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Mark Cappel
UpdatedJun 2, 2010

I have only a HELOC on my townhouse, but the balance is greater than the market value of the property. What are my options?

In 2005 I paid $239,900 cash for my Florida townhome. Therefore, I don't have a mortgage and it's now worth $89,000-$110,000. I have an equity line of credit of $149,900. I want to sell and get out. Between the HOA fees, taxes, interest only equity payments, home insurance, and utilities in my lifetime I will never get the money back I paid for this house. It is a money pit. Since I don't have a mortgage what are my options. I should add that I'm also $48,000 in credit card debt. Should I stop paying the interest-only payments and let the bank take the house?

If you become delinquent on your home equity loan (which is a form of mortgage), the mortgage lender (called a mortgagee) has the legal right to foreclose on your house and property. However, it will try to avoid doing so because foreclosure offers a poor economic return. Lenders foreclose only as a way of limiting losses on a defaulted loan.

Generally speaking, when homeowners get behind on mortgage or HELOC payments, mortgagees will work with them to bring the loan current. To do so, however, the owner must stay in communication with the mortgagee and be honest about the financial situation. The lender’s willingness to help with current problems will depend heavily on past payment records. If the owner made consistent timely payments and had no serious defaults, the mortgagee will be more receptive than if the person has a record of unexplained late payments. Homeowners falling behind in payments or who know they are likely to do so in the immediate future should contact the mortgagee to discuss alternative payment arrangements.

Foreclosure process, briefly

Any mortgagee can initiate a foreclosure. The foreclosure process varies from state to state, but generally takes from two to 18 months. It all depends on the terms of the loan and local state laws. However, normally if mortgage payments are not received within 150 days, the bank can proceed with the foreclosure process. The second 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 the homeowner could still owe an unsecured balance called a deficiency balance or deficiency judgment. The good news is that this new deficiency balance (if it exists and if your lenders pursue it) is an unsecured debt that may be enrolled into a debt settlement program.

In some states (such as California) and in some circumstances, the second mortgage may be what is called a non-recourse loan. A non-recourse loan means that the lender has no recourse to collect any deficiency balance against the borrower. Its only recourse is the security on the property itself.

You mentioned you reside in Florida. Florida does not have an anti-deficiency statute. Please see Florida §702.06 Deficiency decree; common-law suit to recover deficiency to read the statute. To learn more about Florida’s collection laws, see the resource Florida Collection Laws.

Alternatives to foreclosure

An agreement between the homeowner and mortgagee to prevent the loss of a home is called a loan workout plan. It will have specific deadlines that must be met to avoid foreclosure, so it must be based on what the borrower really can do to get the loan up to date again. The nature of the plan will depend on the seriousness of the default, prospects for obtaining funds to cure the default, whether the financial problems are short term or long term and the current value of the property.

If the default is caused by a temporary condition likely to end within 60 days, the lender may consider granting "temporary indulgence". Those who have suffered a temporary loss of income but can demonstrate that the income has returned to its previous level may be able to structure a "repayment plan". This plan requires normal mortgage payments to be made as scheduled along with an additional amount that will end the delinquency in no more than 12 to 24 months. In some cases, the additional amount may be a lump sum due at a specific date in the future. Repayment plans are probably the most frequently used type of agreement.


In some cases, it may be impossible to make any payments at all for some time. For those who have a good record with the lender, a "forbearance plan" will allow them to suspend payments or make reduced payments for a specified length of time. In most cases the length of the plan will not exceed 18 months and will stipulate commencement of foreclosure action if the borrower defaults on the agreement.

Foreclosure is a serious situation that has serious repercussions. If you can, you want to avoid a foreclosure as much as possible. You can find more information on the foreclosure page. See also the HUD page Avoiding Foreclosure. To learn more about negotiating a debt, read the article Debt Negotiation and Settlement Advice.

$48,000 credit card debt

You mentioned $48,000 in credit card debt. You have several options to handle this debt. See the resource Debt Relief Options: Which is Right for You? to understand the strengths and weaknesses of bankruptcy, credit card counseling, and debt settlement.


Call me naive, but we may be seeing the bottom to housing prices sometime soon. I doubt we will see a rebound in prices anytime soon, but I think we have seen the bottom. However, all real estate is local, and you need to decide if prices have stabilized in your neighborhood. I do not like the idea of allowing a foreclosure, generally speaking, if you can avoid it. Ask your HELOC provider if they will consider a short sale, which is a much preferable option to foreclosure.

Keep in mind that you need to reside somewhere, and if you do allow a foreclosure you will face a deficiency balance. You will also need to buy a new property or pay rent, which are new expenses to consider in your household budget. Resolve the credit card debt using one of the options I mentioned in the paragraph above.

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