How Section 8 Payments Transfer When You Buy a Rental Property in Detroit

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If you are purchasing a rental property with a Section 8 tenant, you must understand one critical fact:

Section 8 does not automatically stop paying the seller just because you closed.

This is where many Detroit investors lose money.

After transferring hundreds of Section 8 properties between owners, I can tell you: the process is slow, paperwork-heavy, and different depending on the housing authority.

Let’s break it down.

Why Section 8 Transfers Are Tricky

When you close on a property, ownership legally changes that day.

However, Housing Authorities require:

Sample from Detroit Housing Commission.

And they process everything on their own timeline.

That means a HAP payment may still go to the seller even after you own the house.

MSHDA vs Detroit Housing Commission

These two operate differently.

MSHDA (Michigan State Housing Development Authority)

  • Requires wet signatures

  • Will not reverse payments once issued

  • If they send payment to the seller after closing, you must collect from seller

Detroit Housing Commission

  • Accepts electronic signatures

  • If payment goes to seller in error, they may deduct future payments and redirect to buyer

  • If the seller does not have any other Detroit Housing Commission tenants from which to deduct rents, I do not know what DHC does.

    Both systems are slow.

Change of Ownership Document to Add to Closing

The seller needs to sign via a wet signature. Before the closing, the agent or buyer needs to contact the housing commission and ask for their change of ownership document. Having a signed copy is crucial at closing. MSHDA requires the seller to wet sign. DHC does not.

Sample mshda form that requires a wet signature of the seller or the seller’s property manager.

The Escrow Protection Strategy

To protect buyers, I require a rent escrow holdback in the purchase agreement.

At closing, the Title Company holds:

  • One full month of HAP

  • One full month of tenant rent

This ensures that if Section 8 pays the seller after closing, the buyer is protected.

Without this, you are relying entirely on the seller’s cooperation.

Timing Matters

Do NOT close at the end of the month.

Best window:
Between the 5th and 10th. By the 5th, the Section 8 payments should be in. By the 10th, the tenant portions should be in.

Closing late in the month gives Housing Authority zero time to stop the next payment cycle.

Communication Is Everything

  • Seller must notify tenants

  • Buyer must immediately submit transfer paperwork

  • Escrow must be clearly documented

  • Do not accuse seller prematurely

  • Confirm payment status through portals when possible

    📜 RENT ESCROW ADDENDUM LANGUAGE

Addendum for Rent Escrow and Prorations

At closing, the Title Company shall hold in escrow an amount equal to:

• One (1) full month of total Housing Assistance Payment (HAP) for each assisted unit, plus
• One (1) full month of tenant portion of rent for each occupied unit

Total Escrow Amount: $ ___________________

Funds shall remain in escrow until written verification is provided authorizing escrow release confirming that no HAP payments were issued to Seller after closing, or that any such payments have been properly accounted for pursuant to this Addendum.

Rent Prorations

All rents, including Housing Assistance Payments and tenant portions of rent, shall be prorated as of the date of closing.

Seller shall be entitled to all rent earned through the day prior to closing.
Buyer shall be entitled to all rent earned beginning on the date of closing and thereafter.

Prorations shall be based on the current lease terms and most recent approved HAP contract amounts.

Prorations shall not be adjusted due to delays in Housing Authority processing or payment timing, and shall be based solely on contractual rent obligations and ownership date.

Any rent collected by Seller after closing that is attributable to Buyer’s period of ownership shall be promptly remitted to Buyer and may be satisfied through escrow funds if applicable.

Seller agrees to execute all required Housing Authority ownership transfer documents at or before closing. If the Property is under MSHDA, Seller acknowledges that a wet signature is required.

All such documents shall be included in closing documents and delivered to Buyer at closing for immediate submission to the Housing Authority.

Tenant Rent Payments

Upon closing, Seller shall notify all tenants of ownership transfer and direct tenants to pay Buyer.

Escrowed tenant rent funds may be applied toward tenant rent received by Seller after closing that is owed to Buyer.

Seller agrees to cooperate in good faith with Buyer and Housing Authority to ensure timely transfer of payment records and ownership status.