2) How do approach the deal with the other party ?

It is a legal matter with a bilateral contract, has nothing to do with a due on sale clause.Putting an end buyer or tenant after you buy Sub2 only complicates matters as now you have a contractual obligation to the party in possession.

Other things to check include: was the notice of sale properly published, are there any federal tax liens, are there any liens which survive the foreclosure(in my county people borrow money from the utility company to put in a heat pump and they put a lien on your house, those liens survive the foreclosure), did they file a substitute trustee, did all parties sign the previous warranty deed, does the legal description of property match the address, are there any survey issues.

What terms and conditions should I add to our contact to protect the interest of both parties?

No need for me to set up third party to collect the mortgage ?

PERIOD.Look look look:Do you know what the most annoying part is?

Such acts and omissions include, but are not limited to, the following:(1) Manufacture, cultivation, importation, transportation, possession, furnishing, administering, or use of illegal drugs in the dwelling unit or in the common areas.(2) Illegal use, manufacture, importation, possession, furnishing, or discharging of a firearm or firearm ammunition on the premises of the rental property, except for the use or discharge of a firearm or firearm ammunition in cases of self-defense, defense of a third party, or as permissible in Section 13A-3-23.(3) Criminal assault of a tenant or guest on the premises of the rental property, except in cases of self-defense, defense of a third party, or as permissible in Section 13A-3-23.(4) Any breach involving substantially the same acts or omissions as a breach for which a notice to terminate has previously been provided for by the landlord and cured by the tenant, if the second breach occurs within six months of the first breach.

If he agrees to leave early in exchange for some cash or whatever, be sure to get the agreement in writing, both parties sign, both parties get a copy, it includes clear deadlines, and the payment (or the majority of it) is made AFTER they are completely out and the property is returned in the agreed condition.If the tenant digs in and insists on staying, then you'll have to decide whether you wait him out or sell it with him occupying.

The toughest part is going to be having another person, potentially a stranger, share a living space with you.

I am about to close on the sale of my rental property, which I own with another party (50/50 ownership).