Mary Cass, Member
@marycass
In a worst-case scenario, yes. A HELOC (home equity line of credit) is essentially a loan that functions as a line of credit. The line is secured by the equity in the home. Because the home is the primary collateral for the loan, the lender has every right to foreclose on the home if payments cease.
However, many lenders will not force foreclose on a HELOC. This is because most HELOCs are actually second mortgages. In the case of foreclosure, the proceeds from the sale will go to the first mortgage in line – the original mortgage. The second mortgage (in this case, the HELOC) will only be repaid after the first mortgage has been paid back in full. Often, this means that the HELOC lender will see little to no money out of a foreclosure settlement.
Because they are so unlikely to receive much repayment from a foreclosure, your HELOC lender may be open to setting up a structured repayment plan. This is the best-case scenario, and you should contact your lender as soon as possible before you have to stop making payments. However, some lenders may try to purchase the original mortgage to force a foreclosure on both loans.
You should also be aware that most HELOC loans are recourse loans, which means that the lender has the right to seek repayment on the loan beyond the collateral that was secured on the loan. A lender must first win a deficiency judgment against you. This is a costly procedure that, again, not all lenders will elect to pursue. But if successful, the lender could be allowed to garnish your wages or take other action in the future.
Ed Sal, Member
@chelsller
Ill start my answer off first by explaining what a HELOC (home equity line of credit) is, A home equity line of credit is a line of credit that is offered by banks or other financial institutions that allows you to borrow from the equity in your home. It is a revolving line of credit which means that if you are given a $50,000 line of equity and subsequently borrow $10,000 and repay it, you still have $50,000 remaining on you line of credit. Usually you have a draw period in which you may use you line of credit after which you must start to pay it back. You can also be forced to repay this loan when you sell the home or if it no longer is your primary residence.
To get more into answering your question the simple answer is yes that your lender can foreclose on your home but this usually will only affect those of us who have completely paid off their home and have no other mortgages or liens on the home. But if you still have a mortgage note on your home then your home equity line of credit is considered a second mortgage to that original note. So in the case of any foreclosure on your home, your original mortgage would be paid first and any remaining funds would be used to pay down the home equity line of credit.
Usually your lender will be willing to work out some arrangement with you to pay off your line of credit, in most cases they will use foreclosure as a last resort option to recoup what is owed. To help avoid situations like this lenders generally require that the borrower maintain a certain level of equity in the home as a condition of providing a home equity line.
Did we answer your question?