My company, RealEquity Investors Inc., of West Los Angeles, arranges equity-sharing joint ventures between unrelated parties. As Robert J. Bruss indicated in the Real Estate Q & A item, "Home-Equity Sharing Is Sometimes Risky" (Sept. 10), the major potential problem is if the resident co-owner stops making the monthly payments.
In our program we call the co-owners the "buyer" and "investor." The first and most important thing we do is check out and prequalify the buyers. This provides them with the maximum mortgage amount that they can afford, based on a conservative ratio of their monthly payments to their gross income. They must also have an excellent credit history so that their likelihood of defaulting is minimized.
But as we all know, the lives of some people change, and therefore, we've established an open holding escrow to collect the monthly payments, including a requirement of depositing one month's payment in advance. If a problem is developing, the escrow officer will know one month before that payment is due at the savings and loan.
This escrow also holds a signed grant deed from the buyer to the investor. Only upon notice from the lender of their intent to foreclose, will this deed be delivered to the investor. Our joint-venture agreement between the parties is very comprehensive, and we suggest it be used even with friends and relatives. This can prevent potential misunderstandings and possible problems from developing.
HERMAN W. PASS
Pass is president of Real Equity Investors Inc.