Information on consequences of home equity loan default

What is the process and consequences of default on a home equity loan?

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Bill's Answer: Answered by Mark Cappel

With either a home equity loan or credit line, when the debt is in default, the lender can foreclose on your house and property. The foreclosure process varies from state to state, but generally takes from two 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 home equity products would be repaid after the first mortgage is paid in full. Please consult your lender for details. I will provide you more information in just a moment.

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In case you are having problems with keeping up with your payment you should try and contact your lender to work out a payment arrangement. It is always better that you are active rather than reactive in matters such as this.

Foreclosure can be one of the most horrible financial experiences. You end up defaulting on too many mortgage payments and your home is taken away from you. Not only do you lose your home in foreclosure, but it can have a long-lasting impact on your credit rating.

Foreclosure is a serious situation that has serious repercussions. If you can, you want to avoid a foreclosure as much as possible. is here to help. If you are in over head in debt, which is causing you to miss mortgage payments, we can help you get a debt consolidation loan (Debt Consolidation Options) to handle your debt and avoid a foreclosure. We also offer helpful guides, foreclosure FAQs, glossary terms and other helpful tools to help you keep your home and avoid a bank repossession. You are in good hands with

You can find more in depth information about foreclosures on our Foreclosure page.

I hope this information helps you Find. Learn & Save.



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Comments (135)

Jeff G.
Santa Rosa Beach, FL  |  June 23, 2012
i was a builder in georgia and was devastated in the housing crash, my home had a first and second mortgage and a heloc in the amount of 124k. the home was foreclosed in 2009 and i am now being sued for the 124k. all 3 loans were with the same institution. i needed to use the heloc to keep the business afloat till it ran out. I have since relocated to florida and have a home here with about 100k in equity in it. we have lived here for three years and the home in georgia was forclosed in 2009. if i file bankruptcy will they take my house away in florida?
June 25, 2012
It is not possible to answer your question in detail without knowing more about your financial circumstances. Consult with a bankruptcy lawyer in Florida who will discuss Florida Collection Laws. He or she will also outline the bankruptcy exemptions available for Florida homeowners.
Angelia B.
New Baltimore, MI  |  October 03, 2011
My husband was out of work for two years, during which time we accumulated some credit card debt and attempted 4 different times to get a loan modification with no success. We also have a home equity that just matured and the new loan the bank is willing to give us will double our payment (which we cannot afford of course). Our home is @ 100K underwater as is. Understanding that the second mortgage company will likely not pay off our first mortgage in order to foreclose...they will more likely seek legal there anyway to get the second loan included in a chapter 7 or will it always be considered a "mortgage" loan and only be dismissed under 13?
October 03, 2011
I know of no restriction on the number of home loans that can be included in a chapter 7. Consult with a bankruptcy lawyer to receive advice tailored to your situation.
Don H.
Pinellas Park, FL  |  August 16, 2011
We refinanced our home in 2006 80/20 HELOC. Of course it was a stated (no doc) loan, so they didn't bother verifying income. We tried to do a loan modification in 2008 but unless we were behind they wouldn't talk to us. So we fell behind on the first but maintained the HELOC. The first was solely in my wife's name and the 2nd was in both. Well, three months after we were served foreclosure papers. So we panicked and since my credit was still good we bought another home and moved there. We tried two short sales and the HELOC denied both. Also I tried to get them to move the loan to a promissory note but they denied that as well. The home finally foreclosed early 2011. In June the 2nd started calling me asking for payment. I haven't made a payment for over two years. Unfortunately, now I can't afford to make that payment in my current financial state. My question is what would be the best and easiest way to try and settle this? If I could come up with a lump sum what % do most settle for? Thanks.
August 18, 2011
It is not clear to my how you can come up with a lump sum payment, if you are unable to make a monthly payment, given your current finances.

There is no set percentage that lenders accept, in these situations, as it is based on their attitude and what you reasonably can afford. I recommend that you start low, if you are offering a lump sum, say 10%, especially if you can demonstrate a financial hardship with a full financial disclosure. You can always up your offer, if the negotiations require it. Never make an offer that you can't see through.
Ron A.
Simi Valley, CA  |  April 06, 2011
My situation isn't quite as dire as some, but I am still weighing my options. Here is my circumstances. I owe 226,000 on my first, and 128,000 on a HELOC with about 18,000 in credit card debt and about 10,000 to uncle sam from cashing out an IRA to pay mortgage and bills. My house is worth between 390,000 and 410,000 but would probably only sell for the lower of the two amounts. When you deduct the amount for the realtor, that would leave me about $20,000 short of paying all of my bills. I really don't want to declare bankruptcy as I would really like to start over with a clean slate. I know the first would get their amount and then the HELOC and IRS would get their amounts. What are my best options considering my circumstances?
April 06, 2011
It is difficult to offer meaningful advice without knowing more about your situation. You did not mention your employment status, so I will assume you are employed because unemployed readers usually mention that fact. Your credit card payment is probably $500-$600 per month. Were that zero, could you afford your mortgage and living expenses? If so, bankruptcy or debt settlement is your answer. If not, then you are slipping ever backwards and need to sell the house now before you slide even farther into the abyss.

Consult with a bankruptcy lawyer about your options if, as I mentioned, zeroing your credit card debt would give you the fresh start you need. If you can afford less than $500-$600 monthly, then consider debt settlement.
Karen R.
Pembroke Pines, FL  |  June 23, 2011
Need some advice whether bankruptcy chapter 13 is our way to go. My husband and I walked away from our town home we purchased 5 years ago. We are not interested in saving/keeping the home. Our debt currently is : 2 line of credits (from the town home and another a 2nd home we purchased. each of them is about $50K, credit card debt of $50K, student loans of $42K and of course one car payment. Because of our income, we only qualify for chapter 13. We recently found out that our chalpet 13 payment will be of $700 for the next 5 yrs (ouch)and we are now wondering if this is the right move for us considering that my student loan payment will be stopped and in the mean time I will continue to accrue interest. The only reason why we thought we should do the bankrupcy is because we are afraid that in the future the line of credits will come after us with a lawsuit and at that point we will have no choice but make whatever payments we are asked to pay :( any insight, thanks.
June 23, 2011
Consult with a lawyer who has bankruptcy experience. He or she will review your assets and liabilities, goals and financial plans, and can give you what-if scenarios for pulling the trigger on a chapter 13.

In general, I favor resolving a debt sooner rather than later.
Mel P.
Roswell, GA  |  January 31, 2011
So, we are currently trying to sell our house that is currently valued at $140K. We owe $130 in the first mortage and $29,700 in a home equity loan. If we do a short sale on our house, the mortage would get paid, but what happens to the home equity line. We have our loan through USAA, would we still owe that entire amount?
January 31, 2011
A mortgage, whether it be a traditional first or second, or a HELOC is secured by a promissory note, which gives the homeowner personal liability for the debt, and a mortgage, which gives the lender a right to foreclose if the debt is unpaid. You have personal liability for any deficiency balance if the property is sold and the sale price is less than the balance of the loan.

The answer to your question depends on how your second mortgagee (the HELOC servicer) responds to the short sale. In cases I have seen, the second will become involved in the short sale negotiations to get as large of a piece of the pie as possible. A second can stymie a short sale, in my experience, so leave a place for the second at the negotiating table.

A second can also sit on its rights and wait until the sale is concluded to file a breach of contract lawsuit to collect the deficiency balance. How your second will respond is really a guess.
October 06, 2010
See the resources Mortgage Foreclosure Arizona to understand your options, rights, and liabilities, and FHA Refinance with 100%+ LTV for a possible solution. Regarding the line of credit, if it was used to purchase the property, then if my understanding of Arizona's antideficiency law is correct, it applies to your second. If it was not used to purchase the property, then I believe the answer is no, it does not apply. I hasten to add I am not licensed to practice law in Arizona, and therefore am incompetent to give you legal advice on your situation. Consult with an Arizona attorney who has experience in real property law for a more precise answer.
Laurie C.
October 06, 2010
We purchased a home in Arizona in 9/2007. We paid 580,000 and the bank 100 % financed us. Now our home is worth 341,000 and a realtor said we would be lucky to break even in 7 yrs when is when we planned to retire. We have a 6.5% interest rate which we cant get refi for cause our home is not worth what we paid. Its frustrating to keep paying high mortgage payments to save your credit score. I am trying to find out if we walk away like everyone else is doing here in Arizona . At this point credit does not matter to us. Our excellent credit got us in this situation. We have a huge line of creit 158,000 does the antideficiency law in ARizona apply to line of credit.
September 21, 2010
A bankruptcy filing now would be premature because you do not know what you will negotiate with the bank regarding the deficiency balance. The bank may forgive the deficiency. Bankruptcy will not help with the student loan, so there is no urgency to file for that reason. You are facing a $9K credit card debt plus a $5K potential deficiency, which totals $14K. I have two assignments for you: 1) Consult with a bankruptcy attorney to see if you qualify for Chapter 7. 2) Read the resource Debt Relief Options: Which is Right for You? to understand your options if you do not.
Billy K.
September 21, 2010
I've been reading all the feedback about foreclosure and deed in lieu etc. Currently I am plagued with over $140k in student loans, have a home currently in the beginning of foreclosure (attempting a deed in lieu) valued at $125k with loans of $130k. My credit card debt is another $9k. Since I live in NC, it is quite possible that the bank will attempt a deficiency judgement against me should I proceed with the deed in lieu or foreclosure. Should I file for bankruptcy before this occurs?
June 14, 2010
If you are not in financial distress and want to stay in the house, do nothing. Just because the house is worth less than what you owe means nothing. However, if you are in financial distress, or you need to sell the house, then read short sale or deed in lieu of foreclosure as an alternative to foreclosure. See also the Making Home Affordable Program to see if this government program will assist you.
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