What You Can and Can't Do With Your Home Equity Loan In Hard Times

[Jun 12, 2009.]

 

What the Banks Don't Want You To Know

What if, the worst has happened?  You've lost your job or taken a serious cut in pay.  You are no longer able to pay for your home.  There are options.  First of all, don't stop communicating with your lenders.  Seek help, such as a debt counselor or bankruptcy attorney.  Things might not be as bad as they seem.

Chapter 13 Bankruptcy and Your Home Equity Loan

Did you know that in a Chapter 13 Bankruptcy you might be able to entirely remove your second mortgage and stay in your home. Today's home values are declining in most areas of the United States.  If your home has lost a lot of value, so much so that the second mortgage is no longer secured by the house, you may be able to treat it like other unsecured debts such as credit cards.

Removing that second lien, and treating it as an unsecured debt, might be one way to stay in your home and begin to afford it again.

Modification

Second lien holders are becoming more open to doing loan modifications you typically hear about for first liens.  It may be in the best interest of both you and your second mortgage holder to rework the terms and principal balance of the original loan.  Modification might be a better alternative to a bank's loss due to default.

Deed in Lieu of Foreclosure

One course of action might be to deed your house back to the bank that holds your mortgage. 

Did you know that you might not be able to do a deed in lieu of foreclosure if you have a second mortgage on your house?  A Home Equity Loan, a lien in second position, is a second mortgage.

In the past, banks gave home owners home equity credit lines routinely.  It was very common for each month's monthly mortgage statement to include an offer for a home equity loan.  Often the advertisement suggested a family vacation, a new kitchen, or credit card debt consolidation.  These advertisements were some of the encouragement to use a home like an ATM.

Flash forward, home values are declining across the country.  Second mortgages are no longer in a secure position with the collateral - your house.  Banks routinely are reducing the unused portions of the available credit issued previously.

Home Equity lines are very common and can greatly complicate things if the home owner gets into financial trouble.  Taking the Deed in Lieu of foreclosure option off of the table leaves the home owner without a very valuable tool.

  For more information on how to do a Deed in Lieu of Foreclosure, click here.

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.