Home Equity Lines and Foreclosure
- Technically, any time a lender receives a payment more than 30 days beyond the scheduled date, the mortgage is in default. Normally lenders will not immediately file paperwork with the courts to foreclose on a home if only one 30-day late payment occurs. Often, lenders require several missed payments over several months before choosing to foreclose on a home. Foreclosure is expensive and time consuming, lenders would rather find ways to help the home owner make the payments than take the home through the foreclosure process.
- Most first mortgage notes contain clauses that force the first mortgage lender to automatically foreclose if a second mortgage lender, including a loan for a HELOC, defaults. The title report held by the county reflects which lender is first on title and which lender is second on title. Often, these are in chronological order, but this is not always the case. First mortgage lenders want to be first on the mortgage title because it means when the home sells, either normally or through a foreclosure sale, they are the first ones who receive payment. Most HELOCs are second mortgages and if they foreclose, they will have to wait to receive any funds until after the first mortgage company is satisfied.
- When the HELOC lender files a notice of default with the county courts, this does not mean the home is immediately seized. State laws vary on the amount of time a foreclosure must take prior to removal of the home owners. Many states allow a redemption period, even after the home is sold at a foreclosure auction where the home owners can still keep their home if the mortgage company's loans are redeemed. Often, the foreclosure process take several months and can even take more than a year prior to the home owners actually leaving the subject property.
- The United States Department of Housing and Urban Development, HUD, along with the federal Making Home Affordable program offers several foreclosure avoidance programs. If you fear losing your home to foreclosure, HUD-1 provides free foreclosure avoidance counseling through many state housing agencies and other nonprofit home counseling companies.
