I recently was forced out of my rental unit that was found inhabitable, a friend allowed me to move into her house that was basically empty, the subject of contacting for deed had come up because I have been repairing my credit but still do not qualify for a conventional home loan. My friend is now telling me it is illegal for me to be living here and to keep it on the down low , has pushed me to apply for loans I know I cannot get, and now is telling me that the bank who holds the mortgage on her house will not let her do a contract. Is this correct? Can a lender state that a contract for deed is not doable? If so , what do I do now, I've moved into this house , only been here two weeks and feel my two children and I will be on the streets very shortly. Why she didn't do this research two months ago when the subject came up I do not know. Does anyone have any advice on how to go about getting this contract for deed to go through?:(

1. It is not illegal in most places, but I do believe a couple of states have laws restricting this. I sell ( or sold in the past) dozens of homes on contracts for deed, and they all had mortages on them.

First it may depend on what type of mortgage they have, if their mortgage says they can not, then they can not. But this is not consider a sale, you do not get a deed and in fact there is no reason the mortgage companny would even be told. So why do they even know? Well unless it is a local town back that just knows who lives where.
So switch it over to a "rent to own" you rent and she applies the rent money to an account that will go toward the house at some point in the future. That way it is still rented and you will still have credit toward buying it.

1. contact the mortgage company directly yourself and see if this is their rule, ask to see from her something in writing from them. My personal guess ( and it is a guess, they have not said anything)

In a contract for deed, she still holds the deed and you merely have a contract , you don't even get the deed until it is all paid. You actually carry all the risk, since if she would default in her loan, they evict you and your contract is void and there is nothing you can do.

Also what about just renting?? If you can't do anything else,
Souns like she is wanting you out for another reason??

According to her it would be illegal to rent , she had checked into it and being a college town , there are pretty strict guidelines about rental units? Though now that I think about it , obviously it's not that strict when I had spent the last year and a half in an inhabitable house.
I'm not sure, really I've given myself a headache trying to research all the ins and outs. I've already talked to the bank about the refinancing of the property in a year and am working with a credit counselor at the same bank that holds the original mortgage on the property. I've already paid her 500 for Aprils rent , just to be able to have a place to stay and gave her 500 toward the purchase price of the house either to be used as a partial down payment or a deposit or intent to buy. How ever she wants to use it. Thank you, I will call the bank tomorrow. Maybe you are right because I even offered to pay lawyers fees to have a lawyer draw up a contract. I moved in here on the first under the assumption this would be simple , and have had no sleep for 5 days thinking about how I will be out on the streets soon. Had this idea of contract not come about I would have stuck with the horrible house and been all right because the city had stepped in and the landlord would have had to find housing for me and my children while the house was brought up to code.

So you don't have any actual contract, just a promise of a contract.
Sounds like perhaps they changed their mind, want to do something else with the house, or they could even be so for behind in the mortgage it is getting ready to be foreclosed and they don't want to commit to a contract on the home