Due to the recent drop in home values across the country, millions of homeowners seem to be in a big dilemma. Selling a home that is worth less than the mortgage loan balance is forcing home sellers to make tough decisions. Do they sell at market prices and pay the difference in cash to the lender? Is a short sale or bankruptcy a cure or does it make things worse? And what about walking away from the house and the debt incurred? What are the chances of getting another home?
For some, listening to a real estate agent suggest using personal funds to sell a home at a loss is like listening to fingernails scratching on a blackboard. No home seller wants to hear that. Many resort to trying to negotiate a short sale with their lender; that is, the property is sold for less than it is owed with bank approval rather than a foreclosure scenario. Sounds good on paper, but most lenders don’t approve of short sales, and even if they do, a short sale can have a negative impact on a good credit rating. And with bankruptcy or departure, credit is definitely destroyed along with the ability to qualify for a home loan for years to come.
Every home seller who is upside down on their mortgage faces a multitude of challenges; or so they think. What they don’t realize is that there is a very simple solution that has been around for hundreds of years in times of easy credit or no credit. Letting someone else take over a mortgage payment has always been a valuable option for home sellers and buyers in the past because it easily solves the problem of transferring property rights when money is tight and the economy is down.
But because home values have fallen so dramatically in the last five years, some home buyers may not want to inherit a mortgage that’s so high on a home’s value. From a home seller’s perspective, selling a home to a total stranger where the loan balance is unattractive, worrying about the new owner leaving when the going gets tough is a very real possibility. The home seller could be forced to foreclose on the new owner while he ruins his own credit in the process because of late mortgage payments.
A different “take charge” approach can be used to mitigate any of the above concerns. Sharing equity can provide relief and security to both the home seller and home buyer. You have to remember that real estate values are cyclical. They go down but always go back up during the good times. If property values are weak today, tomorrow we will certainly experience a boom. The stock split can weather the storm until residential real estate values make a property a profitable investment.
This is how a capital action can produce tremendous results in any economy.
1. The seller of the house places your property title in a special account similar to an escrow without transfer to the buyer of the house.
2. Using a very special “co-owner” agreement, the home seller and home buyer treat the property like a commercial real estate business and both become equity “partners.”
3. The home buyer makes a mutually agreed-upon “contribution” of money to this arrangement and, as the occupant, is treated as a property manager with all rights of home ownership and financial rewards and responsibilities assumed by a actual owner. only on a “rent to own” basis.
4. Over time, as property values increase and when the property is sold, the home seller and home buyer may share in the equitable proceeds from the profitable sale of the property or the property manager property resident can purchase the property at fair market value less their equity.
Time is the great healer in a poor real estate market and a stock split deal is a perfect remedy when time is needed for recovery. If it takes more time for the value of the property to rise above the balance of the mortgage loan, so be it. Equity sharing is a great tool for a homeowner because he or she can find someone to take a payment, even if more is owed on the loan than the value of the home. It’s also a great way for someone with a good job but bad credit to get her dream home without having to qualify. Stock sharing is safe for all parties and is a perfect solution for moving real estate in a down economy.
