4404.1: Land contract; contract for deed (03/02/16)

When the proceeds of a Mortgage are used to pay the outstanding balance under a land contract or contract for deed, the Mortgage may be considered either a purchase or a "no cash-out" refinance Mortgage if the requirements in this section are met.

A copy of the executed land contract or contract for deed must be included in the Mortgage file.

If the proceeds of a Mortgage secured by a Manufactured Home are used to pay the outstanding balance under a land contract or contract for deed, the Mortgage is ineligible for sale to Freddie Mac.

(a) PurchaseFor the transaction to be considered a purchase transaction:

The land contract or contract for deed must have been executed less than 12 months prior to the Application Received Date
All of the loan proceeds must be used to pay the outstanding balance under the land contract or contract for deed and no loan proceeds may be disbursed to the Borrower
The loan-to-value (LTV) ratio must be calculated using the lesser of the following:
- The current appraised value of the Mortgaged Premises, or
- The total acquisition cost (the purchase price indicated in the original land contract or contract for deed, plus any cost the Borrower has expended for rehabilitation, renovation, refurbishment or energy conservation improvements). The Mortgage file must contain sufficient documentation on which to calculate the total acquisition cost.

(b) "No cash-out" refinanceFor the transaction to be considered a "no cash-out" refinance transaction:

The land contract or contract for deed must have been executed at least 12 months prior to the Application Received Date
The LTV ratio must be calculated using the current appraised value of the Mortgaged Premises
The Mortgage file must include third-party documentation evidencing payments in accordance with the land contract or contract for deed for the most recent 12-month period
The Mortgage must meet the requirements for "no cash-out" refinance Mortgages in Section 4301.4