Unless, of course, you live in a non-recourse state.

In non-recourse states, homeowners cannot be held personally liable for more than a forclosed property sells for. The debt is completely satisfied at the time of sale and lenders cannot sue to make up for lost funds. To learn more, take a look at this list of non-recourse states.

Keep in mind that laws change from time to time and that state code can be complicated to understand. If you’re facing foreclosure, consult with an attorney before making any decision based on potential recourse.

photo credit: respres

Foreclosures seem to be slowing, but the country still isn’t in the clear. If your home is in danger of facing foreclosure becuase of a HELOC in default, it’s important to have some idea of what the bank will do. Here are the five primary ways HELOC foreclosure situations play out:

1. The homeowner is given permission to offer a short-sale.
2. The homeowner is given permission to offer a short-sale because the primary mortgage holder offers a monetary incentive to the HELOC lender.
3. The primary lender forces a foreclosure.
4. The HELOC lender forces a foreclosure.
5. The HELOC lender purchases the primary loan.

Each of these five possibilities offers unique benefits and drawbacks to the homeowner. Take a look at the article HELOC Foreclosure to learn more about how to make the most of your situation in each possibility.

photo credit: stevendepolo

HELOC tax deductions could save you thousands when you file. To put it simply: If your HELOC was used to improve your home, you may deduct interest on lines up to $1 million ($500,000 married filing separately). If your HELOC used for other purposes, you may deduct interest on lines up to $100,000 ($50,000 married filing separately).

Although borrowing money in the form of a HELOC is riskier than taking out a traditional loan (i.e. your home must be used as collateral), the tax deduction is a huge incentive. Check out the article HELOC Taxes to learn more about how to qualify for some IRS relief.

photo credit: TheTruthAbout…

A recent release from his office explains:

“…Mike Haridopolos today called for hearings in Tallassee to investigate claims that after banks received hundreds of billions in federal bailout money they squeezed consumers and fraudulently or arbitrarily reduced Home Equity Lines of Credit (HELOC) to improve their own bottom lines.

‘I have heard the stories of this happening across our state and our country, and the courts are filled with lawsuits,’ says Haridopolos (R-Merritt Island). ‘This needs to be investigated because if true it’s outrageous. The very banks that are bailed out with taxpayers’ money then stick it to homeowners?’

Haridopolos is calling for hearings in Florida and is also asking that Congress investigate the claims of wrongful HELOC suspensions.

See Also:

How to Protect Your Credit in Case of a HELOC Freeze

Courthouse News Service reports:

“Yakas filed a class action, alleging breach of contract and unjust enrichment. She said Chase breached the HELOC in three ways: by failing to obtain an appraisal by a licensed appraiser, by using the unreliable AVM to assess her property value and by charging her a $20 annual fee after it suspended her credit line.”

It’s about time that someone stood up for HELOC borrowers’ rights. Lenders can certainly limit or even freeze HELOC lines if there is not sufficient equity remaining in a property. However, it is unfair to freeze HELOCs in batches or based on these so-called “automated valuations” that do not require any actual appraisals or personal considerations.

photo credit: The-Lane-Team

See Also:

HELOC Freeze Help

Borrowers dealing with undesirable changes from their credit card issuers may be able to mitigate some of these problems by transferring their debt to a HELOC.

Reuters explains:

“View your credit cards and other loans, such as a home equity line of credit (HELOC), as a portfolio of debt, just as you would consider all of your retirement accounts to be an investment portfolio. Make decisions based on the portfolio in its entirety. That may mean diversifying — setting aside one card for some uses and another for different uses. Or shifting balances from a high-interest rate card to a low-interest HELOC.”

Grouping all these lending products together as your “portfoilo of debt” is an excellent way to add some perspective to the situation. By considering your HELOC alongside your credit cards, you can easily compare interest rates, fees, and other features. Often, you’ll find that you can save hundreds or even thousands by transferring debt from a high-interest credit card to a low-interest HELOC.

See Also:

Is a HELOC Right for You?

New Jersey Business News explains:

“The closing costs for a home equity product are often substantially less than those associated with a first mortgage, giving it an advantage over a cash-out refinancing. Nationwide, the average origination and title fees on a $200,000 mortgage in 2009 totaled $2,732, according to Bankrate’s annual survey of mortgage closing costs…

If you have the room in your household budget for this additional loan payment, the HELOC or home equity loan saves money by funding the projects over a shorter time span than a cash-out first mortgage.”

The downside of a HELOC is that it is backed by your house. If you can’t make your payments for any reason, you could end up losing the roof over your head when the lender forecloses. So, make sure you have a plan in place for paying back the home equity loan and be aware of any balloon payments that will be due.

On the positive side, your HELOC interest may be tax deductible if the loan is used to improve your home. That can add up to significant savings especially when combined with a competitive rate.

See Also:

HELOC Tax Deductions

But, 2010 may be the year that frozen HELOCs begin to thaw.

PBS’ Nightly Business Report explains:

“As housing prices and the economy begin to stabilize, many lenders are writing lines again. They’re not the unbelievable deals they used to be, but they can still be a relatively cheap way to borrow. For example, it can be wise to pay for a new car with funds from a HELOC, since some auto loans charge far higher interest rates than HELOCS do.”

If your area wasn’t hit too hard with the real estate downturn or if you hold a significant amount of equity due to paying down your mortgage, you may be able to qualify for a low-interest HELOC. Give it a try…even if it didn’t look so promising last year.

See Also:

How to Qualify for a HELOC

Is February the perfect time to cut ties with big banks and look for a better match?

The Consumerist reports:

“You deserve a healthy relationship with a bank that values you as a customer, instead of jacking up interest rates, cutting your HELOC and your credit card, and refusing to adjust wacked-out mortgages.”

Big banks aren’t always bad. But, recent financial troubles have caused many financial organizations to make sweeping changes that affect everyone – both the responsible HELOC borrowers and the not-so-responsible borrowers. Many HELOC lines have been cut or frozen without personal consideration.

Local banks and credit unions may not always be better. But, at least customers have a good chance of talking face-to-face with someone who can consider their individual situation.

photo credit: joanna8555

See Also:

Negotiating HELOC Terms

Columnist Steve Bucci pointed out both the pros and cons and said that the reader should weigh both sides. While it’s true that there are some benefits to using a HELOC as a car loan replacement, I’d like to point out that the drawbacks can be enormous.  Bucci writes:

” First, the loan is usually a variable interest rate loan that may change — as in go up — monthly. Second, if you don’t aggressively pay down the amount you borrow from the HELOC, that loan could outlive your car. This could result in you paying on the HELOC while having a new loan for your next vehicle. Additionally, adding the car loan amount to your line of credit balance decreases the amount of equity available in your home and could be a problem should you need to sell your home unexpectedly.”

Unlike a traditional car loan, your HELOC is secured by your home. HELOC debt is also much harder to discharge. Why put your property at risk in order to finance a car?

photo credit: dave_7

See Also:

Is a HELOC Right for You?