Recently two colleagues, one a mortgage lender and one a realtor, told me about two instances where they needed a pre-possession agreement. A pre-possession agreement means the escrow has not officially closed but the buyer wants to move in. Conversely a post-possession agreement means escrow has closed and the sellers need more time to move out. The two examples from my colleagues were where all documents had been signed, but the wire transfer from the buyer or the lender did not make it to the title company in time to close. In one situation the seller would not agree to the pre-possession and in the other the seller did agree.
I received a desperate call for a pre-possession form on a Friday afternoon from a fellow realtor. Everything had been received except the wire which was on the way. The Arizona Association of Realtors does a great job of developing boilerplate forms for realtors to use. I was convinced there was one in the realtor forms database. But alas no form could be found. Luckily I had editable pre and post-possession agreements so was able to provide one to my fellow realtor. The seller agreed to the pre-possession so the crisis of having to pay two additional days rental on the U-Haul and find a place to stay was avoided.
The other situation was where the wire was not on the way. The lender guaranteed the money until the wire was received which was due on Monday. In this case the seller’s realtor could not contact the seller for permission so the buyers had to wait until Monday to move in.
I searched the AAR website and found an article stating AAR has purposely avoided developing these form because they consider them too high risk. They have developed checklists to allow the buyer and the seller to understand the implications of agreeing to pre and post-possession. The links to the checklists are below. I compared my forms to the checklists and my forms include the key points.
Pre-Possession – On the pre-possession side if the only thing outstanding is a wire and there is confirmation the wire was sent then the risk is relatively low. If there are other issues like some underwriting condition that has not been satisfied and the money is not on its way then the risk begins to go up. The longer the time period for prepossession the greater the risk. We always like to quote the horror stories like the neighbor down the street from me that agreed to pre-possession. Then the buyer refused to complete the escrow. As a result the owner had to evict the buyer as if they were a tenant. This cost the seller legal fees, time and money for repairs as the buyer trashed the house. In this instance the buyer had no intention of buying the house. He was just looking for a way to stay somewhere for free for a few months. This rarely happens but sellers should be aware of the potential pitfalls.
Post-Possession – A post-possession agreement is needed when the seller needs more time to move. Typically this is when the seller’s next house is not ready, has not closed or those sellers need more time so it creates a domino effect. As with pre-possession if nearly everything is done then the risk of a problem is relatively low. Once upon a time we bought a property from a hoarder. We agreed he did not have to more all the crap he had accumulated. Even though escrow had closed we could not stop him from coming back to the property and breaking in to get all his precious things. Finally we hired some help and did a massive trash out to get him to stop.
Given the potential for delays it is important to have the conversation with your buyer or seller if it looks like the escrow may not close as scheduled. This way both parties have some time to decide rather than waiting until the last minute. The question remains whether these agreements are a good idea. The answer is it depends. Whether or not a property will close escrow is not guaranteed. As Yogi Bera said “It ain’t over ‘till it’s over.”