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Have a Customer with an Underwater Mortgage who Wants to Move Up? One solution I used has worked out to everyone's satisfaction

By
Services for Real Estate Pros with Topkins & Bevans-etopkins@topbev.com

We all know how many mortgages are currently "under water" By "under water", I mean than once the property is sold and selling expenses  and comissions paid, there is no money left over for a downpayment on the "next"home. The mortgage and property taxes are current; the property just has no equity.

Here is a solution I recently developed which worked out well for a client of mine. The client's parents had excellent credit and had saved up some money. I caused them to purchase, in their names, the property which their daughter had identified as more suitable for her growing family. The daughter entered into a lease with her parents, with market rental rates. She has an option to buyer the bigger home from her parents at a formula price. There is a provision in the lease that every rental payment has a "rent-to-own" coefficient, so the daughter is building up equity in the home she now lives in every time she makes a monthly rental payment.

The "under water" residence is now being rented to third parties. Evenutally, when the real estate market comes back, the daughter can sell this home and come out whole. In the meantime, she is receiving income to defray her mortgage and tax expense, whicile she is paying Mom and Dad for the new, more spacious home.

Everybody wins as long as the numbers work out, which in this case, they do. I am not saying that this approach is the "be-all" or the "end-all". It is, however, a creative solution which has given my clients' parents a chance to help their daughter without a huge financial sacrifice. There are variations to this theme; perhaps, you can suggest some you have used.

We are not done with this "down" real estate market whatever some of you suggest. There are pockets of progress; there are pockets of stagnation. Creative thinking can many time save the day. We all need to practice it.

Comments (3)

Lisa Delzompo 951-704-4559
Sand to Sea Properties, Inc. - Palos Verdes Peninsula, CA
Experienced, Trusted, & On Your Mission: Home

Very creative.  Out here in CA, lenders would not want to know it was the buyer's family that was going to rent the new home.  We all need to be thinking outside the box these days, as there are lots of opportunities for buyers at these prices. 

Feb 22, 2010 08:25 AM
Mike Wilbur
Guild Mortgage Company and Oregon Homes For Heroes - Salem, OR

That's a good solution for someone that has the ability to do it.  I have had some customers go with gift funds from a parent to buy the new home in their own name also so they could get owner occupied rates instead of non owner rates.

Feb 22, 2010 08:27 AM
DEBORAH STONE
Balboa Real Estate San Diego, CA - San Diego, CA

...when the market comes back....  that is a big if in any scenario. Your solution worked well for these clients, but the state of the market here in San Diego,CA is the thorn in everyone's side. A new wave of foreclosures and short sales in some areas are hitting the market in 2010, skewing all the comps and dashing hopes of a quick 2010 recovery.

Mar 02, 2010 05:06 AM