So you finally bought your dream home, but now the seller wants to rent it back from you. What do you do?
You could always say that you promised the local Boys & Girls Club that they could hold a fundraiser there next week. But chances are, the seller wouldn’t believe that.
Some sellers put this rent-back option in their sales contract. From their standpoint, it can be a useful option because sometimes the home a seller plans to move into isn’t available yet. And you may have signed this clause as part of the purchase agreement when you bought the home because you didn’t want to rock the boat.
But how does this affect your homeowners insurance? You have to remember that homeowners insurance is written specifically for homes that will be owner-occupied, not tenant-occupied.
Fortunately, most insurance companies are OK with this. They understand that there can be delays in the availability of a home when a seller is planning to move. But this kind of arrangement is typically limited to two or three weeks – 30 days at the most. If it extends beyond that you’ll have to get a tenant-occupied landlord policy, and that’s not going to fly with your lender.
Once you finally do move in, your agent will have to write an owner-occupied homeowners policy.
If you find yourself in a position where you’ll have to do a seller rent-back arrangement, the best course of action is to be honest with your insurance agent from the start. Your agent will relay this information to the carrier’s underwriter. And they want to accommodate you – but not beyond 30 days.
Here are some tips for dealing with this situation:
- Make sure you put it in writing that your new temporary tenant (the former homeowner) will have their own renters policy in place in case of any accidents like a fire, or damage to your new home. You want their liability to pay out first – not yours.
- Make sure they don’t have any dangerous exposures. Pit bulls, trampolines and skating ramps are prime examples of things you wouldn’t want to see in your home. And if they want to run a childcare business on the property or any other kind of home-based business that will be bringing more people into the home, you shouldn’t allow the rent-back situation to take place.
- Most carriers will send an inspector to check the outside of the home – and possibly the inside. Make sure your temporary tenant knows about this and will cooperate. And if an inspector discovers that you’re renting your home back to the seller and you haven’t informed your insurance agent … well, that could be a problem. It could even lead to a policy cancellation.
- Remember, not all carriers will allow a homeowners policy in this case. But they might allow a landlord policy instead. If that’s the case you need to shop around because most carriers will allow a homeowners policy.
It’s best to avoid this situation if you can. But if you find that you have to do it, take some of the precautions listed above. Questions? Contact Insurance SCV at www.insurancescv.com or call 661-803-3803.