Equity Sharing – The New Real Estate Option for Short Sales, Bankruptcy and Walkthroughs

With the recent decline in home prices nationwide, millions of homeowners seem to be in dire straits. Selling a home for less than the mortgage balance forces home sellers to make difficult choices. Do you sell at market value and pay the difference to the lender? Are short sales or bankruptcy a cure or do they make things worse? And how about getting out of the house and the debt? What are the chances of getting another house?

For some, hearing a real estate agent trying to sell a home for a loss using personal money is like hearing a fingernail scratch. No home seller wants to hear that. Many resort to trying to negotiate a short sale with their lender; This means that the property will be sold for less than what it would have been in lieu of foreclosure with the bank’s approval. It sounds good on paper, but most lenders don’t accept short sales, and even if they do, a short sale can negatively impact your good credit rating. And with bankruptcy or bankruptcy, credit is almost certainly destroyed, to qualify for a home loan for years to come.

Every foreclosed home seller faces many 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 when it comes to easy loans or no loans. Allowing someone to take over a mortgage has been a valuable option for home sellers and home buyers in the past because it eases the hassle of transferring title when money is tight and the economy slows.

But with home prices falling so much over the past five years, some homebuyers may not want to take out a mortgage that’s worth more than the home is worth. From the home seller’s perspective, selling a home to a total stranger if the loan balance is unattractive is a very real possibility, worrying about the new home owner leaving when things get tough. A home seller may be forced to foreclose on the new owner for late mortgage payments, damaging their own credit in the process.

A different method of “accepting the payment” can be used to mitigate the above mentioned concerns. Equity sharing brings relief and security to both the home seller and the home buyer. It should be remembered that real estate prices are cyclical. They go down but they always come back in good time. If property prices are weak today, we will definitely see an increase tomorrow. Equity sharing can weather the tide until residential real estate prices return the property to a performing investment.

Here’s how equity stakes can produce remarkable results in any economy.

  1. The home seller keeps the ownership of the property as a separate account that cannot be transferred to the home buyer.

    2. Using a very special “shareholder” agreement, the home seller and home buyer both become “partners” in the equity stake in the property as a real estate business.

    3. The homebuyer shall “contribute” to this arrangement and as a resident a mutually agreed sum of money, shall be treated as a resident property manager, with all the rights of home ownership and financial rewards and responsibilities assumed by a true homeowner, solely on a “tenant to own” basis.

    4. When the property increases in value over time and the property is sold, the home seller and the home buyer will share the equity proceeds from the sale of the property or the live property manager can purchase the property. Fair market value less equity.

Time is a great healer in a weak real estate market and an equity sharing agreement is the perfect solution when time is needed to recover. If it takes more time for the property’s value to increase beyond the mortgage loan balance, so be it. Equity sharing is a great tool for a homeowner, because even if you owe more on the loan than the value of the home, you can find someone to take payments. It’s a great way for someone with a good job but poor credit to get their dream home without having to qualify. Equity sharing is safe for all parties and the perfect solution to real estate activity in a down economy.

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