Contract for Deed & Renting

[Justin Egge]

So a couple of friends occupied a rental property without a lease, and a 'promise' of a contract for deed situation from the owner. Now let's ignore the idiocy of that no-lease/contract decision. Now the owner is telling them that because of the type of loan on the property, he cannot do a contract for deed, nor can it officially be a rental with a lease. So what we have is two people paying rent and utilities in a home without a lease, contract, or any proof of an agreement. 

Again, try to ignore the idiocy. Question: is it true that certain types of loans can restrict a contract for deed option and/or lease?

If it changes things, the owner stated, "because of the interest rate I was given, I cannot do it..."

Sounds like a load of junk to me, but asking to help inform their ongoing discussions with the landlord. Thanks in advance.