Short Sales: Know the Risks of Moving in Early (Part 1)

The seller’s lender often takes a long time to make a decision on a short sale offer, which can wreak havoc with the buyer’s plans.  Buyers often have to make decisions of their own, such as when to sell their house or terminate their lease, when to enroll their children in the new school district, and when to schedule the movers.

 While waiting for a short sale approval on a vacant property, many buyers wonder if they could simply move into the house that they are planning to buy.  There are pros and cons to a buyer renting and occupying a home that they have not yet purchased.


Risks to a buyer who rents the home before buying it.


–       Insurance.  Some sellers stop paying for homeowner’s insurance, and it may take some time for the seller’s mortgage lender to step in and pay for insurance.  There is the possibility that the property might be uninsured for a time.  If the house burns or is damaged in another way, there might not be insurance proceeds to repair the damage.  Even if the seller maintains insurance, their standard policy might only provide coverage if the property is owner-occupied.


–       Cost of moving out.  If the short sale is not approved, or if the buyer is unable to purchase property due to financing or title issues, then the buyer will have to pay to move out of the property.


–       Foreclosure notices.  Most short sales involve a borrower who is delinquent on their payments, so the buyer who rents the home may receive visits from Sheriff’s deputies or other officers of the court who are delivering foreclosure notices.  It may be embarrassing or disruptive for someone to receive notices even though they’re not the borrower.


–       Maintenance.  Some sellers might not have the means or the desire to conduct upkeep of the property.  Therefore, the property might suffer from deferred maintenance or the buyer will be expected to handle the upkeep.


–       Improvements.  Some buyers, believing that they will definitely buy the home soon, pay for renovations.  However, if the sale does not occur, then it is highly unlikely that the buyer will receive compensation for the repairs.  If the buyer is forced to move out due to the failure of the house to sell as planned, then the buyer typically forfeits all the money they spent on the renovations.

Check in soon for Part 2 – Risks to the seller.


This entry was posted in Understanding Real Estate Short Sales. Bookmark the permalink.

Leave a Reply