What to Do About a Suspended HELOC?

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A suspended HELOC or home equity line of credit occurs when a lender prevents you from drawing against your line of credit. This can occur for a number of reasons. Regulation Z allows creditors to freeze or suspend HELOC accounts under certain conditions including: the value of the home decreases to a level below the credit limit or changes to the borrower's finances renders them unable to pay future payments against the loan or the consumer is in default of the payment arrangement. Steps must be taken by the borrower to reinstate the HELOC.

Review

  • Review the reason for suspension. Contact your lender and discuss the reason for suspension. The only legal reasons for suspension are decreased home value, decrease in borrower's finances that limit the ability to repay and default. You will receive notices of the lender's intent to freeze your account and why. It is important that you understand why your account is being frozen so that you can remedy the situation quickly. You also need to ensure that you have not been a victim of unfair credit practices, such as discrimination or deceptive practices, which are prohibited by law.

Reverse

  • Reverse the circumstance that caused the freeze or suspension. Regulation Z requires a creditor to reinstate the HELOC under its original terms if the reason for suspension is no longer valid. This means that if the borrower brings the loan out of default, the income levels are raised back to where they were originally or the home's value increases, the HELOC can be unfrozen. You can obtain a second job to increase your income, make renovations to your property to increase its value and make payments to cure any defaults.

Reinstate

  • Request reinstatement. You cannot depend on the lender to monitor your situation and automatically reinstate your HELOC after you have addressed the open items. You must make contact, generally by phone, and ask that the HELOC be reinstated. The loan officer will review your file and reinstate the loan if all the conditions have been satisfied. While lenders can charge a reasonable fee for the loan reinstatement, Regulation Z prohibits the lender from levying a fee for this service after it has been determined that the original condition no longer exists.

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