Wait until the recording date to let buyers move in

Published 9:00 pm Saturday, October 16, 2004

Q We are confused about the technicalities involved in closing the sale of our house. We went to the closing and signed all the papers this week, but we would not let the buyers move their possessions into the house until the recording date. When does the seller’s responsibility end and the buyer’s responsibility start? On the signing date, the recording date or when the check has cleared the bank? It sounds like move-in should happen when the buyer’s legal responsibility for insurance, etc., starts. Also, when does my legal responsibility end? I’m worried about my liability in case of a fire, for example.

L.T., Everett

A Many home sellers are confused about the closing date on the sale of their home because term “closing” is often misused, even by real estate agents who should know better.

Many people call it going to closing when they go to the escrow company and sign the final papers to transfer ownership of their home to the buyers. Actually, that’s the signing date, and it can occur days or even weeks before the final closing date. That’s because the mortgage lender needs time to review the loan documents after signing to make sure everything was prepared and signed properly. Once the loan funding package has been reviewed and approved, the lender gives the escrow company an OK to record the deed and release the funds to the seller.

The closing date is the day that the documents are recorded at the county courthouse to transfer legal title of the property from the seller to the buyer and the seller receives the money from the buyer. In your letter, you referred to the recording date, which is actually the same thing. You are smart not to let the buyers move into the house until the deed has been recorded.

The seller’s responsibility for the property ends on the closing date, not on the signing date. As I said above, signing is just the first step in the closing process. The property does not legally belong to the buyer until the closing date, when the deed is recorded and the title is transferred into the buyer’s name. Until that time, the seller has a responsibility to maintain the property in the condition that it was in when the buyer originally offered to purchase it.

For example, if you canceled your homeowner’s insurance policy as soon as you signed the closing papers and your house burned to the ground prior to the closing date, it would be your responsibility. The buyer would not have to close on the deal and take title to a pile of ashes, even if they had already signed the closing papers.

Likewise, if you let the buyers move into the house after signing but prior to the closing date, and they start a fire that burns down your house, it would be your loss because you would still be the legal owner of the house.

That is exactly why real estate agents generally recommend that the buyers should not be allowed to move in until the deal has closed. There are just too many things that can go wrong, and anyone who has spent any time working in real estate knows that Murphy’s Law is alive and well. So you are absolutely right when you say that the buyers should not be allowed to move in until their legal responsibilities begin. Otherwise, you are putting yourself at risk with no reward.

The flip side of this issue is the traditional free-rent period allowed sellers at the close of a sale. It is common for real estate purchase and sale agreements to give the buyers possession of the home on the “closing date plus three days.” The three-day grace period gives the sellers time to move out of house. During this three-day period, the sellers become the tenants of the new owners. If they were to accidentally burn the house down during this period, it would be the new owners who would suffer the loss, not the sellers. However, the house would be covered by the buyer’s homeowners insurance policy at that time.

My motto in real estate is “Hope for the best, but plan for the worst.” Ideally, the sellers would move out of the house and the buyers would move in on the closing date. That way, there would be no overlapping period of property ownership rights and responsibilities. But realistically, moving dates often have to be juggled to accommodate weekends and work schedules. Seller rent-backs and early move-ins are sometimes unavoidable. Just be sure that all parties understand what is at stake and take appropriate measures to protect your interests, such as extending insurance coverage for a few extra days.

Mail questions to Steve Tytler, The Herald, P.O. Box 930, Everett, WA 98206. Fax questions to Tytler at 425-339-3435 or e-mail him at economy@heraldnet.com.