Can my HELOC bank cancel my home equity line of credit?
Here’s the question,
“I got a letter in the mail from my home equity bank informing me they cancelled the the remaining balance on my line of credit. I had over $50,000 of available credit and now it’s gone! Can my HELOC bank cancel my home equity line of credit?”
My answer:
Yes…and they are doing it all over the country, especially in “high risk” parts of the country like Florida, Arizona, Nevada, and Southern California suffering from large downswings in home values.
You simply get a notice saying your home equity line of credit has been “frozen” if you have a balance or cancelled if you don’t. Either way, you no longer have access to the “old” available credit line.
Then banks rationale for doing this is the declining home values in your area which no longer support extending additional credit on home equity that is dwindling.
The bank doesn’t want you to go “underwater” on the home and subsequently must remove your excess encumbrance…at least that’s what they are telling us!
Great question…
Good Luck!
Author: The Mortgage Insider
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Tagged with: HELOC • Home Equity Line of Credit • Home Equity Loan
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The did that to my husband and I with 90,000 left on our line, while we were still doing updates to our home! I did fight them, showed them their own appraisals, opened a complaint against them with the federal agency that oversees lending institutions and they had to reinstate the line completely, so you can fight them and sometimes win.
My HELOC loan has been cancelled/frozen when Bank of America took over my Countrywide loan. My question is that when I refinanced last year, I paid a fee for this HELOC. Shouldn’t I get that fee back? It doesn’t seem fair that they can keep the fee I paid.
The fee was for “originating” the HELOC…they did originate it. Be glad they didn’t charge you for closing it!
I have a HELOC with Bradford Bank in MD, who was just ordered by the Feds to sell its assets or find a buyer. I am out of town and don’t have access to my loan docs for another week, but wanted to know generally speaking can they cancel the line or call the outstanding balance if my home value is not underwater and I am current? In other words, can they cancel or call if they are in financial trouble?
Rob,
Read the note…it outlines all the situations that constitute “default”. Only a loan in default can be called due or can be foreclosed on. The contract you have with the bank resides in the note, and you have a copy of it…so read it carefully or have a lawyer explain it to you. A buyer of the note still have to abide by the terms of the original note…so let a that worry you.
If my lender freezes or cancels my HELOC, what does that mean in terms of repayment of the balance? Does the total suddenly become due?
Harry,
They can’t call the loan due, since you didn’t default. They simply don’t allow any more withdrawals against the line. All you can do with the HELOC is make payments.
I understand freezing a credit line is something a bank may want to do, but how is this consistent with the terms and conditions of the originating loan. I have never had a loan (credit line or other type) that gave the lender unilatteral authority to change the original terms and conditions as well as full discloser statements. How can they do this as a matter of fact or as a matter of law?
Ray,
You’ll have to read the HELOC terms more carefully. The bank reserves the right to restrict or cancel the credit line for any number of reasons including a deterioation of the borrowers credit or of the value of the collateral. Just like a credit card issuing bank can lower or cancel your credit card.
Thanks. I need to read more carefully.
I want to add a second comment. If the original credit line was not with the bank that now has it and is freezing the credit, does that bank have to produce a copy of the signed loan documents and cite provisions for such actions?
The selling of the loan from one bank to another does not change the terms of the loan agreement. What you signed is still enforced regardless of who owns or how many times it was sold.
If the terms of your agreement state they can cancel or reduce the credit line without notification…then they can and so can every subsequent bank who buys of the loan.
Read the agreement…