HELP: Subject-to with a Home Equity LOC? - Posted by Jim K

Posted by will on July 18, 2001 at 23:19:53:

I wasn’t sure what your LTV was but it sounds like you could get a private lender to loan you the funds to pay it off if/when it becomes a problem since your at 80%. If you took this strategy, how are you going to pay your private lender? Are you going to make monthly, quarterly, or pay them off when you sell the property?

HELP: Subject-to with a Home Equity LOC? - Posted by Jim K

Posted by Jim K on July 16, 2001 at 17:20:37:

I’ve got a good deal lined-up. The first is a VA loan, and the second is a $20,000 Home Equity Line of Credit, maxed out. The deal is good, but I’m worried about the HELOC. I want to take it subject-to.

If I make it a condition of the sale that the seller closes the HELOC, disallowing him from using it any more in the future, is this safe enough? I’ve heard that lenders of HELOCs WILL call the loan due and payable if they find-out ownership is transferred. And, get this…the trust deed for the HELOC states that a transfer of ownership interest TO A LAND TRUST is a violation of thier Due-On-Sale clause, and will allow them to call the loan at their option.

By the way, I plan to sell this using a L/O, so I need the loans to stay in place for a while.

SHEESH. What should I do?

Re: HELP: Subject-to with a Home Equity LOC? - Posted by will

Posted by will on July 17, 2001 at 24:50:24:

It’s going to take them a while to find out about the LOC and the transfer of interest. However, knowing that they are going to call this, your exit strategy should not be a lease option.(You’re buyer is not likely to cash you out before the bank gets wind of the transfer of interest.) You should be looking for a buyer who wants to buy the property now. Either through conventional financing or through owner financing in which you can sell the note at closing and pay the underlying financing off. If the equity is sufficient, you can use either method to make sure that that line of credit and underlying mortgage is paid off before they call it due and it becomes a problem.

Just know from now on that any property taken subject to that has an LOC attached is not a keeper property(L/O). Your exit strategy is to get a quick payday and move on or pay off the line of credit and treat it as a normal subject to deal. Of course you’re looking at door #1 unless there are some unusual circumstances!

Your payday will come from the buyer’s down payment and possibly a 2nd mortgage to you for the difference between what you’re getting cashed out for (80%,85%,90%,95%, or maybe a FHA 97% LTV)based on their loan and what they payed you for the house.

Much Success,

Re: HELP: Subject-to with a Home Equity LOC? - Posted by Tom – IN

Posted by Tom – IN on July 16, 2001 at 19:12:35:

Why not have the seller close out the HELOC, then transfer it to a different lender?

Actually, I don’t think that that DOS clause is legal, but who wants to find out.

Re: HELP: Subject-to with a Home Equity LOC? - Posted by Jim K

Posted by Jim K on July 17, 2001 at 01:33:57:

Will, thank you for your input. I was researching the archives of this site, and found a post by Bill Gatten, stating that he has no problems with HELOCs. What he does is make the subject-to contract contingent on the seller putting a “freeze” on the HELOC, and confirmation from the bank that this has been done, before he’ll close. He also said he’s had no problems from banks in doing this.

Do you have any direct knowledge of banks calling HELOCs due if the ownership is placed into trust? I’ve only heard rumors, but no one has come forward to state it has happened to them.

Also, if the bank called the loan, it seems I could just go get another second to pay-off the HELOC, since this one only comes to a CLTV of about 80%. I’d really like to L/O this place, and I’m starting to think I could handle it if the bank called the loan, or if they didn’t. Any thoughts?