What happens if we've sold our old house without buying a new one?

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Question:

We agreed to sell our house, thinking we had another house lined up to buy. The closing is in two weeks. But our new house's seller turned out to be a total flake, and our purchase deal fell through. We're about to make an offer on another house, but there's no way that sale will close soon enough for us to have a place to move into when our current house is sold. What can we do to make sure we don't end up living out of our car?

Answer:

Your best bet is to negotiate something with the buyers of your current house. If they want the place badly enough, or if you can compensate them financially, they're likely to cut you a little slack.

One possibility is simply to negotiate a delay on the closing on the house you're selling. You may have to compensate the buyers for any losses or inconvenience this causes. And the buyers may simply say no, for example if the rate lock on their mortgage loan will expire by then.

Another option is to request what's called a "rent back." This means you close the sale and the title is passed to your buyer -- who then rents the house to you, according to a lease that you both sign. The lease should specify terms such as:

  • -- the rent per week or month (high enough to cover your new landlord's mortgage, insurance, taxes, and other carrying costs, and maybe higher, to compensate for the inconvenience of a delayed move)
  • -- the lease term (your departure can be either a specific date or open ended, but the buyer will need to run this arrangement past its lender, because some lenders won't allow one that lasts more than 60 days, if they allow rent backs at all), and
  • -- who pays for utilities and for any damages that occur while you're renting back (in theory, the seller is responsible for property upkeep, but if you cause damage while you live there, the seller will understandably want you to pay).

If the buyers agree to a rent back, do your best to remember that after the closing, they view the house as theirs, and may be suspicious of how you're treating it. You, meanwhile, might understandably still feel like the house is yours.

Try to keep the arrangement professional and businesslike, using a written rental agreement and enlisting your real estate agent or attorney's help in anticipating and preparing for problems.

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