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I am in the process of selling a rental home in Florida that is presently occupied with a tenant. We have a buyer, but the buyer’s bank underwriter is requesting a rental agreement from us. Is this normal and do we have to give out this info.
Asked on October 2, 2019 under Real Estate Law, Florida
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 2 years ago | Contributor
There is no "normal" in a sense: since there is no obligation on the part of lenders to lend--they decide who to lend to, when, and under what criteria--the bank and its underwriter are free to request anything they want. If you don't comply, they don't have to lend to you; you are free to try to find another bank/lender. So if you want this bank to consider lending to you, you have to provide them what they want.
On another level, it is logical and reasonable, and so "normal": the rental income from the tenant is part of what you will have available to pay the loan and taxes and maintain the property. A written rental agreement lets them assess the stability of that revenue stream: e.g. is it a lease for a year or more, meaning the revenue is stable for at least that long? Or if there is no written agreement, or it is a written month-to-month agreement, the revenue can be cut off on a month's notice. The agreement will also indicate who pays certain expenses, like utilities; whether the renter needs to maintain insurance to protect not just him/herself but also the property; who is liable to what repairs or maintenance; etc. A written lease or rental agreement is part of evaluating the viability of lending to you, since it goes to the finances or economics of this rental property.