A piece of advice on Marketing: RVM can get you in trouble, they change the laws in 2019 and you can get a hefty penalty doing that + the rate of conversion is very low.

We are thinking of putting in the purchase agreement (drawn up by a lawyer) a pre-payment penalty of 20% of the outstanding balance in order to hopefully cover the taxes we would have to pay.  

That said, many leases address breaking the lease (ie, what the penalty is)Some states do not require that you attempt to mitigate losses and a tenant can be held responsible for the entire term of the lease financially...If they leave the place in good order and pay you all the rents due, I'd just find another tenant.

Lastly, I caution to you have a realistic time frame and penalties built into the contract.

Penalties may accrue if you do not file these forms.

You can get cash out right away....but your rate will be higher...or maybe have a prepayment penalty...or maybe not be a 30 year loan...or some other feature that may not be as desirable.There is a lot of confusion about this subject but feel free to ask anything additional.  

Fees, charges, late charges, monetary penalties and interest charged pursuant to section 33-1803, other than charges for late payment of assessments are not enforceable as assessments under this section.

Does your mortgage allow you to do a lump sum payment without any penalty? 

Hi Bryan,I am not an attorney and this should not be considered legal advice.I don't know how they conduct real estate in New Jersey or Illinois, but based on my experience here in California:If you have a physical inspection contingency and/or a loan contingency, you should be able to exit the purchase contract penalty-free and get your earnest money deposit back.I am not seeing the grounds for the seller to sue you for damages.

There should be a clear penalty for breaking the lease early and it should be spelled out in the lease.