Residential Investment Rate and Term refinance

[Mike Curadossi]

Hello,

So I am in the process of refinancing an investment property with a 30yr fixed rate residential investment loan.  It has been about 5 months so I started the process so the property would be seasoned for 6 months at the time of the closing.  Here is my issue.  

At closing, the bank (property was a foreclosure) would not allow the property to have any filed mortgages on the property because it was a cash deal.  I have done about 5 of these and this was the first time that the seller (bank) had an issue with a first mortgage (hard money) and a second mortgage (line of credit) being on the closing hud.

My attorney told me that she would simply close the first without the mortgages filed and then immediately file another hud right after showing the two mortgages.  She assured me that I would have no problem doing a rate and term refinance in 6 months if the home was purchased this way.

Now the bank that I am using to close the new mortgage to pay back the original loans is telling me they can only go with a cash out refinance since the home technically wasn't purchased with a mortgage and it reads as I refinanced out of the cash on the second hud that was filed. This is a problem because all my numbers work at the 80% LTV that I can do with a rate and term refinance but don't work at a 75% LTV for a cash out refinance ( I will have to bring money to the table to close).

So is this correct?  There is no way to do a rate and term refinance on this property?  If I missed any details please let me know. 

Any insight would be much appreciated.  Thanks in advance!

Mike