If you can no longer pay your first mortgage, your HELOC lender may be able to recoup some of their money via short sale or foreclosure. However, it’s rarely as simple as “turning in the keys.”

There are two factors to consider when facing foreclosure:

First, HELOCs are subordinate to primary home loans. This means that the HELOC lender has claim to any money generated by a foreclosure, only after the primary mortgage lender recoups their full loss. The primary mortgage lender will also use up thousands of dollars to sell the foreclosure home. In many cases, this means that the HELOC lender will not see any money when a property is foreclosed upon.

Second, almost all HELOCs are considered “recourse loans.” The borrower is personally responsible for paying recourse loans in full, regardless of their property’s value. Read more…

Tags | foreclosure, Heloc, home equity line of credit