Real Estate Law
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Can a seller do a lease with option to buy if they still have a mortgage on the property?
Sure, there is nothing that would legally prevent this. The property is just still subject to the existing mortgage and if the seller defaulted on it, the bank could still foreclose and force a sale and the buyer/tenant could then sue the seller for breach.
And obviously the sale price would have to be enough to pay off the property if the tenant exercised the purchase option so the seller could convey clear title to them..