Posted by Bill Scott (Ohio) on November 16, 2001 at 08:13:47:
Check and see what the basis for the line of credit was. As long as it wasn’t based on the equity in the property that you are purchasing you should be fine. The reason is that a line of credit is a PERSONAL loan with the person taking out the line of credit responsible for it. The banks only recourse is to that individuals assets, and as I understand your post there is a trust taking title. So, he is no longer the owner nor a beneficiary so the bank with the line of credit won’t be able to go after this asset.
However, if your seller were to declare bankruptcy, the banks with a mortgage on the property may be able to come after the property even with a trust. They would have to get what is called a ‘charging order’, but they may be able to cause you some headaches along the way. Proceed with caution, and it’s always a good idea to discuss these transactions with an attorney who does these types of deals every day----which I don’t do!