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Traditional Unsecured Credit to a HELOC???

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    Traditional Unsecured Credit to a HELOC???

    Home Equity Line of Credit (HELOC)

    I was informed today that someone close to the family had a strange situation with a credit card company.

    #1) Roughly 10 years ago, this person took an "unsecured" line of credit (credit card) at X% less than $8k I believe from a mid-tier company that I've never even heard of before.

    #2) Then, roughly 5 years later, this person was called by the original line of credit issuer to inform them that their balance and X% was absorbed by another company, which I've never heard of either. The new company later then called this person to inform them that if this person wanted to keep the low interest rate, they would have to send a simple letter via fax stating they would approve the line of credit balance as a Home Equity Line of Credit (HELOC), line of credit. (Just a simple letter faxed, and not even requiring both parties' signatures documented on the home mortgage note on the faxed letter or any additional information. How could they even determine if there was even equity in this person's home?)

    #3) Then, roughly 2 years later a major bank absorbed the balance of his line of credit and issued this person a letter stating that his "unsecured" line of credit was now under their administration, never mentioning Home Equity Line of Credit anywhere in their communications, or any reference to the term "secured" line of credit.

    My question is how could #2 take place without consent of the mortgage lender and the signature of both parties on the home loan note?

    Is it common for an "unsecured" line of credit to be classified as a "secured" line of credit (HELOC) by a simple letter being fax to a company absorbing an "unsecure" balance?

    And, what are the legal obligations of a financial institution to reclassify an "unsecured" line of credit balance to a "secured" line of credit balance?

    I found the story to be quite odd, and looked up HELOCs online and one of the first requirements was an appraisal of the property and many formal procedures to even conclude the award of a HELOC.

    Was it a bluff attempt by the company in the #2 comment? Is there such an animal as a home equity line of credit that's "unsecured"? I don't get it.

    Any input is highly appreciated.

    #2
    Just to add this person is filing Chapter 7 and has included the above in their "unsecured" line of creditors as the statement from the major bank stated "unsecured" credit absorption.

    The attorney also stated to review X website online to check for any possible leans on the property and none were found.

    How should one read into this?

    Comment


      #3
      Leans = Liens

      Comment


        #4
        Then it is still unsecured, and was never a HELOC. Maybe the company in #2 was attempting to have them apply for a HELOC to pay off the unsecured loan, but that is just a guess.

        Originally posted by lmaosm View Post

        The attorney also stated to review X website online to check for any possible leans on the property and none were found.

        How should one read into this?
        Get mortgage modified: DONE! 7 months of back interest payments amortized, payment reduced over $200/mo
        (In the 'planning' stage, to file ch. 13 if/when we have to.)

        Comment


          #5
          Yeah, only an informal letter was faxed as requested by company #2. I believe it was a bluff.

          I understand to classify for a heloc one has to include:

          *Copy of the original bank note

          *Copy of the house title

          *Signed Right of Rescission document by both parties on the title

          None of that took place.

          Comment


            #6
            "My question is how could #2 take place without consent of the mortgage lender and the signature of both parties on the home loan note? "

            A HELOC normally wouldn't require any consent from the senior mortgage lender, since it's going to be in a junior position.

            The people named on the mortgage note are not necessarily the same as on the deed. Only those named on the deed would need to authorize the HELOC using the property as security.

            While the applications and paperwork are normally streamlined compared to a traditional first mortgage, the necessary paperwork to attach a HELOC to a property should be more substantial than a simple faxed paper.

            Check with your state's Registry of Deeds to find out what's been attached to the property. It's often online and easy to access.

            Comment


              #7
              I agree with you in that a simple faxed informal letter should be able to legally evolve an "unsecured" loan (credit card) to a heloc.

              Thanks for your input.

              Comment

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