In the current real estate market, many families have homes that have lost all of their equity. In some cases, the property is worth less than they owe creating a negative equity situation. In a negative equity situation, you actually would have to pay to sell your house.
Neither of these positions is good if you need to sell your house in the current market. Many families that have to sell in a no/low equity situation feel they only have two options. You can either attempt a short sale or walk away from the property and take the foreclosure. In a short sale, you may be able to sell your home but even then, you are unsure if it will sell and what the bank will say. When a seller chooses to walk away from the home, then they face foreclosure, credit problems, and in some cases, the debt from the house may follow you even after the home is sold in foreclosure.
There is also a third option that many do not know about. The third option a seller has is to sell the house on a mortgage takeover plan. Now don’t be surprised if you haven’t heard of this because many people have not. Mortgage takeovers work by allowing a buyer to come in and take over from where you, the seller left off. The buyer continues where you left off, making payments on the home and they continue to make payments on the old mortgage while they have control of the house.
Now, I can see many of you sellers scratching your head. You are thinking what happens to my old mortgage? The answer is that the old mortgage stays in place and the new owner begins making the payments. This is somewhat similar to a mortgage assumption but not exactly because the buyer is not assuming the liability of your mortgage. The buyer is just picking up from where you left off. It is a great way to get out of your old home and mortgage payment. Now the downside is that you will not get any cash from the sale of your house. However, this house had very little or no equity so you weren’t getting cash anyway. In fact, your goal was to get out of this house and not owe money to sell it. This technique accomplishes that.
Now from a legal standpoint you are still responsible for the mortgage payment. But, if the buyer were to default then you would be in no worse shape than if you had walked away from the property or gone through a full foreclosure. The buyer has no reason to default because they would not gain anything by paying your mortgage so it creates a win-win. You get out of the house, the buyer gets a house and once the buyer is able to get new financing, your old house is paid off and you didn’t lose anything.
This concept has not been used too much in the last few years because the market has been strong and buyers were able to sell with ease, but now it is steadily picking up steam again since the market has dropped. The last part of this concept is that if you are trying to buy a new house you can do this concept and the bank will accept that buyer coming in as a renter and you won’t look as if you are paying two mortgage payments to the bank. It will make your overall credit situation look better to the bank. So now you have taken a seemingly hopeless situation and made it into something that can actually help you.