I just got my first property under contract, which is in the Louisville, KY area. I'm using FHA to buy the property which is a 4-plex(or so I thought) on Southern Pkwy near Churchill Downs. I ran the numbers, and the property was a no brainer (with upside for using it as an AirBnB). I put in an offer quickly knowing there were already other offers on the table. We are supposed to close at the end of May, if the property meets all the contingencies of the offer... one of which was zoning.

The property was advertised (and is fully rented out) as a 4-unit. The house appears as if it is setup as a multi-family, each having own kitchen, br/ba, entry-way/exit, etc. However, after talking to the city, the house is actually zoned Residential, Single Family. So the problem is that 3 of the 4 leases go through into next year(the open one I was planning on occupying obviously).

I like the home and I am looking for ways around this, but with the property being rented out illegally what are my options? 

1.) Would I have to evict the tenants upon buying the home, since it is being rented illegally? What would this look like... 30 days notice & pay for their moving? I read somewhere that the landlord would be expected to pay 6 times the tenants monthly rent to help move... is this accurate? (this would be something I'd rather have the current owner do. Not trying to get wrapped up in a lawsuit on my first property)

2.) There are several similar homes on Southern Pkwy, very close to this house, which are zoned Multi-Family. What would the costs and the time-frame be for applying for a conditional use permit, and the likelihood that I would even get this? Could I even keep the tenants while I was waiting for approval?

Any other ideas???