Because of the recent decline in home values nationwide, millions of homeowners appear to be in quite a quandary. Selling a house that is worth less than the mortgage loan balance is forcing home sellers to make difficult choices. Do they sell at market prices and pay the difference in cash to the lender? Is a short sale or bankruptcy a cure or do they make things worse? And what about walking away from the home and the debt owed? What are the chances of getting another home?
To some, hearing a real estate agent suggest using personal funds to sell a home for a loss is like hearing fingernails scratching a chalkboard. No home seller wants to hear that. Many turn to trying to negotiate a short sale with their lender; meaning, the character is sold for less than what is owed with the bank’s approval in lieu of a foreclosure scenario. It sounds good on paper but most lenders don’t approve short sales and already if they did, a short sale can negative impact an otherwise good credit rating. And with bankruptcy or walking away, credit is definitely destroyed along with the ability to qualify for a home loan for years to come.
Every home seller that is upside down with their mortgage faces a multitude of challenges; or so they believe. What they do not realize is that there is a very simple solution that has been around for hundreds of years during times of easy credit or no credit. Allowing someone to take over a mortgage payment has always been a valuable option for home sellers and homebuyers in days past because it easily solves the problem of transferring ownership rights when money is tight and the economy is down.
But because home values have dropped so dramatically in the last five years, some home buyers may not want to inherit a mortgage that is so top heavy over the value of a home. From the home seller’s perspective, selling a home to a total stranger where the loan balance is unappealing, worrying about the new homeowner walking away when things get tight is a very real possibility. The home seller could be forced to foreclose on the new owner while ruining their own credit in the time of action for late mortgage payments.
A different “take over the payment” approach can be used to mitigate any of the aforementioned concerns. Equity sharing can bring relief and safety to both the home seller and the home buyer. It must be remembered that real estate values are cyclical. They go down but they always come back up during the good times. If character values are ineffective today, tomorrow we will certainly experience a expansion. Equity sharing can weather the storm until residential real estate values return a character into a performing investment.
Here is how an equity proportion can produce tremendous results in any economy.
1. The home seller places his character title into a special escrow like account with no move to the home buyer.
2. Using a very special “Co-Beneficiary” agreement, the home seller and home buyer treat the character like a real estate business venture with both becoming equity proportion “partners”.
3. The home buyer makes a mutually agreed upon money “contribution” to this arrangement and as an occupant, is treated like a live-in character manager with all of the home ownership rights and financial rewards and responsibilities taken on by a real homeowner, just on a “rent to own” basis.
4. Over time, as the character increases in value and when the character is sold, the home seller and the home buyer get to proportion the equitable proceeds from the profitable sale of the character or the live-in character manager can buy the character at fair market value minus his equity.
Time is the great healer in a poor real estate market and an equity sharing agreement is a perfect cure when time is needed for recovery. If more time is needed for the character’s value to increase above the mortgage loan balance, so be it. Equity sharing is a great tool for a homeowner because he can find someone to take over a payment already if more is owed on the loan than the value of the house. It is also a great way for someone with a good jobs but poor credit to get the home of his dreams without having to qualify. Equity sharing is safe for all parties and is a perfect solution for real estate movement in a down economy.