Equity Sharing – The new real estate alternative to short selling, bankruptcy and walking away

With the recent nationwide drop in property values, millions of homeowners seem to be in quite a bind. Selling a home that is worth less than the balance of the mortgage loan forces home sellers to make difficult 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 will it make things worse? And what about leaving home and the debt owed? What are the chances of finding another home?

For some, hearing a real estate agent propose using personal funds to sell a home at 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; That is, the property is sold for less than what is owed, with the approval of the bank, instead of a foreclosure scenario. It sounds good on paper, but most lenders don’t approve of short sales, and even if they did, a short sale can negatively impact an otherwise good credit score. And with bankruptcy or walking away, credit is definitely destroyed, along with the ability to qualify for a home loan for years to come.

Any home seller who is upside down with their mortgage faces a variety of challenges; or so they believe. 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. Allowing someone to take on a mortgage payment has historically always been a valuable option for home sellers and home buyers because it easily solves the problem of transferring ownership when money is tight and the economy is down.

But because real estate values ​​have fallen so dramatically over the past five years, some homebuyers may not want to inherit a mortgage that greatly exceeds a property’s value. From the home seller’s perspective, selling a home to a complete stranger whose loan balance is unattractive is a very real way to worry about the new homeowner walking away when things get tight. The home seller could be forced to mortgage the new owner while also ruining their own loan for late mortgage payments.

Another “payment pickup” approach can be used to alleviate all of the above concerns. Equity sharing can bring relief and security to both the home seller and home buyer. It must be remembered that real estate values ​​are cyclical. They go down, but they always come up in good times. If real estate values ​​are weak today, we will certainly see a boom tomorrow. Equity investments can weather the storm until residential property values ​​make a property a viable investment.

Thus, a shareholding can produce tremendous results in any economy.

1. The home seller places their title deed in a special escrow-like account with no transfer to the home buyer.

2. Using a very special “co-beneficiary” agreement, the home seller and home buyer treat the property like a real estate company, both becoming “partners” with equity interests.

3. The homebuyer makes an mutually agreed monetary “contribution” to this agreement and as a resident is treated as a property manager with all home ownership rights and financial benefits and responsibilities being assumed by a real homeowner. only on a “rent to own” basis.

4. Over time, as the value of the property increases and when the property is sold, the home seller and home buyer can split the equitable proceeds from the profitable sale of the property, or the property manager can purchase the property at market value less its equity.

Time is the great healer in a down real estate market and a stock ownership agreement is a perfect remedy when time to recover is needed. If more time is needed for the value of the property to rise above the mortgage loan balance, so be it. Equity sharing is a great tool for a homeowner because they can find someone to make a payment, even if the debt on the loan is more than the home’s value. It’s also a great way for someone with good jobs but bad credit to get the home of their dreams without having to qualify. Equity investments are safe for all parties and a perfect solution for real estate movements in a down economy.