Is Early Occupancy OK for Short Sales?


Move in without closing first? Whoa! I just got an offer on a Destin Florida short sale listing with an early occupancy clause.  The buyer wants to move into the property before closing and short sale approval.  Is that a good idea? One of the negatives of short sales is the waiting time for the buyers during the short sale process. It could take 60-120 days for a short sale approval, then another 30 days for the buyer to close. Some buyers “bail” because they get wandering eyes or are tired of waiting so long.  The solution for some sellers, to keep a buyer in the sale, is to allow the buyer to move in early.  This could be a bad idea, but there are some things short sale sellers can do to lessen the risk.

1.       Require the buyer to complete and remove the home inspection contingency prior to move in.  Why?  Removing this contingency overcomes one hurdle to successful closing. Since most short sales are sold “as is” with the right of buyer to inspect and accept or reject the property, you’ll have that clause of the way.  Also, it might lessen those phone calls to the seller as a landlord after the buyer has moved in.

2.       Require a lease.  This may seem basic, but without it, you might lose legal protections if the closing does not occur and you have a tenant you don’t want. Who negotiates the lease?  Not me.  Property management is a specialty, and it’s not mine.  I refer my clients to a professional property manager, or they make their own lease if they are experienced with rentals.

Should a short sale seller allow early occupancy? It's not my decision, but I’ve had several successful short sales where the seller did negotiate early occupancy and allowed the buyer to move in early.  In these cases, we knew the short sale was likely to be approved, the buyer was pre-approved for a mortgage, the earnest money was deposited, the inspection contingency was removed, and of course, there was a lease. 

If you are considering short sale to avoid foreclosure, be sure to consult an attorney and an experienced Destin Florida short sale agent.

It's Wendy!

Wendy Rulnick, Broker, Rulnick Realty, Inc.

Call toll-free 1-877-487-9639 or local 850-650-7883 ext 204

Email Wendy: [email protected]

Destin FL Real Estate

Destin Short Sales & Pre Foreclosure Help.

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Wendy is a short sale and pre-foreclosure specialist and has been featured in "Kiplinger Personal Finance Magazine" and "Florida Realtor Magazine". Call Wendy Rulnick, Broker/Owner, to list and sell your home or condo on the Emerald Coast of Florida in Walton, Okaloosa and Santa Rosa County-  Destin, Santa Rosa Beach, Fort Walton Beach, Niceville, Bluewater Bay, Navarre, Seagrove Beach, Watercolor, Sandestin, Seaside, Crestview, Rosemary Beach, Mary Esther, Shalimar, Eglin AFB, Hurlburt Field. 


IMPORTANT NOTICE: Rulnick Realty, Inc. is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit.


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Comment by William "Andy" Alford on May 24, 2011 at 4:25pm
Comment by Aaron Ayotte, Short Sale Monkey on May 24, 2011 at 8:49am
Fortunately, being in Texas the short sale process doesn't take as long as it can in judicial states, so we haven't had to entertain this.  That being said, even though there are ways to protect the parties in this type of arrangement, I would be conservative here and not suggest it.  Even though the parties would enter into this type of situation with good intentions, people do make bad and inexplicable choices, like buying a new $50k car a week before closing for example, that could kill the deal.  Just seems like the risk here would be high.
Comment by The Negotiator on May 23, 2011 at 7:45pm

Hey, I know ... lets see if we can get to 10 pages on this subject.


Are we talking about world hunger or 1 lousy person in a home that's not theirs, yet?



Comment by William "Andy" Alford on May 23, 2011 at 6:08pm

I understand.  However, paying rent and becoming a tenant provide legal protections (in Virginia) for the tenant that do not exist under preoccupancy.   Hence, my comment about "walks like a duck."  It may feel like rent to the buyer and seller, but the addendum states otherwise. 

Comment by William "Andy" Alford on May 23, 2011 at 5:44pm

Our area Realtor preoccupancy agreement states that preoccupancy payment is not rent and buyers enjoying preoccupancy are not tenants.  Perhaps this is a case of "if it walks like a duck," but I must assume that the association committee and attorneys who created the preoccupancy agreement knew what they were doing. 

Comment by The Negotiator on May 23, 2011 at 7:27am

Arm's Length Affidavit says:

"No party to this contract is a family member, business associate, or share a business
interest with the mortgagor. Further, there are no hidden terms or special understandings
between the seller or buyer or their agents or mortgagor.
The Buyers and Sellers nor their Agents have any agreements written or implied that will
allow the Seller to remain in the property as renters or regain ownership of said property
at anytime after the execution of this short sale transaction. None of the parties shall
receive any proceeds from this transaction except the sales commission."


WHERE IS THE PART THAT SAYS "NO EARLY OCCUPANCY BY THE BUYER?" If you go the road of "hidden agreements," then that would be inaccurate as well because its in the contract for the lender to read for themselves.

Comment by Dana Harris Carter on May 22, 2011 at 8:31pm

Excellent advice Raymond. I almost talked about the aspect of the mortgage company calling the note due but since my first response was lengthy I thought I'd leave that to someone else. Yes, Rick you are correct in that  fraud is a very strong allegation of which I wouldn't want to even have the very appearance of it as a Realtor. I've investigated real estate and mortgage fraud for the past 15 years and believe me a Realtor does NOT want to do anything that could be considered questionable in this category. It's just not worth the risk. I know that we cannot control per se what our clients may do behind our backs. However, I strongly believe that we have a fiduciary, legal and moral obligation to inform them of the consequences thereof should they allow this to happen. Of course, unless the Realtor is getting funds under the table (I've investigated that type of fraud), then they may be safe in this type scenario. The bottom line is not whether the seller still owns the property and can call the shots. The bottom line is that the seller's lender has the final disposition on the matter. They can and more than likely will deny any shortsale applications whereas all parties disclose that the buyer has been allowed to move into the property. Afterall, the seller is still legally liable for the property and its conditions. I don't want to get caught up in schematics respectfully on the matter of fraud but rather wanted to those that consider doing this type of think to consider the consequences of a fraud allegation. Even if a Realtor was not guilty think about the embarrassment, time to hire legal counsel to help them if sued (errors and omissions on ly covers a minimum), etc. To be frank if I think a Realtor is involved in anything unethical, illegal or fraudulent and it comes across my desk I will investigate it and report it to the appropriate agencies. I've seen to much real estate fraud perpetrated by Realtors and it's something I just won't tolerate. You'd be surprised what Realtors are being investigated for and the consequences that have experienced as a result of their behavior. There is nothing like a seller scorned and if they face an adverse impact, you'll find that they suddenly have selective memory loss when they start filing complaints and lawsuits alleging that their Realtor was aware and either recommended to do it or simply kept silent on the matter. Anyway, I just wanted to quickly reply to your concern about a fraud law being violated. You remember the old saying, "if it walks like a duck, looks like a duck and quacks like a duck...." If a client did pursue such an action, it definitely will have to be disclosed at

the very least on the purchase and sales agreement referencing such a thing. That could, of course, become a problem for the buyer as well if they are getting financed. The financing lender may not allow such action and they may need to get it cleared with them, as well. Other concerns would be whether this action would be considered an "illegal kickback" of some kind. That allegation alone opens up a whole new can of worms. As Raymond so nicely put it, "The rewards outway the risks." Yes, it is ultimately the seller's decision. However, there is no way that I will believe that the listing agent didn't cross the line by even passing messages along to the buyer's agent to direclty contact the sellers. If anything goes wrong, the seller will definitely tell all parties that the listing agent was fully aware of their actions and may even say that their silence on the matter made them think that it was permissable. Who knows????

Comment by Raymond Kennedy on May 22, 2011 at 7:44pm

As I stated earlier because of the potential risk to the seller I disagree with this strategy. Rick asked about Fraud Law where this would apply. I am not an attorney so I am not going to attempt to interpret law here. However I am providing verbiage from an approval letter that may make some of you think twice about this as an option. The main liability may fall on your homeowner, not you so becareful about how you advise them.


"If it is subsequently determined that the approval of the Short Sale was based, in part, on information with BAC Home Loans Servicing, LP later determined to be false or misrepresented or fraudulent, BAC Home Loans Servicing, LP reserves the right to pursue the remaining balance of the note."


This is pretty vague but it pretty much leaves the door open to pursue the homeowner for the remaining balance if they find any misrepresentation by any parties in the transaction. Easy for us to say it's perfectly OK to do when it's not our liability unless of course the seller decides to sue you as recourse for not properly advising them of the potential negative outcomes.

Regardless of what you believe, the risks are far greater than the rewards on this. Be careful on how you advise your clients and make sure you disclose all the possible outcomes before pushing forward with this option. If your seller has been fully advised and still wants to move forward, go for it, I doubt any logical seller would risk this just to get a little more motivation out of a buyer. 

Regardless of our beliefs or opinions as agents/brokers, it is ultimately our clients decision.

Comment by Rick Ketterling on May 22, 2011 at 7:20pm
Please share a Fraud law that is broken by the owner of record doing something legal with their property like an early move in. Payment being made or not the owner is still the owner of the home.  Every state has different laws for leases and eviction, but Fraud is a very strong claim for an early move in.
Comment by Dana Harris Carter on May 22, 2011 at 7:04pm

As a Preforeclosure/Bankruptcy/Fraud Specialist of 15 years, my response to the question of early occupancy would be "absolutely no!" Not only does it void out the "arms length" verbage of the contract but more importantly, the shortsale is always "contingent upon the final approval of the seller's lender." It would be the same idea as if it were a "traditional" real estate transaction. If the closing didn't commence, then you would be faced with evicting the prospective buyer who is now considered a tenant.


Next, you could jeopardize your shortsale application because no lender is going to allow such a thing due to the liabililty issues alone. They could deny your seller's shortsale application based upon this scenario alone, if they discovered it. Remember they do send out local BPO agents or appraisers to assess the property's value. They will disclose in their reports whether the property is occuppied or not and if the seller told the lender the property was vacant prior to the listing there goes the "red" flag. The other concern would be since the seller is in distress and in arrears on the mortgage what are they doing collecting rent that they will not be forwarding to the lender. Why? Lenders will not accept the arrears after so many months. As well, lenders will frown upon the seller getting any funds from such an arrangement while they are stuck with thousands of dollars in losses on their end due to the shortsale process.

Yes, an agent may have been fortunate enough to get away with it but I GUARANTEE that the seller's lender was not informed in advance and the lender did not provide their written approval of this arrangement. It's too risky and too much liability to say the least. The prospective buyer could not only get buyer's remorse but if the shortsale is denied or the buyer suddenly does not qualify any longer for the loan they could tear up the property on the way out the door causing thousands of dollars in damage.

Anyway, this is my professional opinion on the matter based upon 15+ years experience in the distressed property market. I have never done it and I never will allow it either. We must always remember that some things may seemingly be ok to pursue but as Realtors that have a code of ethics we need to remember that some things just are not expedient to pursue. No disrespect...i'm just cutting through the chase and getting to the point. I also believe that any Realtor that does suggest and/or participates in such action could themselves become legally liable and get sued and/or face sanctions by their local Real Estate Commission, if someone files a complaint. It could be considered a form of "fraud" because the seller is in distress and not making mortgage payments which means they are profitting from this arrangement and defrauding the lender out of the monthly mortgage payments due to them.  It just is NOT worth it!

In a shortsale scenario you don't disclose anything AFTER the fact. You get written permission from the seller's lender in order to protect yourself and your seller. It only takes one time for you to get burnt on an issue such as this one and it could potentially be your last time being an active licensed professional. Once again, it's just not worth all of the risks involved. Based upon that information I strongly recommend against allowing anyone to move into a property whether it's a shortsale or not.

Lastly, please be advised that there is a distinct difference between listing a property with a tenant already in it at the time of the shortsale listing and allowing a tenant to come in afterward. In fact that is where the seriousness of the matter comes in to be frank. Obviously, if they are already tenants they are protected by law to be able to stay there until their lease expires unless the property gets foreclosed upon. Then there are laws now to protect those tenants in that type of scenario, as well.




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