2015 was a big year for HELOC mortgages coming due. These home equity line of credit mortgages went through a popular spree back in 2005 – 2007 where homeowners were using them for their first or second mortgages. These lines of credit have begun to reach the end of their terms (usually 10 years) and will require repayment; meaning a larger monthly payment for the homeowner. This could lead to more short sales involving HELOC loans.
So what does having a HELOC loan mean for the underwater homeowner?
Depending on whether the homeowner used the funds from the line of credit to buy the house originally or not is going to affect how willing the bank is going to be in considering the short sale.
Recently we had a file that had a conventional first mortgage and a HELOC as their second. They were trying to get approved by both lien holders for a short sale of their home. The first loan was HAFA eligible and going smoothly toward being approved. It was the second mortgage (the HELOC loan) lien holder that indicated that due to the fact that the loan was not used to buy the home that they would not participate in the HAFA program and would require money at closing or a loan installment plan to cover the rest of the amount owed. It came to our attention in this case after more research that the HELOC loan was actually used in the purchase of the home. The lien holder was then willing to participate. It is entirely discretionary for any second lien holder to participate in the HAFA program. But, for the most part, they will participate which secures receiving substantial funds from the program .... but they must release any deficiency (or shortfall) and cannot collect against the balance.
In general, this is better than taking their chances against what is usually an insolvent borrower.