Effects of Home Equity Line in Default - The Bills.com Blog
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Effects of Home Equity Line in Default
Question: There was a line of credit taken out on my property that i own with my spouse which i never signed or authorized. my spouse defaulted and the bank closed down the checking out for no explainable reason where the payments were being taken out of! however the loan was never recorded on the property! it has been well over one year now! does the bank have anyrecourse on my proprty- or can they only sue my spouse?
Answer: The fact that the bank never recorded a lien on your property does not prevent them from doing so now, even though over one year has passed from the date of default. Generally speaking, a creditor must take action on any defaulted contract within the statute of limitations provided by each state, which varies from three years to fifteen years from the date of last payment, depending on the state and type of debt. For more information about the statute of limitations in your state, I encourage you to visit BCSalliance.com . In most states, a creditor that has extended credit to you secured by your home must still file a lawsuit against you to force you from the property. Since only one year has passed since the date of default, it is unlikely that the statute of limitations has passed, and therefore the creditor could potentially file a lawsuit to foreclose on your property. Given the complexity of this situation, I highly encourage you to consult with an attorney as soon as possible to find out what action the creditor may take against
your under your state?s laws, and what recourse is available to you.
You should keep in mind that just because a loan is secured on your home does not necessarily mean that the creditor will attempt to foreclose on the property. Home equity lenders and second mortgage holders frequently choose to pursue a standard lawsuit to obtain a money judgment rather than proceeding with foreclosure action. These types of loans are considered ?junior encumbrances? to your first mortgage, and in order to foreclose, these lenders are required to pay your first mortgage off before auctioning the property. Depending on the amount of your first mortgage and the amount that the lender can obtain for the property at auction, this type of foreclosure can actually cause a home equity or second mortgage lender to lose money.
Since over a year has passed and the lender has taken no action to foreclose on the property, I would be surprised if the creditor attempts to proceed with foreclosure. However, as I mentioned previously, I highly encourage you to consult with an attorney to discuss the situation and your options. Even if the creditor does not foreclose, if they sued you and obtained
a judgment against you, the creditor may be able to garnish your wages, levy your bank accounts, or attempt to seize other property you own. As you can see, the consequences of a lawsuit can be quite serious, even if the lawsuit does not result in foreclosure, so I would encourage you to take steps to resolve this debt as quickly as possible. You may want to set up a payment arrangement with the creditor, or you may even want to consider filing for bankruptcy protection. Again, these are options you will need to discuss with your attorney to determine which possible solution is the best for your situation. For more information about bankruptcy, I encourage you to visit the Bills.com Bankruptcy Information Page .
If you would like to read more about foreclosure action, and for options available to consumers facing foreclosure, you should visit our Foreclosure Resource Page .
I wish you the best of luck in resolving this debt, and hope that the information I have provided helps you Find. Learn. Save.
Best,
Bill
www.bills.com
Also, make sure to get a free financial health check-up with Bills IQ!
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1. Posted by Greg Swyers on Saturday 22nd March 2008 13:19
I have just completed a chapter 7 bankruptcy. My property is worth 169,000. My first and second equal 265,000. I am still current with my first but I have defaulted on my HELOC. If I stay current with my first how long will it be before the creditor on the second will sue me. The balance on the first is 200,000 and the balance on the HELOC is 65,000.
2. Posted by Bill on Monday 24th March 2008 08:40
The aware that the lender for your second mortgage can initaite foreclosure proceedings because of the default. The foreclosure process varies from state to state, but generally takes from 2 to 18 months. It all depends on the terms of your loan. However, normally if mortgage payments are not received within 150 days, the bank can proceed with the foreclosure process. The 2nd mortgage would be repaid after the first mortgage is paid in full. In fact, if the sale price is less than the value of the mortgages held against it, then in some states you could still owe an unsecured balance called a deficiency balance.
3. Posted by Alex on Monday 7th April 2008 03:11
Dear Bill I let go a rental in Fl that I can't hold any more with a big negative . The first has not foreclosed on the house and the second lender is referring the loan to a collection company who just sent me a letter. 1.Will they settle for a lesser amount ( I owe 57K ) 2.I have no asset except my TX home ( which is homestead), my 401-K and my 2 cars ( worth about 30K)and now unemployed.What can they do to me if they are not willing to settle for less.Can they come and take all my furnitures and cars since they can not touch the house and the 401-K. 3. Am I allowed to keep 2 cars for me and my wife and is there a value limitation?
4. Posted by Bill on Monday 7th April 2008 11:27
If the second lender wants to, it can file a lawsuit in court and obtain a judgement against you. Even though what you state in your question might be true, keep in mind that garnishment of the debtor's bank account is the main legal remedy still available to enforce judgments against consumers in Texas. Collection agencies actively utilize investigation and post-judgment discovery to uncover debtor bank accounts (for example, the Equifax SkipFinders program). It is always best to talk to the lender. It might take some work, but if the lender realizes that the available options are limited, there is no reason why they should not work with you towards an amicable settlement on the account.
5. Posted by Alex on Tuesday 8th April 2008 07:22
Dear Bill Thank you for the advice. I did call them and they are willing to settle. What is the lowest percentage will they normally accept ? Of course they will 1099 me for the rest.Your input is very appreciated and help me a great deal in my negotiation Take care Alex
6. Posted by Bills Feedback on Tuesday 8th April 2008 07:26
It really depends on their internal policies and your own financial situation (how much you make and what you own {if they skiptrace you and verify your assets and income}. A reasonable 'starting' place is to document your income & expenses and your financial hardship and pitch them a low settlement (25-40% to start). Also, do your research on the cancellation of debt income issue (there is a bunch at Bills.com) because if you are 'insolvent' at the time of settlement you can file a CODI form 982 and you may not be liable for any of your stated 1099 income... but check with your CPA or tax preparation firm. Best.