By Michael H. Wasserman on Wednesday, 12 April 2023
Category: Wasserblawg

Pros and cons of post-closing possession

Thanks to a continued low inventory of homes for sale in the Chicago area, our firm expects that 2023 and 2024 will bring multiple offers, when sellers gets competing offers from multiple buyers. This can inspire buyers to get creative with their offers—including offering post-closing possession. 

What is post-closing possession?

Also called lease-back or rent-back, it's a contractual clause in which the buyer rents the home back to the seller, allowing the seller to stay in the property for a specified period of time after closing day.

While post-closing possession may seem like a win-win situation, it can spark a range of issues that buyers AND sellers should be aware of. Let's dig in.

Here's what this post covers:

Why sellers might want post-closing possession

Why buyers may be willing to go along

What the buyer risks

The seller faces risks, too

So, what is a buyer or seller to do?

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Why sellers might prefer post-closing possession

Why buyers may be willing to go along

Buyers who move forward with post-closing possession face at least 3 risks:

1. The seller won't leave (even for good reason)

2. Under insured incidences

Picture this: The home burns down before the buyer moves in. The buyer's homeowners insurance will likely be denied as the buyer never actually moved in. The seller's homeowners insurance won't cover it because they don't own the property anymore.

The seller must have renter's insurance to cover their stuff. The buyer must have a policy that covers the structure. Both parties should work closely with their insurance agent for any post-closing possession period.

3. Mortgage limitations

Conventional VA and FHA financing terms for owner-occupancy loans require that the buyer take possession within 60 days of closing.

Renting to the seller for anything longer than 60 days (about 2 months) might be considered fraud to the lender.

If the lender finds out, they can call the loan and initiate a foreclosure. Will the lender find out? Would they foreclose? Probably not. But that isn't the sort of risk most buyers want.

Nobody wants any of these things to happen, but there is no guarantee against them either.

Sellers face risk, too

1. Expenses

The rent-back costs may be higher than the seller's regular carrying costs. The buyer's mortgage interest rate could translate to higher PITI (principal, interest, taxes, and insurance) costs. It may be cheaper to defer closing.

2. Wear and tear

If something breaks or stops working during possession, the seller will almost certainly be responsible for repair or replacement. 

We've seen sellers pay for new washing machines, refrigerators, and more. If a tree hits the roof? The seller's insurance policies might not cover it—and the seller may end up paying out of pocket.

3. Mortgage limitations

Buyers won't be the only ones in hot water with the lender. Sellers who take more than 60 days possession share the risk of the buyer's mortgage limitation—as a conspiracy to commit fraud.

4. Unreasonable buyers (the real kicker)

Spiteful or unreasonable buyers may hold the seller's possession escrow hostage. We've seen buyers refuse to release money over minor issues, like a ladder left under the porch.

Sellers can essentially be blackmailed by buyers whose feelings have been hurt or who want to "claw back" funds if they think they overpaid in the first place.

So, what is a buyer or seller to do?

Before you move forward with offering or accepting post-closing possession, we suggest you:


As for our firm, we take extra care when it comes to post-closing possession. At every step, we want our clients to be fully informed about what they are getting into, so they can decide what is best for them.

Schedule a call with me (Mike) or John if you have any questions about post-closing possession or any other real estate closing matter.

We're here to help you close with confidence. 


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