What’s a Rent Back Deal? (And Two Other Reasons A Seller May Still Be in the House After Closing)

What happens if a seller won’t move out after closing?

West Virginia real estate agent Patrick Lyons recommends that buyers get sellers to agree to the terms of a rent-back agreement before closing.

“Your only leverage is to say, ‘I’m not going to close until these things are gone.’ And that’s the purpose of the final walkthrough,” Lyons says. “In my experience, it’s always best to have the agreement signed before you close so everybody knows what is going on and what’s supposed to happen.”

For a first-time buyer, delaying closing might sound like a headache, but Waters says it’s a non-event for most agents. In fact, an agent will often plan for a closing mid-week so if you need to push it back 24 to 48 hours, you can still close in the same week.

What is a post-closing occupancy agreement?

Being flexible with a seller’s move-out options can help you stand out in a competitive market. Agreeing to a rent back could be the ticket to securing an offer in the first place.

“I believe the added value I was able to give the seller propelled my offer to the top of the pile on each occasion,” says Shaun Martin, a real estate investor with properties in Colorado, Florida, and Indiana. Martin has done multiple rent-back deals in recent years.

The rent back isn’t a handshake deal. Just like any rental agreement, you’ll want to work with your agent or real estate attorney to nail down the terms of the agreement, including:

• Term of the rent-back period — the rent-back should last no longer than 60 days. Any longer, and the property is classified as an investment residence instead of primary residence, and the terms of your mortgage will likely need to change.
• The amount the seller is expected to pay in rent per day
• The party responsible for utilities
• The buyer’s rights to enter the property

You might also consider asking the seller to put some money into an escrow account as an incentive to get them to move out quickly. If the seller moves out on or before the agreed upon end of the rent back deal, they’ll get this money back. If they don’t, they’ll forfeit the cash.

And the initial agreement should spell out exactly what will happen if the sellers fail to move out by the agreed-upon date. That way, you’ll feel secure in knowing that you’re protected from the beginning of the agreement.

Is a seller who stays after closing considered a tenant or trespasser?

Once a seller remains in the home after closing, they’ve basically become your tenant. Forcing them out by changing the locks or intimidation, or entering the property without notice, can lead to retaliation lawsuits.

Since you won’t be living on your property, the sellers will need to get renter’s insurance to cover the belongings in the home in the event of fire, theft, or vandalism. Your homeowners insurance won’t provide coverage to the property because you’re not living in it. You should require proof of insurance before agreeing to a rent-back contract.

Who pays utilities if a seller stays after closing?

When the seller rents the property back from you, you assume the role of the landlord. That means any unexpected issues, like a burst pipe, broken fridge, or failed AC, are now up to you to handle, unless other terms are specified in the rent-back contract.

Can I charge the seller rent for staying after closing?

This isn’t a free deal for the sellers. They’ll be obligated to compensate you. To work out a prorated daily rate, divide the monthly payments (including  insurance and taxes) on your new home by the number of days in the month.

You can also tack on a premium for the inconvenience: “I’ve had sellers pay up to $500 a day to stay in a home,” says Waters. If you’re willing to be flexible, you can make a quick buck leasing back the property.

The buyer can also ask for a daily fee if the seller stays beyond the agreed date, and a security deposit for damages incurred during the rent back.

What happens if the seller needs more time in the house as the rent-back term approaches its end?

If a seller approaches you asking for more time at the end of a rent-back deal, you have a few options:

• Grant them their extension. If you’re also renting, you can talk to your landlord about extending your lease, or you can see about renting a place on a month-to-month basis. Then, have the sellers sign a new rent-back agreement, with increased fees to encourage them to move out promptly.
• You can also refuse — but be warned, you may end up in eviction court. Both Martin and David have seen cases where rent back deals resulted in evictions.

In David’s case, the seller had to be evicted after they began doing damage to the property and refused to pay rent. David’s company asked the seller to move out or start paying, but they refused.

“We had to actually go to an eviction court,” David says.

To avoid a nightmare where a seller refuses to move out, an airtight lease agreement is key. Martin recommends working with an attorney to draw up the agreement to ensure that a judge will side with you if you end up in eviction court.

“A real estate attorney will ensure all the i’s are dotted and t’s crossed,” Martin says.

“You will be able to sleep well at night knowing that you and your interest in your new home-to-be are protected by the law. The few hundred dollars you spend making sure the deal is done right is an insurance policy in case the deal goes sideways.”

What are my rights if a seller won’t vacate?

The purchase contract is crystal clear. Now, it’s T-minus 24 hours before the sellers agreed to leave. Before you threaten legal action, try compromising with the seller. Perhaps there was a miscommunication or last-minute emergency on their end.

“My advice to everyone is always the same: I try to work it out first,” says Zach Schorr, a Los Angeles-based attorney with nearly two decades of experience in the world of real estate litigation. “If they’re not getting out, it can be quicker to get them to agree on a certain date rather than spending a month or two in court.”

If you need to start moving things in, perhaps you can offer the seller limited storage in the garage for a couple of days after closing. Make sure to discuss these options with your agent — and, if possible, a real estate attorney — to ensure you aren’t incurring any liability for items that don’t belong to you!

Can I change the locks if the seller doesn’t leave?

With closing paperwork signed and the deed in hand, you’re now the rightful owner of this property. However, getting the sellers to move won’t be as simple as asking them nicely to leave or changing the locks while they’re out. You’ll need to tread carefully to avoid any legal blowback.

How to evict a holdover seller

Step 1: Talk to your agent

Use your agent as a resource to find an attorney, then vet your attorney candidates with the following questions:

• How many seller holdover cases have you handled?
  Try to get a feel for how often the attorney deals with this type of scenario and whether it’s a type of case he or she gets hired for regularly.
• How many of your cases end up in court?
  Once holdover cases reach court, a long and expensive process ensues. Check if the attorney has a history of settling or mediating these disputes — avoiding court saves you time and money in the long run.
• How long do you expect this case to take?
  Attorneys well-versed in holdover cases should be able to ballpark how long the case will take based on previous experience.

With an attorney by your side, you’ll be in a position to start the eviction process if necessary.

Step 2: Send a demand letter

An attorney will help you submit what’s called a demand letter to the sellers. A demand letter describes your problem (you closed on a house but the owners won’t move out) and what actions you need the other party to take (vacate the property). It’s the first step in resolving an issue, and in one-third of all potential disputes, a demand letter leads to resolution.

When a seller won’t vacate the property even after delivering the demand letter, you’ll need a legal resource who’s well-versed in tenant/property laws in your state.

“You can’t just change the locks or force the sellers out without the proper process, or they’ll sue you,” Schoor explains. That means it’s a good idea to bring on a lawyer at the very beginning of a seller holdover, even if only to work behind the scenes.

Step 3. Check your state laws

Getting a seller to vacate the property is similar to evicting a tenant, though how long the process will take depends on where you live. Most states have unlawful detainer statutes that fast-track the dispute to trial within 45 to 60 days.

Eviction processes do vary state by state, but they generally follow this formula.

1. You file a complaint with the court. You’ll need to file the appropriate paperwork and in some cases pay a small fee (an average of $50).
2. From here, the person being evicted can:
   1. Move out
   2. Contest the complaint
   3. Not respond at all
3. If the seller challenges the complaint (sometimes called an unlawful detainer), the trial will take place within 30 to 45 days. If the seller doesn’t respond, the court will often rule in favor of the buyer.
4. The complaint goes to trial. If the seller shows up, both the buyer and seller will present their points. If the seller is a no-show, the judge typically sides with the buyer and grants eviction.
5. Writ of execution or possession. If the judge rules in favor of the buyer, a marshall or sheriff will deliver the eviction notice. From there, the person will have between three and five days to vacate, depending on the state.

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Eviction can be a long, complicated, and emotional process. You shouldn’t resort to it unless you’ve exhausted all other options to compromise and negotiate with the seller.

Thankfully, this type of extreme situation is rare: “Knock on wood, but I’ve been selling real estate for over 25 years, and our team sells hundreds of homes each year, and I’ve never had this happen,” Waters says.

Editor’s note: This blog post is meant as a helpful guide, not legal advice. If you need legal help with a seller holdover situation, please consult a skilled lawyer.

Header Image Source: (Roger Starnes Sr / Unsplash)