just want to make sure we are allowing ourselves the right to say "no" or "not that much time" later on if it comes up that they even want it.
Would a small change like this make enough of a difference?
"that the seller may be permitted to remain"
instead of "is permitted to remain"
Thanks Mark! That's exactly how I interpreted it. I guess our agent asked their agent if they had any intent to stay beyond escrow closing and they said no, so that makes me feel better too.
I totally agree with Mark on both of his responses.