Whoops. I see a lot of contracts that provide for the seller to remain in possession for a day or two after closing and the occasional "pre-occupancy" by the buyer. I would first have to ask: "How do you occupy something before you get there?" In other words, the concept of pre and post occupancy is an oxymoron.

Let’s take a look at the down side of allowing a seller to remain in possession after closing or the buyer moving in prior to closing. Call it anything you want, it all shakes out as having a non-owner in possession. I am of the opinion that anytime you have a non-owner in possession the potential liability is very high.

Case in point: An elderly lady sells her home using an agent. She demands as a condition of the sale, to remain in possession three days after closing in order to get moved out and will not budge until she has the buyers money. Everyone agrees and the sale closes. Two days after closing, there is an electrical fire and she loses everything. Her insurance company is called. The claim is denied based on the fact that the home was NOT owner-occupied. The buyers insurance is called. That insurance company not only denies the claim on the same bases but cancel the policy based on the fact that they insured an owner occupied property. Now the lender was going nuts.

Aside from clothes, furniture and tons of other memories, the elderly lady through her attorney was now trying to establish the value of her wedding pictures from 56 years ago, the pictures of her kids and their kids. This argument is based on the fact that her agent didn’t protect her. Now remember, it was she that made the demand for post occupancy and the agent was using that fact as a defense.

Her response to the defense is that she didn’t realize the risk of loss was so great and the agent had a duty to protect her by advising her of those risks. The same scenario could happen if the buyer were in possession as well. Would they win the case? Who knows. The issue is that the broker/agent would have to defend the allegations and that could cost several thousand dollars.

Another issue is one of equitable title. The axiom "Possession is 9/10’s of the law." Came from real estate. When we write a contract or get involved in a pre or post occupancy, there is a risk that the party in possession could declare an equitable title interest. Here in Arizona, that claim could take 8 - 10 months to resolve in the courts. The legal cost for an Action of Quiet Title could cost 8,000 – $12,000. The loser in that circumstance may very likely come after the broker/agent for restitution. The probability is that the other party is also seeking from the broker/agent.

My only message here is that the demands of the buyer or seller could be to their disadvantage. Our job includes protecting the buyer/seller from themselves in addition to each other.

An easy fix to this problem is to create a landlord tenant relationship. Even if it is for just one or two days I would recommend a rental agreement over the pre and post occupancy agreements I see.