Do existing leases transfer with my new property?

4 Replies

I'm currently under contract to purchase my first rental property (4 plex) with a FHA loan. Obviously this means I will be needing to reside in the building. My concern is whether or not I have the ability to "help" a tenant find a new home once I take ownership to allow me to fulfill my loan requirements of a using it as a personal residence. I've found a lot out there that states all leases need to be honored when the property transfers hand unless there is a clause in the contract stating otherwise. Listed here is the wording of the tenants current leases:

23. LEASE IS SUBJECT TO MORTGAGE: the home building may be mortgaged or may be subject to a contract or deed. RESIDENT agrees that the rights of the holder of any present or future mortgage or contract for deed are superior to any RESIDENT'S rights. For example, if a mortgage on the home is foreclosed, the person who forecloses on the home may, at their option, terminate the RESIDENT'S lease. 

Does this cover even if the property is sold and changes hands? 

Looking for any kind of guidance here so any insight is helpful!  

@Justin Letkiewicz there are 2 things to understand here. First, the mortgagor (the bank) has those rights in some states (not all states) and the property owner does not. Secondly, if none of the leases renew until 6 months from now you might have a hard time getting approved for an FHA loan (since you need to habitate within 60 days of closing). Your purchase contract should address the lease AND the security deposit for each tenant (super important) but some states will have very specific, and different, rules regarding a renewal or non-renewal of tenants. So if a tenant hasn't received adequate notice that their lease won't renew, because you are moving into their unit, then that might not fly. The tenants also have rights. Your lender will also require reviewing the lease (which is normal). Lots of things at play so just be aware of all of the angles. Hope this helps!

This is saying the "mortgage holder" has superior rights, meaning FHA. That doesn't mean you have superior rights.

Existing contracts convey with the sale. If the tenants have valid leases, you are required to honor them. You can always try to negotiate something new with them but they don't have to agree.

I would find out who's lease is expiring soonest and see if they're willing to leave early. If not, I would ask all the tenants and see if one of them will negotiate with you.

@Nathan G. @Andrew Postell Thank you both for your your insight! It was much appreciated and actually allowed me to look deeper into things and work with the current management company to revoke a renewal of a termed lease along with giving notice to vacate to said tenants. Everything worked out smooth and I'll be able to occupy the unit within my 60 day period. I close on it tomorrow and couldn't be more excited (maybe slightly anxious, but getting bigger problems is the fun of it). Once again thanks for the wisdom!  

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