HELOC Mortgages

HELOC Mortgage: Friend or Foe

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. 

The choice of a lawyer is an important decision and should not be based solely upon advertisements This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

Full Waiver of Deficiency: Why It's Important

Negotiating and selling an underwater home via short sale is not something a homeowner should do alone. Having a seasoned real estate agent and short sale attorney to work with is a must for the most successful and beneficial outcome for the homeowner.

A key element to this success is the status of the deficiency.

During the process, the difference in the amount from the sale and the amount owed is referred to as the deficiency. During the negotiation, if approved, there are specific terms with which the approval is contingent upon. These terms are specified in the bank’s approval letter to the homeowner. There is a minimum sale value that will be accepted by the lender; any money over this amount in the sale contract goes directly to the bank to satisfy what was borrowed. A good negotiator works with the lender to ensure that this value is reasonable given the underwater status of the home.

The complexity of this area in the short sale process is one of the many reasons why a homeowner wants to make sure the firm who is negotiating their deal has experience, professionalism and success with past clients. Getting the full deficiency waived and the loan settled in full is crucial. Once the bank approval letter includes that the balance will be settled in full with a full waiver of deficiency, the lender can no longer come after the homeowner for the deficient amount, even after the sale of the home goes through.

Prior to the Mortgage Debt Forgiveness Act, another area of importance that had homeowners shying away from short sales was the potential taxes they may owe on the amount they were deficient. In some cases, the forgiven amount could be considered taxable income and the homeowner may have to pay taxes on that amount. However, the act has been extended through the year 2016 and protects homeowners from having to pay this tax when they have completed a short sale or foreclosure during that year. The act is readdressed each year and has been extended by the government since it was originally approved in 2007. 

The choice of a lawyer is an important decision and should not be based solely upon advertisements This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.