Heloc

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
Aug 10, 2007
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A Home Equity Line of Credit (often called HELOC, pronounced HEE-lock) is a loan in which the lender agrees to lend a maximum amount within an agreed period (called a term), where the collateral is the borrower's equity in his/her house.

A HELOC differs from a conventional home equity loan in that the borrower is not advanced the entire sum up front, but uses the line of credit to borrow sums that total no more than the amount, similar to a credit card. At closing you are assigned a specified credit limit that you can borrow up to. During a "draw period" (typically 5 to 25 years), HELOC funds can be borrowed and you pay back only what you use plus interest. Depending on how much you use the HELOC, you will have a minimum monthly payment requirement (often "interest only"); beyond the minimum, it is up to you how much to pay and when to pay. At the end of the draw period, you will have to pay back the full principal amount borrowed either in a lump-sum balloon payment or according to a loan amortization schedule.

Another important difference from a conventional loan: the interest rate on a HELOC is variable based on an index such as prime rate. This means that the interest rate can - and almost certainly will - change over time. Homeowners shopping for a HELOC must be aware that not all lenders calculate the margin the same way. The margin is the difference between the prime rate and the interest rate the borrower will actually pay. Lenders do not generally offer this information and it is up to the consumer to ask for it before taking a loan.

HELOC loans have become very popular in the United States in the 2000s, in part because interest paid is typically (depending on specific circumstances) deductible under federal and many state income tax laws. This effectively reduces the cost of borrowing funds. Another reason for the popularity of HELOCs is the flexibility not found in most other loans - both in terms of borrowing and repaying on a schedule determined by the borrower. Furthermore, HELOC loans' popularity growth may also stem from their having a better image than a "second mortgage," a term which can more directly imply an undesirable level of debt.

It must always be kept in mind that the underlying collateral of a home equity line of credit (HELOC) is the home. This means that failure to repay the loan or meet loan requirements may result in foreclosure.
 

HOTLANCER

LoanSafe Member
Jan 17, 2008
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HELOC's vs. Second Mortgages or Second Trust Deeds - As someone who has experience in short sales, I would like to note that a common misconception is that HELOC's will dissolve in a non-judicial foreclosure in California. THIS DOESN'T HAPPEN. A HELOC can decollateralize (essentially disconnect from the lien on the house) and follow the debtor around like a credit card balance. The worst thing is that default rates on these can be outrageous. Who needs a $150,000 HELOC going from 9% to 19% or higher? The answer is nobody. Especially after suffering through the drama of a foreclosure. It will be hard enough to rebuild your financial life and the last thing you need is a HELOC raising its ugly head a few years after you start over. There are some cases where people file BK doesn't few years after the foreclosure just to get rid of the HELOC. That doesnt have to happen.

My advice to someone who has tried to save their home through a modification but was unsuccessful is PLEASE, PLEASE, PLEASE do something to settle the HELOC BEFORE its too late. THEY WILL WORK WITH YOU but you are much better off trying to work something out BEFORE the HELOC is released from the deed. Once it is released, they are more likely to want substantially more money. I know of cases where they have been settle for 1-3% of the outstanding balance (or $1,000 - $5,000 etc.).

Obviously, each situation is different and I am not giving blanket legal or financial advice.
 

HOTLANCER

LoanSafe Member
Jan 17, 2008
10
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Get it settled and MAKE SURE IT IS OFF YOUR CREDIT REPORT AS PAID IN FULL!! If they 1099 you for the difference and then record your credit report as "settle for less than the full amount" consider going AFTER them for a violation of the Fair Credit Reporting Act. Otherwise, the bank could sell the account to one of those companies that buys bad credit card debt for pennies on the dollar (which is essentially what you are offering anyway) and THEN THAT COMPANY goes after you for the FULL AMOUNT PLUS FEES, COSTS, HIGH INTEREST, ETC. Dont take that chance!!!
 

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
Aug 10, 2007
26,851
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Southern California
www.loansafe.org
Great infor Cat and HOTLANCER!! Way to pay it forward!!
 

pennylane

LoanSafe Member
Feb 29, 2008
7
0
0
Hotlancer,

I will follow your advice and negotiate paying our HELOC before we get harrassed by collection agents. Do we call now when we have not missed payments yet (on both 1st and 2nd loans) or do we call when we're in pre-foreclosure. How do we negotiate? We have $35K on a variable rate and $113K on a fixed rate both through B of A.

Thank you so much.
 

HOTLANCER

LoanSafe Member
Jan 17, 2008
10
0
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Your must realize that settling a HELOC will only be viable if it looks to the bank that the first or second is going to foreclose. Depending on the situation, I would think twice about what you have to endure from a credit and emotional standpoint before going through the process just to save ten or twenty thousand dollars. It may or may not be worth it. That having been said, what is your property worth? How much do you owe? Have you tried to get your loan(s) modified? If so, are you looking to do a short sale? I would do a lot of research and soul-searching before "pulling the trigger" and make sure this is in your long-term best interest.
 

pennylane

LoanSafe Member
Feb 29, 2008
7
0
0
The first is going to foreclose and as you said in your earlier post, the HELOC loan will follow us around. Our house right now according to Zillow is worth $485, we owe $436K on the first one and $146K on HELOC. GMAC(1st lender) will not even entertain us until it adjusts in June. Yes, we are looking to do a short sale eventhough it's unlikely that GMAC will agree. All I'm really concerned about is the HELOC. Can they really go after your remaining assets or is our last resort to file for BK assuming they won't let us settle?
 
M

Mary Salzer

Guest
The HELOC is a lien on the property it is not a credit card, it does not get up and leave the property and follow you around like a credit card. It is a filed and recorded Lien on the subject property just like any Trust Deed filed on the subject property.

The problem is that the HELOC if not paid and obtained for cash out purposes and if the property is foreclosed on, Deed in Lieu or Short Sale the Lender has the right to obtain a deficiency judgment and sell it to a collection company to follow you around.

The information being provided is partially correct, however substantially wrong. Since the HELOC is a lien on the property it does not automatically become a debt outside of the property and if it was used as a purchase money instrument any portion of the HELOC used in the purchase money instrument will be treated as purchase money and may not have the available ability to perfect a deficiency judgment. I am not an attorney, I am a lender and as such, we do these things and can not do these things.

So as regards the HELOC, if you default on one and there is a deficiency judgment, you bet that it can follow you around, if you do the short sale properly then there should be no problem, i.e. negotiate with the lender prior to the short sale for debt forgiveness....

Although you may have been issued a "Credit Card" in conjunction with the HELOC loan to use for draws against the HELOC ---- IT IS A DEED OF TRUST THAT IS RECORDED AGAINST THE PROPERTY. I does not grow little feet and leap off the title and follow you around unless the lender does move for the deficiency judgment.

Please read the Deed of Trust and Note agreement with you HELOC documents from closing and you will see that this is a Real Property Lien. If you negotiate with the lender and there is substantially less value to the property, you maybe able to obtain forgiveness of the debt. Please see this thread.

http://www.loansafe.org/forum/forumdisplay.php?f=4
Since he negotiated it correctly he is in the free and clear status with the HELOC, maybe not with the IRS, but with the HELOC.
 

pennylane

LoanSafe Member
Feb 29, 2008
7
0
0
Poppy,

Thanks for all that info. I can't seem to connect to the thread. Where is it under and what is the title?
 

Gigi in Florida

LoanSafe Member
Jul 10, 2008
10
0
0
Question to Moe, Cat or anyone else who knows about TILA: Does TILA apply to HELOC on purchase of a home, i.e. the 80/20 ARM disasters...? I have questioned attorneys all over the country.....and keep getting different answers. The attorney I work with used to be a title agent and swears you have a right to rescind a HELOC on a purchase....other agree, some disagree.

Moe, I attended a seminar today in Orlando on defending foreclosures given by April Charney. I read an article you wrote about April - She is absolutely fantastic and I have bene following her for a while. Unfortunately, I did not get to ask her the question above because she was swamped and wanted to get out of there early.

If you could clarify this for me I would appreciate it!!

Thank you!!
 

Gigi in Florida

LoanSafe Member
Jul 10, 2008
10
0
0
Hi Cat -- I wrote a message a few minutes ago....please give me your thoughts on TILA and HELOC (purchase)....

Miss you!
 

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
Aug 10, 2007
26,851
467
1,000
49
Southern California
www.loansafe.org
Hey GiGi,

Where have you been and how are you doing? :)

I am not sure of an answer on your question..............Moe might have a bit more insight than I would................
 

Gigi in Florida

LoanSafe Member
Jul 10, 2008
10
0
0
Cat! Things have been pretty busy and hectic in my life. I am now working for an attorney who specializes in foreclosure defense/loan modification now so I have been extremely busy with that, and I also volunteer for ACORN so I have had little free time. My log-in here was through my e-mail with my former employer and I tried to start new i.d. and log-in a few times and it wouldn't go through. But alas, here I am and I did miss you guys! How are you doing?

Some good news: I was just featured on the abc affiliate in Orlando two days ago re: inflated appraisals. If you want to check out the story, it's at wftv.com, click on Action 9 and then "appraisal" story. I filed a complaint against the appraiser with the State and they charged him with numerous violations. The Final Hearing is in early August; he is attempting to cut a deal to get 6 months probation, pay a fine and take some ethics classes but the State does not have to accept that.

If you could pass this onto Moe and ask him about the TILA/HELOC issue I would sure appreciate it. As I mentioned before, I had the pleasure of seeing April Charney yesterday in person at a seminar in Orlando and she had great info. to help us fight the foreclosures. She is at the forefront of the mortgage/foreclosure crisis. I know Moe interviewed her before and knows her, so maybe he can pass my question onto her as well.

Thanks for any help and I am glad to be back - finally!!

Gigi
 

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
Aug 10, 2007
26,851
467
1,000
49
Southern California
www.loansafe.org
Did the attorney that you work for weigh in on your HELOC TILA question?
 

Gigi in Florida

LoanSafe Member
Jul 10, 2008
10
0
0
The attorney I work for claims there is a right of rescission on HELOC purchases. He used to be a title agent with Attorney's Title and said on all the 80/20 ARM loans, the HELOC had a 3 day right of rescission.....I asked him a few times and he swears there is one. I have spoken to or e-mailed so many different attorneys -- there is no general consensus, some say yes TILA applies, others no, say on purchase money mortgages TILA doesn't apply. However, several say the HELOC is considered a 2nd mortgage and it absolutely applies......?!
 
I

indymacfighter

Guest
Gigi,

In my experience Helocs are subject to TILA as any loan. However, if the Heloc was concurrently closed with a first mortgage on a purchase, there is no rescission. Typically on purchases there is no 3 day to cancel that is why there will not be a NORTC in your docs. There are limits to the fees that are charged on the entire transaction (1st and 2nd combined) based on Section 32, an Anti-Predatory Lending Law.

You may want to review your loan docs or entertain an audit. I am sorry I couldn't be of much help.

Indymacfighter:)
 

Gigi in Florida

LoanSafe Member
Jul 10, 2008
10
0
0
Indymacfighter: Are you a broker, title agent or work with/for a lender? My apologies, but I have heard from attorneys all over the country, and I work with an attorney who was a title agent and there are differing opinions. I need to hear from someone who is a loan officer or a title agent for verification, or an attorney who is a real estate expert. I am going to try and contact attorney April Charney on Monday via the attorney in my office (they are members of NACA). Ms. Charney is a nationwide expert in foreclosures and predatory lending. Thanks for trying to help.
 
I

indymacfighter

Guest
I am a Notary Public for the State of california, Loan Processor and I have been a Loan Officer, my recent job was an Escrow Officer with which I have to work closely with title officers and their assistants. I held a Real Estate License for the State of California, however it expired in 2007, I am actually renewing it now. However, this business is all I know. I have been working in this industry for 11 years and I am 32. As a Notary I am certified in Loan Document Signing and it is my specialty. Basically, I know how to draw loan documents properly, work them up as an Escrow Officer, sign them as a Notary, Fund as a Processor etc....... Unfortuantely our industry has been hit hard and I went from living comfortably to barely surviving and that is why I am fighting Indymac for my loan modification.

Indymacfighter:D
 

spica825

LoanSafe Member
Jun 25, 2008
17
1
0
Dear Indymacfighter. I have a HELOC question. I posted it under "good numbers for Chase." My friend had a HELOC with Chase and sold the house that it was secured by. The sale paid off the HELOC with Chase. However, it was never closed. She still received statements showing amount available was still the $100K. She is in another home and has used that HELOC after she had called Chase explaining that she no longer owns that home. They said in no uncertain terms "ok." She is now struggling with her current mortgages in which she already has a 1st and a 2nd, trying to work out a loan modification. My question is what is that loan secured with? What would be the reprocussions of defaulting on that loan?
 
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