Picking Your Possession Day – A Lawyer’s Perspective

“Well, I want to close on the last day that I am paying rent.”

“I want to close on the same day that I am selling so I don’t have to pay for a bridge loan.”

“I plan to start moving on the weekend, so let’s make it a Friday.”

If you have had these thoughts in setting your possession date, I want to give you some extra considerations to suggest earlier possession date than you were originally considering may be better for you.

From a lawyer’s perspective, I will use all reasonable efforts to close your deal on time.  However, there are many reasons that a closing can be delayed, even if you do things perfectly on your end as buyer or seller.  The benefit of an earlier possession date is that you have some flexibility to deal with those problems that can sometimes come up.

Why might possession be delayed?

On the seller’s side:

• The lawyer may not be able to get a mortgage payout in time, or may need money from their client if the mortgage is higher than the price.
• The client may not be able to sign in time.
• There may be complicated issues with the title that the lawyer has not been able to sort out.
• The vendor’s spouse may need to sign a homestead certificate, or is disputing how sale proceeds should be divided.
• They may not have moved out, or moved all their possessions out.
• There may still be a tenant present that was supposed to leave.

On the buyer’s side:

• We may still be waiting for insurance (home, title, lender) to be completed.
• The vendor may be waiting for money to get delivered from someone or somewhere
• The lender may have outstanding conditions that needs to be resolved by the mortgage broker or lending company
• The lender may want corrections or changes to documents that they have received prior to funding.

These are just some of the reasons I or other side was pushed to the limit or beyond on some of the deals I had closing in the last few months.  A busy real estate season means that everyone is stretching their timelines closer and closer to possession date.   The problems tend to get prioritized by possession date. Even if you try your best to make everything work out, problems can occur.

I have reframed the three statements above into 3 goals that homebuyers might have when considering their possession date: (1) Cost Avoidance, (2) Bridge Loans, and (3) Move Planning.   These elements will all overlap to some extent, but I think helpful to consider each individually.

Cost Avoidance

I get it. Moving and buying a new home is expensive.  You want to stretch every dollar possible to maximize your value.  Accordingly, you rather not be paying interest on a mortgage on a property that you are moving into until such time that you actually plan on using it.

Interest at 5% on $300,000 is about $40 a day.   As prime goes up and down, so too does the carrying cost of having a mortgage for more time than you actually need it.  However, if it means that you have about $100 in extra costs to ensure that you can have a simplified move in day, does that benefit outweigh the cost?

Also, if you are porting a mortgage, lenders will often want to ensure that the new mortgage has funded before allowing lawyers to pay out the mortgage without penalty.  They would want the prepayment penalty delivered with payout which they would later refund at a later date.  While this may not increase your costs overall, you could be without a portion of your equity as you wait for your lender to return it.  If your possession is before the old mortgage is paid out, that should be resolved by the time your property is sold.

Bridge Loans

Bridge loans are loans with the lender for your new purchase that allow you borrow money from the sale proceeds that you will have when your deal closes (but not necessarily on the closing day – see THIS article for more on why you may not have sale proceeds on close.).  You need to have a firm offer in place in order for this to be a possibility. Be warned, however, that the cost of the financing will be more that an ordinary mortgage loan.  It is not uncommon to see Prime plus 4 or 5% as a short term rate on this loan.

Different lenders have different approaches to bridge financing.  Whether it is because they do not like the risk, the inconvenience, or the low profitability, many of them are starting to push back on the availability of these loans if you are closing on or after possession on the sale date of the home that you already own.

The very best outcome if we need to use the money from your sale is that we will have to wait on the day of your sale until we receive cash proceeds from purchaser’s lawyer to then close your purchase.  Most lawyers who do material amounts of real estate transactions will try to work together to see if we can get money over in a timely way to close the deal – but as you will see above – things happen.

The worst case is if we are delayed until they close under the standard trust conditions, which could be getting money as many as 3 or 4 business days after possession in the most challenging of circumstances.  There may be a work around, but sometimes there is not.

Having your possession date a few days prior to your sale would at least avoid the refusal to put it in place by your lender.   You should discuss the availability of bridge financing with your mortgage broker to ensure this resource is available to you upon close, however.

Move Planning

One of the biggest mistakes that Purchasers make is believing that they need to have the possession date set for the day that they want to move into the property. This usually means that people pick Fridays, so that they can have the whole weekend for the move.  Fridays are always incredibly busy days for closings, but the busiest Fridays are those at the end of the month, or those immediately before a long weekend.

If you pick the wrong day, or are late in picking a traditionally busy day, you may find that the availability of certain service providers are limited (movers, tradespeople, cable/internet) or more costly.

Again, while we will do our best to close your deal on time and as expected, there are limits to our time in a day.  Mortgage brokers and lenders, Realtors and lawyers can all be more responsive if we are not trying to coordinate 3X or 4X the closings at the same time than we would on any other day.

Having those extra days can be invaluable for an easy transition into your new property.  It could allow you to

• move over a few more days
• get the property cleaned to your personal level of comfort
• have the property painted, flooring installed, or other similarly sized project before you move furniture in
• have your services connected

So – in short, a few extra days will make the whole process a bit more comfortable and user friendly. If delayed as noted above, it could really disrupt your plans if you wanted to start moving on a Friday. If you obtained the property Monday, did cleaning Tuesday, planned a move Wednesday, then you could reshuffle plans with minimal inconvenience if possession was pushed a day.  While there will be situations where this is not possible, give it some thought when considering which day would be best for you.

Happy house hunting!