Contract for Deed

[CigarDad]

My question is...... If the property is under a contract for deed and the buyer is attempting to finance the property and pay of the "owner", should this be listed on the 1004 as a Refinance or a Purchase?

I am doing a review and disagree with the way it was handled, but just wanted to get the opinion of the forum.

When I have done these is the past they were purchase appraisals. The price and contract were in the past and now the buyer who in every case were the current occupants were performing on that purchase contract. This only works if you have a stable to increasing market in most cases.

 

[Joyce Potts]

No way would I ever use a Contract for Deed as a Comp, other than perhaps mentioning in the report with no weight. In my view, it carries less than a pending sale because of the inherent seller financing involved. There is no transfer of the deed, at least no in Florida. If you have a market where such sales are prominent than I'm listening. But in markets where 3rd party lender financing is available, I seriously doubt that rises to the definition of a closed sale. Pending, pending with contract maybe.

 

[Robert Dunkle]

It is a purchase becuase the deed has never passed hands ... the contract has not been satisfied thus the "buyer" remains the buyer and is wanting to satisfy the contract.

From your position it seems like you think it is a refinance ... I would not agree with that thought.

No, the original appraiser shows it to be a Refinance Transaction and does not analyze the Contract for Deed. The CD is mentioned on page 3 of the URAR, but just indicates that "the subject is currently under a contract for deed at $650 per month", no other explanation. I maintain that it is a Purchase Transaction as long as the borrower/buyer and the owner of record are different parties and that the "Contract for Deed" should be analyzed as any other purchase contract would be analyzed. I just wanted to confirm that thought with the forum.

It is interesting that someone mentioned that the CD would, typically, be above the market price, but this one is for an $85,000 purchase price and the appraiser appraised the property for l$95,000 and the borrower got a 100% loan at $85,000. The house had been purchased about 18 months prior to the appraisal as an REO for $46,000. Have not been able to confirm if any remodeling occurred, but OA says condition was "Average" and does not mention any remodeling. One of the comps is in a superior part of town, is full brick veneer vs masonite siding and MLS shows that it was gutted and renovated within six months of sale, yet the OA indicates its' condition is the same as the subject. Oh, and the location and view of the subject is rated as average, yet it is one of only about a dozen homes that face a railroad track with heavy rail traffic. There are, probably, 200 houses in the town, so I don't consider that location to be the average location in town. None of the comps are similarly situated and no mention is made of the fact.

 

[Robert Dunkle]

No way would I ever use a Contract for Deed as a Comp, other than perhaps mentioning in the report with no weight. In my view, it carries less than a pending sale because of the inherent seller financing involved. There is no transfer of the deed, at least no in Florida. If you have a market where such sales are prominent than I'm listening. But in markets where 3rd party lender financing is available, I seriously doubt that rises to the definition of a closed sale. Pending, pending with contract maybe.

The subject was under a Contract for Deed, not any of the comparable sales. The OA just considered it to be a Refinance Transaction, not a purchase.

 

[Joyce Potts]

The subject was under a Contract for Deed, not any of the comparable sales. The OA just considered it to be a Refinance Transaction, not a purchase.

And the Intended Use of the Appraisal was for private financing without transfer of the fee simple ownership until full payment of the loan was fulfilled?

Hello?

 

[Robert Dunkle]

No, the intended use of the appraisal I am reviewing was for lending purposes (eventually purchased by FNMA) for the buyer/borrower to get the money to pay off the Contract for Deed.

 

[David S. Roberson]

It's a purchase, not a refinance. They're trying to show a purchase as a refinance for more favorable lending terms. It's very common, and Fannie sees it as the fraud that it is. I've done several reviews for the Dallas Fannie office with reports like this, and they do not like it. At all. Who did the appraiser put as the owner of record? If he put the borrower, he has certainly submitted a misleading report that affected the lending process.

 

[PropertyEconomics]

No way would I ever use a Contract for Deed as a Comp, other than perhaps mentioning in the report with no weight. In my view, it carries less than a pending sale because of the inherent seller financing involved. There is no transfer of the deed, at least no in Florida. If you have a market where such sales are prominent than I'm listening. But in markets where 3rd party lender financing is available, I seriously doubt that rises to the definition of a closed sale. Pending, pending with contract maybe.

In NM you have a closing at the title company for these types of transactions ... it is no different than a mortgage (yes I understand terms may require cash equivalency) ... it is a close "transaction" here.

 

[Jo Ann Meyer Stratton]

Each state differs. Arizona is similar to New Mexico, here they are called Agreement for Sale and it is a closed, arm's length transaction. The "mortgage company" is the seller instead of Chase or Wells Fargo, etc. The buyer can do anything they want with the house, tear half of it down, paint it green with purple stripes and yellow dots, double the size, etc. Or they can resell the property, and the original sellers finally get all their money at once. Some times people that own a property free and clear will sell that way because they will be receiving a steady income and eventually ending up with more money than a cash sale (as long as the new owner pays their mortgage payment every month). It works for buyer's that might have a ding on their credit rating or a large down payment or always pay cash for everything and haven't built up a credit rating. That is how we originally bought our home 44 years ago and still living in that house.

 

[Pat Butler]

A CFD can be a purchase sometimes or a refinance at other times. It all depends on how the lender wants to handle it.

My present home was purchased with CFD terms. When I went to pay off the seller I wanted to pull some money out of the transaction, so the seller and I drew up a sales contract with a purchase price that equalled the loan balance on our contract. The lender then considered our transaction to be a sale and had better terms than a refinance.

If I had chosen to just pay off the seller as a lien holder then the lender would have treated it as a refinance because a lien was being paid off.