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HELOC is a secured loan, secured by your home. that’s why it requires an appraisal, and you can write off the interest on your taxes.
Unsecured loans carry a higher interest rate. I wonder, what is the interest rate on a VISA vs. on a HELOC.
LookOutBelow,
The “homestead” document that some people file at the county recorder will not prevent them from losing their house.During the BK proceedings…….. errrrrrrr fraud attempt,the lender will file a “Relief From Stay”.More often than not the lender will be granted a relief from stay,and the foreclosure process will start or continue from where it was stopped by the BK filing.
The reason that a lender would be granted “Relief from Stay” is due to the homeowner not doing what they are required to by BK court,or not HONORING their court approved plan to get themselves out of bankruptcy(what a surprise……..).
aguho
They will lose their house. HELOCs are secured by the home, either by a deed of trust or a mortgage, depending on the state.
Under federal law, if the debtor cannot pay the creditor gets the house, and the debtor gets whatever is left over after sale expenses and loan payoff. Court proceedings can delay but cannot cancel the debt. To get out of it, the debtor would have to prove that the lender did not provide certain required disclosures under federal law (rescission, Reg Z), or qualify under various state laws. But the vast majority of people have no valid legal claims.
I believe CA does have a law cancelling overages. I.E., if the person ended up owing more than the house was worth, all the creditor would get was the house. I’ll have to look it up. A couple other states have statutes highly favorable to homeowners in this situation.
Paradoxically, a homeowner in way over their head (more loan than house value) might do better with a second-lien home equity or HELOC. You normally need to be under 10% or so. The creditor might deal because the first mortgagee is going to get almost everything, so it is better to work something out to get more on balance.