Worth a try... contact a real estate attorney ... it will be worth the $300 it costs and may save your skin.
Broker / owner
DRE # 350257
Windermere Walnut Creek
As Dp2 says, you already bought the home. And check with a lawyer: It's a relatively simple matter to deed a property. I'm not sure why the bank you're working with "doesn't consider the deeded transaction to hold up." You've got one bank saying you're on title; the other one (for unexplained reasons) says you don't own it.
Remember: Ownership is tied to the title, not to the mortgage. Check with a lawyer, but it sounds as if you already own the property. No need for the previous owner to be involved in any way.
The remaining issue is paying the mortgage. Technically, since the mortgage is in the previous owner's name, it's her responsibility. But, really, it's your moral obligation to pay. So--if you haven't already--just take over the payments. You're not assuming the loan, but you are making the payments.
Yes, at some point you'll want to refinance and get a new mortgage in your name. And with interest rates where they are now, if you can qualify now, you might as well go for it. Otherwise, just keep making the mortgage payments until you're able to.
Hope that helps.
You could refinance now, but doing so might require you to contribute additional equity--especially if that mortgage is upside-down. You could also refinance sometime later when the mortgage is no longer upside-down. Additionally, you could assume that loan, and do a novation to take your previous landlord's name off of that loan.