Home Insurance in 90720>Question Details

Fattery, Both Buyer and Seller in 92620

How do you handle a rent back if a seller wants to stay for 30-60 days after you buy a house from them? How does this affect homeowner's?

Asked by Fattery, 92620 Sun Apr 29, 2012


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I'm curious when they sprung this on you...before you wrote the offer? After you opened escrow?

A rent back should be treated just like if you were renting to a tenant. Commonly you would close escrow and you should probably have your agent negotiate to have the seller set aside a portion of the proceeds to be released after they deliver the home in the same condition as you saw it during your inspection period.

I would believe you should have homeowners insurance as soon as you own it - but ask your insurance rep to make sure. And also see if the sellers can keep insurance on it also...just in case something happens. Maybe it could be covered under their insurance (just ideas - of course you've got to make sure this can be done through a qualified insurance rep).

And you'd want to figure out of course what you will charge them for rent. Usually the sellers have a price in mind but what I've seen is them just paying your actual PITI (Principal, Interest, Taxes, Insurance) on your mortgage.
1 vote Thank Flag Link Sat May 19, 2012
Treat it as if they are renting just like any other tenant. Make sure they qualify to pay the rent and that they can financially handle the payments and are showing that they are trying to save money to move out for the long term goal. If they are planning to stay longer check if the job they are working is a long term sustainable job that they have worked for quite some time. This shows they has a nice stable income and that there most likely wont be changes any time soon. If you want more info on this topic check out the following article.

0 votes Thank Flag Link Thu Sep 8, 2016
If you purchased the home, the previous owner no longer has an insurable interest in the home. If they burn down your home and you don't have insurance and they do, you will not get paid because it is not your insurance policy and they will not get paid because they cant insure a home that they do not own. That would be like me selling you my car and keeping the insurance on it and you get in an accident and then they send me a check and you end up with a totaled vehicle and maybe a lawsuit. You should get a landlord policy until you are able to take possession of the home, that's my advice.
0 votes Thank Flag Link Thu May 24, 2012
30 to 60 days is a long time. Sounds like the seller did not do a good job of planning out the sale of their home. Did they not realize they would have to find somewhere else to live?

You are buying the home to live in, not as a rental property. Have you ever been a landlord before? Do you know the eviction laws in your area? Are you preparred to evict them if they do not leave on the 60th day. And where are you to live during this period?

There are other options the seller can exercise, I would ask them to look into other housing options.

Best of luck to you.

Kawain Payne, Realtor
0 votes Thank Flag Link Tue May 1, 2012
"did they not realize they would have to find somewhere else to live?"

this is idiotic response. i'm a seller. listed my home for sale. got multiple offers in a week. it's a seller's market. i need the money from the proceeds to buy the home i'll be moving into. i can't find a home in the $700s that we like. they're going fast. the home we sold is a townhome in the high $400s. we're asking for a rent back because i don't want to move into an apartment and then move again in a short period of time to our new home. much rather stay in our home and then move directly into our new home. when we bought the townhome, the previous seller also countered with rent back and we wanted the home so we obliged.
Flag Wed May 11, 2016

You have some good responses below answering your main questions; here are some supporting considerations:

While normally just a simple request to have more time to move, there are potential risks and considerations that must be weighed by a Buyer when the Seller wants to maintain possession after close of escrow. My understanding is that allowing a Seller to occupy the property after the original possession date creates tenancy rights. As such, issues common with rental property come into play – perhaps a worst case scenario in your case; nonetheless, information that must be considered!

Everyone has a different level of personal risk aversion. Personally, if I were in the same situation, I would not grant the Seller's request all of the following terms were understood by both parties and agreed to before moving forward:

1) The exact terms of possession
2) Compensation
3) Late charges
4) Responsibility for utilities
5) Entry rights
6) Responsibility for maintenance
7) Assignment/subletting
8) Responsibility for insurance
9) Any other special terms deemed necessary.

Section two of CAR Form Purchase Agreement Addendum (PAA) was created to address the considerations above when possession is delayed. I would highly recommend you cover section two with your Realtor® to decide whether its use might be appropriate in your situation. Make no mistake; not having such an agreement would be unwise. Consider it the cheapest insurance you will ever invest in. In fact, just going through this process may change the Seller’s mind regarding a rent/lease-back.

If you do agree to allow the Seller to remain in the property I personally would 1) not go past a 30-day timeline, 2) at a minimum would use the PAA form to protect you, 3) make sure that all costs/deposits to be incurred during the occupation timeline are paid directly to you from the Seller’s proceeds at close of escrow, and 4) optimally seek legal advice about your best options.

In addition, be aware that your Deed of Trust will likely have a requirement you occupy the property within 60 days of signing. See “Occupancy” at http://docs.Steven-Anthony.com/FannieFreddie3005-Occupancy.pdf

Best, Steve
0 votes Thank Flag Link Tue May 1, 2012

This would depend on the type of sale. If this is a short sale property the banks do not allow any type of rent back situation to the seller
Since your buying the property your agent should be helping you draw up the paperwork.
You will not be able to move in of course and need to still pay where your living and the new mortgage
Have you spoken to your agent and escrow may need to know.
Yes of course you need insurance to insure your home as the lender if your getting a loan will want you to have insurance If you paid cash you still should have insurance on the home in case of a fire or liability purposes
The renter would get insurance for their personal items - contents in the home only.
Talk to your real estate agent..,.,,,

Ingrid Ski Realtor
0 votes Thank Flag Link Tue May 1, 2012
Rent backs are more common than one may think. The best way to handle such a scenario is with a rental agreement, lease agreement specifically stating the time period, the amount of the rent and all of the other important details. A rent back should be treated substantially the same as a standard rental situation. Do a walk through prior to the close of escrow and have the seller (now tenant) sign off on the walk through so you both agree as to the home's condition at the start of the rent back. This way the seller (new tenant) and you are both on the same page as to the home's condition. Also, be sure to adjust your insurance as the other Realtor's have mentioned. You need a new policy reflecting the new price of the home and the seller (now tenant) must obtain renters insurance. Have the seller (now tenant) show you proof of renters insurance. And be diligent about doing an inspection at the move out as well. You want to be sure your property has not been damaged during this rent back period.
Some helpful hints...
-Take a camera to the walk through so you have documentation as to the home's condition
-Ask your Realtor and/or escrow office to review the rental agreement
-Suggest the seller/future tenant use the same insurance company and agent you use

Be smart, ask questions and do not be afraid to ask for help. There are lots of great people out here who can assist you.

Good Luck!
Pattie, Kelly & Wink
Keller Williams Realty
(562) 522-5173
0 votes Thank Flag Link Sun Apr 29, 2012
I had this situation personally. A lease was drawn up for 30 days because they previoius owners weren't quite ready to move. I paid the insurance because I was now the title owner, I had to have insurance, it didn't matter who was residing in the property as it was a rental property anyway. The whole process was uneventful, it was just for a short period of time. So I'm thinking if you own the house, you need to have insurance unless you purchased the home cash.
0 votes Thank Flag Link Sun Apr 29, 2012
I agree with Frank's advice. You need to be contractually protected and in that rent-back form it makes provisions for the seller/tenant to obtain renter's insurance.
I manage several properties and you wouldn't believe how many issues have arisen that could have been simple and much less expensive had the owners kept their insurance in place and the tenants obtained renters insurance as they had agreed to.
Demand proof from your sellers/tenants that they have obtained renters insurance and keep your full insurance policy in place. Just be sure your insurance agent knows that you aren't taking possession for a few months.
Richard Daskam
Keller Williams Realty
0 votes Thank Flag Link Sun Apr 29, 2012
If a seller rents back from you for a short period of time, you're paying for the new homeowner's insurance policy, it's not the, now previous owner's policy. Contact a homeowner's insurance agent, I use State Farm with Leanna Farris, you could ask her 562-900-3750 or email her at Leanna@LeannaFarris.com.

Ask her about traditional vs. Renter's Ins. Because it's such a short period of time, I don't think you'd need the renter ins. , but you should ask her what the rate difference is & what the difference would be if an accident, personal, fire or otherwise were to occur while the previous owners are renting back & how it would affect you.

I have some great homes available for you in Rossmoor if you're still interested!

Shoot me an email directly if you'd like to talk to me some more. I don't look back on this same Trulia thread for answers posted after mine.

562-430-3053 c
Realtor Since 1996
Main Street Realtor
0 votes Thank Flag Link Sun Apr 29, 2012
We are the buyers. What I'm not sure about is how it might affect the homeowners insurance rates and general liability issues.
0 votes Thank Flag Link Sun Apr 29, 2012
Hello Fattery,

Lease Back "Rent Back" for a short amount of time? It is unclear if you are an agent or a homeowner?

In any case, if you have an agent, your agent should recommend that you execute a two month lease or for whatever term you and the prospective tenant agree.

SHORT SALE? if this is a short sale, then you will have to read your approval letter and see if the lender allows a short term (90 day) lease back. Most cases the short sale lender will not agree to have the seller remain in the property. However, anything is negotiable and this truly depends on the negotiator who handled the short sale offer.

If you have permission and you are not violating the terms of the lender contract / agreements; it is as simple as a rental lease agreement executed before close of escrows.

If you like, contact me and i will be more than happy to consult you further at no charge.

You can reach me at 949-264-2177
Frank Shamoo
Realty ONE Group, Inc
0 votes Thank Flag Link Sun Apr 29, 2012
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