Saving Homes, Homeowners and Banks Through Fractional Ownership?
Eleven years after taking his first leadership position within Prudential Rand Realty in White Plains, New York, Managing Partner Greg Rand is promoting a home retention concept that allows homeowners to stay in their homes at a fraction of the price, while also saving lenders from further losses on properties that are depreciating in value.
The concept, which is called fractional ownership, is an old-fashioned quid-pro-quo type of transaction that could work wonders for banks and homeowners, says Rand.
The fractional ownership strategy works by allowing distressed homeowners to convert part of their loans into equity; thereby, cutting their loan amounts and monthly payments significantly. In turn, banks get to keep homeowners in their properties, while also avoiding the expenses that inevitably come with foreclosure or with having to sell a home in a lackluster real estate market at a reduced price.
"As a lender you have the opportunity to punt," says Rand. He adds that with this philosophy, banks decide not to take the write-downs now, but rather to wait and deal with the properties at a time when they'll be selling them at a better price.
Rand says the banks will "actually take a partial ownership stake of the property, allow the borrower to get back into a timely payment, and then ride the market back up again to a future--where say five years from now--the market in that area is back and they can refinance that borrower out, let the borrower buy them out, or they can dispose of the property through a sale."
And with the real estate market always functioning under the philosophy that time heals all wounds, Rand believes punting or waiting is the best solution for homeowners and lenders who want to retain a property's full value.
"It's a sale that's taking place at a time that's advantageous with the market conditions as opposed to the timing of the sale being now, which is probably not a good time," Rand concludes.
Kerri Panchuk 6th January 2008, DS News.com
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