Posted by zach on July 02, 2008 at 22:55:09:
Yup the existing lien would be in the name of the original owner…but…if a contract for deed or land contract(again which is a glorified lease option) is setup this is a promise to fulfill the contracted debt/mortgage. Until the agreed upon debt amount is paid, the seller retains title and the buyer receives an “equitable interest” in the property. The buyer does not legally become a title holder until the terms of the contract are satisfied, at which time the seller actually deeds the property to the buyer. All the while the buyer is putting in his time to eventually control the deed and take over the mortgage as lenders see it.
Here is current guidelines directly from a lender regarding land contracts and for all loan types…
“Refinance Transaction: If the land contract or contract for deed was executed more than 12 months
preceding the mortgage application date, the transaction is considered a limited cash out refinance
transaction. Proceeds from the refinance transaction may include the sum of the outstanding balance of
the installment sales contract and the costs incurred for rehabilitation, renovation, or energy improvements. A new appraisal is required and the LTV must be calculated using the appraised value of the new first mortgage transaction.”
If less than 12months they go on to say this would be considered a purchase transaction with the ltv based on the lesser of the appraised value or the acquisition cost indicated in the original land contract.
If the buyer had originally done a “subject to” and placed on title right away(instead of doing a land contract/contract for deed)its legally his property and he can do whatever the flip he wants with it, refi or whatever before the 12 months even though he is not on the original mortgage. Of course for a cashout type refi there’s certain restrictions depending on the lender etc.