Can a Home Equity Lender Foreclose?
A home equity loan is a secured loan, meaning that the lender places a lien on your home as collateral against the loan. If you fail to abide by the terms outlined in the home equity loan contract, the lender has the right to seize and sell your home to repay the debt.
Other People Are Reading
-
Triggering Foreclosure
-
The terms of your home equity loan will spell out the exact conditions that trigger foreclosure, but the lender usually considers the loan to be in default when you are 30 days late on your payments. At this point, you enter the stage of pre-foreclosure as the lender begins the process that leads up to foreclosure. If you catch up on payments during this time, you can avoid foreclosure.
Mortgage Priority
-
If you have a regular mortgage in addition to a home equity loan or line of credit, your regular mortgage lender has first priority on the value of your home. This means that the home equity lender must pay the balance on your first mortgage before taking any of the foreclosure proceeds. Because of this, home equity lenders are sometimes reluctant to foreclose on a home that is worth less than the debts. The home equity lender could be left with nothing after paying the primary mortgage off.
-
Avoiding Foreclosure
-
As soon as you realize that you are going to be late on a home equity loan payment, contact your lender. Explain your situation and ask if there are programs available to reduce your payment amount. Emphasize your desire to continue making payments so you can keep your home. If you are underwater, meaning your home is worth less than the sum of your mortgage and home equity loan balances, mentioning this can make the lender less likely to initiate foreclosure because the process is unlikely to settle the full debt. In this situation, the home equity lender is more likely to work with you to try to arrange a suitable payment schedule.
Before Borrowing
-
If you have not taken out a home equity loan yet, consider the possibility of foreclosure before borrowing. Create a household budget that includes the home equity loan payments. If you are thinking about getting a home equity line of credit, consider not only the interest payments, but also the principal payments when the loan shifts into that stage. If you can't afford the payments, you could lose your home. It might be more advantageous to wait and save up money instead of borrowing or to borrow using an unsecured form of credit that won't put your home at risk.
-
