By RVAR Counsel David Bullington

Our standard purchase contract calls for possession to be given to the buyer “at settlement” unless otherwise agreed in writing.  In my last article, I discussed the issue of when “settlement,” which is not a defined term, occurs under our standard RVAR purchase contract.   While settlement or closing in our area is not typically final until the title is updated and the deed recorded, that does not mean that possession should be withheld until recordation of the deed. What are the options? 

In our area, possession is commonly given to the buyer when the parties have signed all of the closing documents, including the settlement statement, deed, loan documents, and other papers.  At this point, the deed has been signed by the seller and delivered in escrow to the settlement agent, and the buyer’s loan is approved and funding in progress.  A somewhat more restrictive view is followed by some homebuilders and others, who require receipt by the settlement agent of all liquid funds needed for closing, in addition to the signing of all papers.  This receipt of liquid funds can provide additional assurances that the buyer has all funds necessary to close. 

In the past, it was not unusual for some homebuilders in our area to require recordation of the deed before giving the buyer possession.  This strict view may have arisen from the concern that a buyer might become disgruntled at workmanship or uncompleted items in a new home and get cold feet.  In my experience, very few sellers in our area now withhold possession until recordation of the deed.  A seller is most likely justified legally in taking this position, although since “settlement” is not a defined contract term, it is possible a court might hold that receipt of funds, signature of documents, and delivery of the deed in escrow constitutes “settlement” for purposes of possession under the contract in certain circumstances.

Some advocate the withholding of possession until recordation.  One concern is that if a buyer defaults after taking possession, then the seller has to evict the defaulting buyer.  But eviction is a relatively swift process in Virginia and the buyer would be responsible for damages incurred by the seller. Another concern raised is that if there is fire or damage to the home caused by the negligence of the buyer, the claim could be borne by the seller’s hazard insurance if the buyer fails to close.  This concern is limited to situations involving loss due to buyer’s negligence, as damage due to so-called “acts of god” (storms, lightning, etc.) would be born by the seller in any event if possession was withheld.  It does, however, raise more complex issues.  While the buyer’s insurance may be responsible for loss caused by the buyer’s negligence, and the buyer would be in default and legally obligated in contract and tort for the result of the negligent acts, the resolution of those issues could be protracted and the outcome uncertain.

While adverse consequences could possibly result to the seller by granting possession before recordation, in typical situations, where there are no unusual or problematic circumstances, the risks are small.  From a practical standpoint, those risks would not generally warrant the significant disruptions to lives and schedules which could occur if possession were routinely delayed.  And because “settlement” is not a defined contract term, there is some possibility that a buyer denied possession before recordation might have a breach of contract claim for damages.  While there are no clear answers, these issues merit consideration.  Where circumstances suggest possession may be a problem, plan for morning closings before Friday and adjust moving schedules when possible.  Also be aware that keys made available without instructions are typically released before recordation.