There is no denying that the current housing market has made it tough for those looking to sell their home. Compounding the problem is the number of foreclosures that have flooded the market, and the "credit crunch" which has made it harder for buyers to secure home loans. If you are behind on home payments and thinking about letting your home slip into foreclosure because you are unable to sell it, you should consider house swapping-- a very simple transaction in which you trade your home with another homeowner who has a smaller mortgage payment. In order for this to work, the homes should have the same amount of equity or one party must be willing to make up the difference in equity with cash or another asset (e.g., car, boat, flat-screen television, etc.).

Let's explore the following example. The Callen Family owns a $500K home in an exclusive gated-community that has beautiful views of the surrounding hills. Due to a job loss, the Callens can no longer afford their mortgage payment of $3,000 each month. The home has about $20K in equity and they are looking to move into something more affordable as soon as they get their home sold. The Gold Family on the other hand is doing great. They own a local catering business that has tripled its revenue in the last year and are ready to move into a larger home in a nicer community. Their current home has about $15K in equity and is worth $250,000, with monthly payments of $1700. The Golds also have plenty in savings, gained from their expanding business.

If these two families "swapped" their homes, everyone's goals would be met: the Callens would avoid foreclosure and move into something more affordable, while the Golds would move up to a home they've always wanted. For this work, the Gold's simply need to give the Callens a cash payment of $5,000 to make up the difference in equity. In order to finalize this transaction, both parties simply need to deed their properties to each other and institute wrap around mortgages on each other's property.

You should be aware that wrap around mortgages may not be permitted by your lender, and are even illegal in some states. If your lender finds out that you do have a wraparound mortgage, then they may demand that you pay off the entire amount of the loan. It is always a good idea to check with an attorney before entering into any home swap arrangement.

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