60 day limit to owner occupy but duplex NOT delivered vacant?

Question

Hello BP!

This is my first post ever.  I've been listening to the pod casts daily and reading up on the forums.  I have my first question!

My fiance and I are looking to purchase our first property.  We're looking at a duplex and it will not be delivered vacant.  Both tenants are on month to month leases.  We wish to owner occupy, get the better interest rates and do a house hack.  I suppose the pessimist in me is looking at the worst case scenario.  I looked up the requirements below and saw that we would need to occupy within 60 days.  It is my understanding that upon closing I can notify the tenant and give them the 60 day notice that I will not be renewing their lease and that they'll need to move out.  Worst case scenario, what if they don't leave and I'm forced to evict?  Is that somehow "breaking the law" because I'm not owner occupying it or is there some stipulation that I "tried" and eventually in a few more months, I'll eventually owner occupy it... does that make sense?

4155.1 4.B.2.b FHA Requirement for Establishing Owner Occupancy At least one borrower must occupy the property and sign the security instrument and the mortgage note in order for the property to be considered owner-occupied. FHA security instruments require a borrower to establish bona fide occupancy in a home as the borrower’s principal residence within 60 days of signing the security instrument, with continued occupancy for at least one year.

Deanna McCormick · Answer

If you take the building you are required to honor the lease agreement until the lease expires.. so what kind of leases to the current tenants have..

I would in your case ask the seller to have one of the apartments vacant prior to closing.. so apartment you choose is all  moved out.. you could in your purchase agreement agree to cover rent for the period the apartment is vacant until closing if that is concern of seller.. or add a clause that if you don't close you'll pay additional 3 months of rent on the apartment that was vacated so seller is not left holding the bag.

Roy N. · Answer

@Keazy Moto

Select the unit which you wish to occupy - my suggestion would be to occupy the unit in the worst shape or (if you can determine it) with the lower quality tenant - and make it a condition of your offer that the landlord service notice of termination on that tenant and indicate Close will be the first of the month after the tenant vacates.

There is still some risk in this, but you do not need to deal with a termination and possible hold-over at the outset of your investing career.

Also check the landlord tenancy law in your jurisdiction, in many locations personal occupancy is a valid reason for termination (even early termination) of a lease.

Keazy Moto · Answer

@Michael Noto-  Wow.  You nailed it. He pretty much did exactly that.  He regurgitated the same rule that I quoted and left it at that.

@Mark Jones-  Thanks for the insight.  If they end up not liking our terms I think we'll be okay with walking away and letting someone else win.  After reading all of the posts, having that contingency seems like the common denominator to have less of a headache.

Mark Jones · Answer

I would definitely make closing contingent on a unit being vacant. Do a walk thru the day of closing to verify before signing. The seller may be reluctant though. If closing falls thru or gets delayed, they now have a vacant unit not bringing in money. Your offer won't get selected over one without this contingency. You could sweeten the pot by offering more EMD.

Michael Noto · Answer

@Keazy Moto The 60-day owner occupant rule for FHA financing on a multi-family is something that any agent with experience with multi families should have made you aware of when you first started the home search process so you can focus your search accordingly.

There is no definitive answer to your question and no lender will give you a definitive answer on this either.  They will just keep referring to the rule you quoted at the bottom of your post.  This will be something that will just play out after you own the property and notify the tenants of what is happening.  Have been down this road with clients before.

Deanna McCormick · Answer

@Roy N. Yes sometimes that's permitted, but if you have to work to get tenant out and they are stinkers and won't leave and you have to file for eviction and your not prepared it can be a huge issue with the FHA rule for occupancy. Easiest is to get the property delivered with the unit the buyer want's vacant for ease of buyer.

Roy N. · Answer

@Deanna McCormick

While normally you inherit the leases and must honour the balance of their term.  In some jurisdictions, you are permitted to terminate a lease early if you, or an immediate family member, are to occupy the unit.

Robert P. · Answer

I know that in MA, they will not even close on the house if at least one unit is vacant (with FHA). So you will most likely need to ask the seller to evict prior to closing for it to work out.

Shane H. · Answer

@Keazy Moto How did this turn out if you don't mind me asking Keazy? Did they accept your contingency to have a unit vacant?

Keazy Moto · Answer

@Roy N. , @Robert P. , @Deanna McCormick

Thank you to all of you for the help and insight!

60 day limit to owner occupy but duplex NOT delivered vacant?

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