Contract for deed and equity

KS · Member since 2019 · 7 posts · 1 vote

HI I bought a house using contract for deed with the intention of flipping it. I put 5k down owe 30. It's worth 80 as is. My credit is poor 530. Lenders I have talked to say I don't own it don't understand how that is.

My question is how do I access the equity in the home?

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Don KonipolBusiness Member

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

@Matt Hunziker

Actually, you won't. In order to perfect a lien against real property, the borrower must hold title to said property. Filing a contract for deed will not give you title, it will merely place notification in the public record that you have a claim on the title. Any mortgage financing will need the signature of the legal title holder. I guess it's possible that someone would lend so,e money based on your contract for deed, but this wouldn't be a mortgage loan. Your attorney might be referring to thinking that recording the CFD will show you have put $5k down and make it easier to finance out of the CFD but it doesn't work that way. Sorry to be the bearer of bad news, but here's a couple of key points anyone should understand before entering CFD

1. With a CFD you may obtain equitable title, but you don't obtain legal title. Lenders only care about legal title.

2. Lenders do not regard financing you out of a CFD as a refinance, they regard it as a purchase loan

3. By recording the CFD, you may make it impossible for the seller of the CFD to intentionally encumber the property, which is a good thing for you.

4. Buying with a CFD does not eliminate your bad credit in trying to qualify for a new loan

5. In some states recording a CFD, if the CFD is written correctly, may be considered a superior encumbrance to any other liens or encumbrances filed after the CFD is filed, except liens for property taxes.

Private Mortgage Financing Partners, LLC

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Tim Herman
Member since 2018 · 2k+ posts · 1k+ votes
7y
@Matt Hunziker until you complete whatever the terms under the cfd you do not have legal title, so the banks are correct. The seller can still encumber the property. He only has to give you clear title after all conditions are met.
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Matt Hunziker
OP
KS · Member since 2019 · 7 posts · 1 vote
7y
@Tim Herman
My contract gives me control of all equity
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Tim Herman
Member since 2018 · 2k+ posts · 1k+ votes
7y
@Matt Hunziker Just because it says it in a contract doesn't make it legal. The only way I see you getting any equity would be to sell the contract.
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Mark Durham
Specialist · Atlanta, GA · Member since 2014 · 179 posts · 100 votes
7y
I don't think you fully understood all ramifications, restrictions, etc. of buying using CFD.

Check with your attorney, but I'm afraid the lenders are correct.
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Matt Hunziker
OP
KS · Member since 2019 · 7 posts · 1 vote
7y
@Mark Durham
I called my attorney and found out what I need to do. I will be able to access the equity as soon as we go and file the contract
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Mark Durham
Specialist · Atlanta, GA · Member since 2014 · 179 posts · 100 votes
7y
Great news!
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
7y
@Matt Hunziker
Actually, you won't. In order to perfect a lien against real property, the borrower must hold title to said property. Filing a contract for deed will not give you title, it will merely place notification in the public record that you have a claim on the title. Any mortgage financing will need the signature of the legal title holder. I guess it's possible that someone would lend so,e money based on your contract for deed, but this wouldn't be a mortgage loan. Your attorney might be referring to thinking that recording the CFD will show you have put $5k down and make it easier to finance out of the CFD but it doesn't work that way. Sorry to be the bearer of bad news, but here's a couple of key points anyone should understand before entering CFD
1. With a CFD you may obtain equitable title, but you don't obtain legal title. Lenders only care about legal title.
2. Lenders do not regard financing you out of a CFD as a refinance, they regard it as a purchase loan
3. By recording the CFD, you may make it impossible for the seller of the CFD to intentionally encumber the property, which is a good thing for you.
4. Buying with a CFD does not eliminate your bad credit in trying to qualify for a new loan
5. In some states recording a CFD, if the CFD is written correctly, may be considered a superior encumbrance to any other liens or encumbrances filed after the CFD is filed, except liens for property taxes.
Private Mortgage Financing Partners, LLC
Website View Page
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Matt Hunziker
OP
KS · Member since 2019 · 7 posts · 1 vote
7y
@Don Konipol
Does it matter that he owned it free and clear no lines or mortgage
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
7y
@Matt Hunziker
That doesn’t affect your ability - or inability to obtain institutional financing. But you also bring forth some additional issues. If you purchase a property for $30,000, nobody is going to lend you $50,000, at least not in the near future, regardless of the property value. All lenders want to see the borrower have skin in the game; too easy for the borrower to walk awY of the property if he has taken his cash investment out, plus some. Also, many investors think they’d purchased a property way below market value, only to find out that they didn’t. Performing a competitive market analysis is not the same as an appraisal, and on everything other that residential single family cookie cutter planned development property, even appraisals can be way off base.
Having the property you purchased CFD free of all liens and encumbrances is very good, in that you won't be running the risk of the property either being foreclosed out for an existing lien, or the seller not making payments on an underlying mortgage, and you having to file a civil suit against the seller.
Also, the lending landscape has changed. Things we used to do 40 years ago aren’t flying anymore.
Private Mortgage Financing Partners, LLC
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