FHA Guidelines regarding Land Contracts

[Jonathan Buerkert]

I have a unique problem regarding FHA financing and was hoping someone here might be able to help me come up with a solution. I owner financed a SFR, fixer-upper to a builder on a land contract agreement or an "agreement for deed" with monthly payments on a promissory note. The builder not only had to completely rehab the house, but he also had to purchase a neighboring lot in order to dig a well to service the house and is now ready to sell. He listed the house for sale with the lot included and found a buyer. The buyer is relying on FHA financing, however the lender is balking at the sale because titlework shows that the deed to the house is still in my company's name and the lender is saying that FHA guidelines require that the deed be in the name of the seller (or the builder in this transaction).

So the question is, can someone who has a land contract agreement to purchase a property sell that property to a new buyer if that buyer is using FHA financing? Or in other words, what are the FHA guidelines involving land contract agreements?

Now I'm no expert, but it seems simple enough to me. The builder has a contract that guarantees him first rights to the title of the house under the terms of the land contract and promissory note. Even though the deed is not technically in the builder's name, shouldn't the executed and notarized land contract be sufficient to establish the chain of title to the builder and in turn, allow the builder's buyer to purchase using FHA?