Selling your home may not be as easy as it was a few years ago and it doesn’t get easier when the homeowner is faced with the added stress of a looming foreclosure. Time is a luxury that just doesn’t exist when the bank is preparing to take over your home. If you are behind on your mortgage payment and are thinking about letting your home fall into foreclosure because you are having no luck selling it, you should consider house swapping. House swapping is a simple deal in which you trade your home with another homeowner who has a lower mortgage payment. The homes must have a similar amount of equity or one of the parties must be willing to make up the difference in equity with some sort of payment like cash, or other desirable belongings (e.g.- jet ski, automobile, media equipment, etc.).
For example, if you take a family let’s call them the Smith’s with a $400,000 home in an upscale neighborhood and due to some unforeseen circumstance the Smith’s can no longer afford their house payment of $2750 per month. The home they are living in has $25,000 in equity and they are looking to move into a home that better suits their new financial realities. They will need to find a buyer for their home quickly in order to avoid foreclosure.
Now let’s take a look at the Jones’. Their home has about $20,000 in equity and is worth $200,000. Their monthly payment is $1500. They are looking to move to a larger home and have plenty of savings. They are small business owners who are experiencing growth and success in their business and are looking to move to a nice neighborhood.
The Smith’s and Jones’ have a great opportunity to help each other. The Smith’s need to move out of their luxury home to a home they can afford and avoid foreclosure and the Jones’ are looking to leave their modest home for the benefits of a more luxurious home. What they need to do is what is known as a “mortgage swap”. How this works is the Jones’ would give the Smith’s $5,000 to make up the difference in equity. Then each party would need to deed their property to each other and create “wrap around” mortgages on each other’s property.
Where as many states allow this type of transaction there are a few that do not allow wrap around mortgages. If your mortgage company discovers that you have a wrap around mortgage, they may demand you pay off the entire loan. Be sure to do your due-diligence and check with an attorney before entering into any home swap agreement.