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Buying

The Perils of Taking Possession Before Closing

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Timing your move out of one house and into another is a delicate feat that might seem as tricky as determining the next GOP presidential nominee. Trickier, even! In addition to the usual stress of packing and arranging to have your things transported (we're talking about housing again), you also need to coordinate with the current owners of your new home and the incoming residents of your current home. And since no one wants to pay another month's rent or mortgage, it's awfully tempting to move into your new place even if the closing isn't quite final yet.

But taking possession of a home before your name is on the title could open a Pandora's box of problems -- for buyers and sellers.

Why buyers should move in with caution

Buyers who move into a house before closing lose some of their bargaining power, says Daniel C. Price, president and CEO of OneTitle National Guaranty Co. in New York City.

"Any unresolved title issues could be problematic for buyers moving in before closing," he says. "Buyers might lose the leverage necessary to clear issues like judgments, liens, and even old mortgages, since they will have a much harder time walking away once their possessions are in the house if these title issues are not resolved."

Buyers also lose the ability to voice concern or negotiate over any last-minute issues with a home's condition.

"A final walk-through prior to moving in should always be conducted," says Price.

The question of who pays for what also comes into play. If you move in early, the seller might expect you to fork over cash for utilities used before the closing. Even if that doesn't amount to much, the squabble could delay closing.

Another concern: coverage in the event of theft, fire, or other calamities.

A home insurance policy on a new home doesn't take effect until closing, and a property is legally in the possession of the buyer, says Ken Davidson, principal at Eagle Independent Insurance Agency in Dallas.

So any damage that happens to the structure is covered by the seller's home insurance, he says -- but that doesn't include damage to, or loss of, your personal property.

However, such damage or loss could be covered if you have a homeowners insurance policy on your current home that has "off premises" property coverage. The coverage limit, however, is usually 10% of the total personal property limit.

Why sellers face risk, too

Price says sellers who hand over the keys before closing could also be in trouble if the deal falls through.

"If something happens and a buyer backs out last minute, sellers could face the costly and lengthy process of eviction proceedings. Not only is that a hassle, it will delay the ability to relist the home."

Sellers also run the risk of having their home insurance claim history dented.

If the buyer's movers damage the house, or if their buddy slips down the stairs while helping out, you as the seller are liable. Your insurance covers this kind of damage and injury (to the extent dictated by your policy), but the fact that you've had to file a claim could jack up the premium for the policy on your new home.

Davidson recommends talking to an insurance agent and the real estate agent and attorney, if applicable, handling the sale before shaking hands on any preclosing deals.

"One five-minute phone call could prevent a huge headache."