Navigating the Sale of Your Section 8 Property
Selling a rental property is a natural part of the investment lifecycle. When your property has a tenant participating in the Housing Choice Voucher (HCV) program, the sale involves a few extra, but crucial, steps to ensure a smooth transition for you, the buyer, the tenant, and the Public Housing Authority (PHA).
Note
The key thing to understand is that you are not just selling a piece of real estate; you are also transferring a legal agreement—the Housing Assistance Payments (HAP) contract. This process is not a barrier to selling, but it does require proactive communication and adherence to specific program rules.
Handling a Standard Property Sale
In a standard sale to another investor or individual, your goal is to officially transfer your HAP contract to the new owner. This legal process is called an Assignment of the HAP Contract. The contract you have is specific to you and the property; it does not automatically transfer to the buyer upon closing.
According to the HAP contract guidebook, you may not assign the contract without securing permission first.
Important
You must obtain prior written consent from the PHA before assigning the HAP contract to a new owner. Attempting to transfer the contract without PHA approval can lead to a breach of contract, suspension of payments, and potential termination from the program.
Here is the step-by-step process for a successful transfer:
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Notify the PHA: As soon as you have a pending sale, inform your contact at the PHA. The earlier you start this conversation, the smoother the process will be. You will need to supply all information requested by the PHA regarding the impending sale.
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Buyer Vetting: The PHA must approve the new owner. The buyer will be subject to the same approval criteria you were, which includes ensuring they are not debarred, suspended, or otherwise prohibited from participating in federal programs. This is a protective measure for the integrity of the program.
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Formal Written Agreement: The new owner must agree, in writing, to be bound by and comply with all terms of the existing HAP contract. This is
not a verbal agreement. The PHA will typically have a specific form or required language for this agreement to ensure it is legally sound. -
Submission and Execution: The new owner must provide the PHA with a copy of this executed agreement, along with any other required documents, such as a new W-9 form for tax and payment purposes.
Once these steps are complete and the PHA has given its final approval, the HAP contract will be officially assigned to the new owner, and future housing assistance payments will be directed to them.
Tip
A Smooth Sales Process
To facilitate a quick and successful sale and contract assignment, follow these best practices:
- Educate Your Buyer: Many potential buyers may not be familiar with the HCV program. Frame it as a benefit: a pre-screened, long-term tenant and a guaranteed portion of the rent paid on time each month by the PHA.
- Provide Documents Promptly: Have a copy of the sales document or other proof of transfer of ownership ready for the PHA. Proactively providing this information can speed up the process.
- Facilitate Communication: Offer to connect the buyer directly with your PHA contact to answer any questions they may have about the program.
Understanding a Foreclosure
A foreclosure is an involuntary transfer of ownership and is handled differently than a standard sale. The rules are primarily dictated by federal law—the Protecting Tenants at Foreclosure Act (PTFA)—which is incorporated into the terms of the HAP contract.
The primary principle is the protection of the tenant.
When a property is foreclosed upon, the “immediate successor in interest” (typically the bank or the new owner who buys the property at a foreclosure auction) takes ownership of the property subject to the existing lease and the HAP contract.
Here’s what that means for you and the tenancy:
- The Lease Survives: The tenant’s lease does not automatically terminate upon foreclosure. The new owner must honor the existing lease until the end of its term.
- The HAP Contract Continues: The successor in interest effectively inherits the HAP contract. The PHA will continue to make payments to the new owner, provided they meet the program’s requirements (e.g., provide a W-9, maintain the unit to HQS).
- Limited Grounds for Eviction: The new owner cannot evict the tenant simply because of the foreclosure. The tenant is protected. The only exception is if the new owner wishes to occupy the unit as their primary residence. In that specific case, they must provide the tenant with a minimum of a 90-day notice to vacate.
Warning
State and local laws may provide even longer time periods or additional protections for tenants in foreclosure situations. The federal PTFA provides a minimum level of protection, not a maximum.
While a foreclosure is often a difficult situation for an investor, understanding these rules is vital. It clarifies that the tenant’s right to occupy the property and the HAP contract that supports them are legally protected, ensuring stability for the family and outlining clear obligations for the party that takes over the property.