Q: We recently purchased a home that we had rented back to seller on certain terms (i.e., that the seller would pay our principal, interest, taxes and insurance every day after closing, until the date the seller agreed to move out). The escrow company has the check but is not able to release the check, as the listing agent is asking (the seller) to cut the four days of rent since the seller moved out earlier than what had agreed upon.
We did not agree with this — even though the seller moved out early, we had made our plans according to the contract. Hence, we feel it is only fair that we get the agreed-upon amount. We did pick up the keys on the day the seller moved out and had a walk-through at that time, but we did not move until after the contractually agreed upon date.
This listing agent harassed us during the buying process, so I do not want to let him get away with this one. How do we go about and recover the entire amount? I tried putting pressure on the escrow company, but (company representatives) said it is not in their hands. –Sam, Pleasanton, Calif.
A: I, too, am in the Bay Area, so am very familiar with situations in which the sellers arrange a "rent-back," allowing them to stay in the property after closing. In such instances, the rent the seller pays is equal to the buyer’s prinicipal, interest, taxes and insurance payment, also known as PITI.
For people unfamiliar with PITI rent-backs, it is the norm for the escrow company to simply debit the rent from the seller’s proceeds and credit them to the buyer. However, normally I would have the escrow company simply credit the rent-back funds to the buyer’s side of the cash-to-close equation, so there was no check at issue to be released later on.
The only reason I can think of to hold the funds in escrow after closing would be if there was some mutual agreement that the length of the rent-back and, as a result, the amount of the rent-back funds, might vary. On the flip side, generally, where the contract gives a seller the right to elect how many rent-back days they need, up to a certain number of days, the contract also calls for the seller to make that election and firm up the number of days by the buyer’s contingency expiration date.
I can’t see your contract, but it sounds like in your case there was a "date certain," as we say in contract law, on which the seller was supposed to move out.
If it’s the case that the contract language specified that the rent-back was supposed to extend until a certain date — rather than up to a number of days following closing — it’s possible that you are correct and are entitled to these funds. The fact that you received keys and did a walk-though at the time you did is irrelevant.
As the home’s owner, you were entitled to verify the property’s condition via a walk-through prior to closing and/or prior to the seller’s move-out (whenever that was), and most contracts entitle the new owner to keys at the time of closing, even when the seller is renting the place back.
Just think about it: most landlords have a copy of the keys, and as the new owner of a home being rented back, you were temporarily the landlord. You are correct that the escrow company cannot legally release those funds without the mutual consent of the agents/parties or a court order.
However, the issue of who’s at fault may not be a very satisfactory line of inquiry to go down — it’s probably a waste of your energy at this point, for a relatively small sum of money, and will only cause you to become more frustrated.
The first thing I’d suggest is that you call the listing agent’s broker or, better yet — have your agent’s broker call the listing agent’s broker and see if you can get some satisfaction (or your funds!) that way.
If that doesn’t work, legally your recourse would be to take the matter to small claims court. However, if you go down that road, make sure you take the value of your time into consideration before you invest any more of it.
If you calculate the small claims court experience, conservatively, as requiring 10 hours, and you value your time, probably very conservatively at $25 per hour, you can see that it would cost you quite a bit to recoup the funds — and would distract you from more enjoyable and more profitable pursuits, to boot!
For example, if you had to take four hours off of work, you can tally that up into the costs for you to pursue it.
As you move forward with this matter, take care not to allow a negative relationship with that agent and some sense of righteous indignation or one-upmanship stop you from experiencing the joy of your new home and end up costing you more than its worth, in the process.
You just bought a home at one of the best times ever to buy! Four days of PITI is just not worth the emotional logjam. Instead, celebrate your good decision-making and fabulous timing!
