If our first mortgage goes into foreclosure what happens to our HELOC?
Author: Rob K. Blake | Date: October 14, 2008 | Filed In: Foreclosure Answers
Here’s the whole question:
“We have a HELOC that we have been paying on time no lates. However, our 1st mortgage may go into default. What happens? If the 1st does go into foreclosure are we still responsible for the HELOC? “
What Happens To HELOC During Foreclosure?
Since the HELOC (Home Equity Line of Credit) is subordinate to the first mortgage the HELOC lender has the option of curing your default to protect their HELOC. Click on our Glossary term to learn more about Subordination.
The reality is subordinate lenders never do since it would take all your back payments to cure and then they would also be on the hook for the monthly payment going forward. Of course, they would then file a foreclosure on their lien position and most likely end up with the house. Another outcome they want to avoid at all costs.
So the answer to your question is the HELOC with be extinguished by the foreclosure of the first mortgage. But as with all things legal in nature, I must say, I am not an attorney and do not take this as legal advice…just my opinion.
Get an attorney and know for sure.
On another note…don’t let the first mortgage foreclose. Lenders are more willing to negotiate on defaulted first mortgages getting permanent loan modifications for foreclosure victims at payments they can afford to make.
Don’t give up on saving your home without talking to the lender or servicer.
To learn how to talk with lenders and servicers to get a loan modification “all by yourself”, click on “Stop Your Foreclosure Now!”.
Great question!
Good Luck!
Author: Rob K. Blake
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I continue to receive statenents from my second lender (a HELOC) after the foreclosure initiated by the first lender. I’m told the HELOC is now unsecured debt (like a credit card debt) and I still owe it. I thought the HELOC as a subordinate loan goes away. Can I be sued by the HELOC lender to ccllect?
Malik,
No…foreclosure does NOT extinguish the HELOC debt or obligation to pay. It only removes the home a security for the HELOC. So “Yes”, you can be sued by the HELOC lender to collect. It’s rare, but it happens.
Read this post, Can I bid at my own foreclosure auction purchasing my house back cheaper?”….it explains the foreclosure process a little more…
Good Luck!