I have long believed that the practice of granting buyers possession of their new home on a “Closing + 3 Days” basis has been problematic, if not down right weird. It is one of the peculiarities of Puget Sound region real estate. This is not a practice nationwide. While there are practical reasons for it, the legal reasons and liability questions as to why one should not participate are compelling.
Having had a listing burn to the ground, albeit not at closing, has made me acutely aware of the problems this could generate.
Below is an article put out by the Legal Hotline of the Washington Association of Realtors which clearly lays out the potential for problems with this practice.
If you have any questions or would like to discuss this with me, give me a call.
Roger A. Berger
206-650-7647
Washington Association of REALTORS.
Friday Facts December 19, 2003
LEGAL HOTLINE Q & A
Question:
Seller retained possession for three days following closing, during which time the house burned to the ground. Seller's insurance terminated at closing. Buyer's insurance was based upon owner occupancy and the company will not cover the claim. Who is liable for the fire damage?
Answer:
Under the purchase agreement, seller is liable. The contract could be drafted differently so that the buyer would be liable for catastrophic damages, but as drafted, the seller is liable. This is true because the seller is required to maintain the property in its condition from the time of execution of the purchase agreement until the transfer of possession to the buyer. Seller failed to maintain the property in that condition and will probably be held liable for that failure. This is true under both the NWMLS and the W.A.R. purchase agreement and may be true under the Spokane form.
For future reference, sellers should be advised that this is a risk they run by staying in the house after closing. The seller no longer has insurance on the property, yet the seller is liable for the physical condition of the improvements. Sellers should be advised of this risk so that they can assess whether they should stay in the property bearing this risk or move out by the closing date, or, in the alternative, have their own lawyer draft a provision that is more protective of the seller's interests.
Additionally, even though seller is liable, that will be small consolation to the buyer if the seller has no assets to compensate buyer. Accordingly, buyers should always advise their insurance companies, in writing, that the seller will retain possession beyond closing. The insurance company is likely to be indifferent to that fact going into the transaction and once noted, the buyer's chance of gaining recovery from the insurance company will be greatly increased.
In this case, both parties should be advised to seek legal counsel to put additional pressure on their insurance companies. It is conceivable that one or both insurance companies could be persuaded to issue coverage.